So virile, he did chinups with his hands backwards. IN A SUIT
George Steinbrenner died last month. Although he was the stereotype of the stuffy, autocratic tycoon, that stereotype’s validity is now as dead as The Boss himself.
Steinbrenner came from wealth – relatively modest wealth, compared to what he ended up creating. His father owned a shipping company, transporting ore and grain on the Great Lakes. Steinbrenner fils succeeded in the family business before expanding into sports. If you’d ranked the Major League Baseball owners by net worth, Steinbrenner would have been a lot closer to the bottom than the top. Unlike his fellow owners, Steinbrenner’s income stream consisted of little more than the revenue generated by his team itself, and its ever-increasing franchise value.
The federal estate tax, which can be as large as 55%, lapsed on January 1. Steinbrenner died at the right time for his heirs to avoid having to possibly liquidate the franchise to comply with a backwards, outdated tax based more in jealousy than in economic rationale. Still, people including our political betters argue that concentrating wealth in the hands of the Steinbrenner clan is somehow obscene and maintains the folkloric gap between rich and poor.
Well, what’s the alternative to letting dead people turn their wealth over to their children? There are two:
1) Evaporate the wealth. Destroy it. Flood the gold mine, unlock the doors on the sporting goods store, set the car dealership on fire after cancelling the insurance policy.
2) Hand the wealth over to the appropriate bureaucrats in the federal government.
Again, an important distinction with a huge difference: “the government” is not just an amorphous entity that inhabits stately marble buildings, denies you access to certain empty plots of land and gives you a convenient address to send your taxes to. It’s comprised of people. A rich dead man’s wealth that succumbs to the estate tax doesn’t go to “the government”, it goes to particular people. Who then mete it out to other people. Whether any of those people are entitled to said wealth isn’t the issue here: the important thing is that the recipients and transfer agents of this forced largesse are humans with prejudices and biases.
There are plenty of characteristics that distinguish America from a world full of lesser countries (four-down football, the Imperial system of weights and measures, Hamer guitars, Holly Halston, bison, the republican form of government, concealed possession of firearms, the Amazon Kindle, etc.) But one that’s taken a hit in recent years is the absence of class envy. Ten years ago, the only place you could find resentment of rich people was in the sociology department at the University of California’s main campus. Wealth was something to aspire to, not to begrudge.
That was before the lines between the political class and the financial class blurred. Put a former Goldman Sachs chairman in charge of the Treasury Department, give him unfettered access to taxpayer money, let him funnel it to men who run corporations of sufficient size and political bent, then defend it with one of the most ludicrous statements issued by a president (:28), and it’s easy to see how rank-and-file taxpayers might get resentful or at least suspicious. Especially given that this miscarriage was perpetrated by the political party that ostensibly stands for small government. The subsequent and current administration doesn’t even bother to mouth such ideals, and can afford to be more dogmatic. And reactionary. And confiscatory.
The argument for the estate tax is that wealth shouldn’t be concentrated in a few hands, or we’d end up like Mexico, where conventional wisdom states that only 150 families or so own almost all the means of production.
But isn’t that just a judgment call? Say Larry Ellison died tomorrow (we chose him instead of Bill Gates or Warren Buffett, because Ellison is the richest guy on the Forbes 400 who hasn’t gone public with his intention to will most of his wealth to someone other than his kids.) Ellison is worth ~$27 billion, contingent on what Oracle stock did today. He has two kids and a (fourth, childless) wife. The wife presumably signed a prenup the size of Mount Whitney.
Is three heirs too few to enjoy Ellison’s wealth? If the answer’s “yes”, then how many should share in Ellison’s estate? All 300 million of us? Or the few thousands who would benefit indirectly were IRS agents to take $14.85 billion of that to distribute as they see fit?
It’s relevant, so perhaps we should mention that the author has no pig in this race. Nor does he believe that rich people are entitled to any fewer of the freedoms that middle-class and poor Americans accept as their birthright. The establishment and continuance of the estate tax puts government workers and legislators in charge of deciding who gets what. They might even be adept at this, that’s not the point. The point is that they should have no more right to award wealth than the person who created said wealth.
If Ellison dies on January 1, 2011, when the estate tax will presumably be reinstated, his heirs will be forced to sell controlling interest in Oracle. Which could mean the company’s eventual direction will fall in the hands of people without Ellison’s vision. Maybe irrationally motivated corporate raiders, maybe the agents of the federal government itself (why not? Go dig up General Motors founder Billy Durant and ask if he ever envisioned taxpayers “buying” his brainchild.)
The estate tax leaves us with perverse incentives. It can discourage family-run businesses from reinvesting profits, if doing so only will only accelerate the company’s eventual disassembly. This isn’t just a problem for Sam Walton’s kids, either. Almost all American farms are owned by families. You know, agriculture – the one indispensable industry that all the others derive from. The Department of Agriculture’s own employees – federal teat-suckers all – admit that as many as 10% of farms could soon fall victim to the estate tax.
But farmers aren’t rich. Why would they have to pay the estate tax?
They have to own a ton of capital to turn a profit. Farming is about the most labor-intensive, capital-intensive business there is. And the most critical.
More to the point, estates have already been taxed throughout their existence. It’s not like George Steinbrenner wasn’t sending tens of millions of dollars to the IRS every year to maintain his wealth in the first place.
Sure, Larry Ellison’s kids had no hand in creating his wealth. If that’s the criterion for deciding who doesn’t deserve it once he’s gone, who does deserve it?
**This post is featured in Tax Carnival #74: Labor Day 2010 Edition**
