The American Aristocracy

Oh dear GOD not another Paris Hilton story! Fortunately, no, this is not about Paris, but the ensuing attack on the wealthy. Several of my recent conversations have lead to laughter about one of the über-rich finally getting what they deserve. Those conversations usually end with someone saying that no one deserves to be that rich.

Recently, the discussion board over at Dan Carlin’s Common Sense podcast has gone back and forth over the Estate Tax.(adult language warning)

The founding fathers, having just thrown off British rule, were very much against an aristorcatic class and inhereted wealth. The fear is that if a massive fortune is allowed to accumulate in one group, that group will be able to buy influence in the government. This is readily seen today with lobbyist funding. The average American does not have access to this kind of wealth, and can’t compete in funding the candidates that would more serve their causes. Many laws have been written to curb this activity from campaign finance reform to limits on lobbyist expenses and gifts. Many of these laws, I predict, will be easily overturned as violations of the 1st amendment. In Oklahoma, for instance, it is illegal for any one party to donate more than $5000 to an individual candidate. But if I had $10,000 laying around to donate to a candidate of my choice, it has been argued, that is my right.

We keep trying to pass those kinds of laws just to prevent the American Aristocracy from having the control over the government that our Founding Fathers distrusted so. When O.J. Simpson was found guilty, he got another trial. He didn’t get the decision reversed in appeal, he flat out got another trial. George Soros and his money are buying all kinds of candidates in Washington. There is no doubt that their money has bought them privelege. That is the foundation for the disgust.

As early as 1797, congress enacted the first version of an estate tax, The Federal Wealth Transfer Tax, to fund an undeclared naval war. In the 1940’s the US passed FDR’s 90% income tax bracket on millionaires. That has been lowered to 35%. And the modern Estate Tax has been around since 1916. Yet, we still have Rockefellers, DuPonts, Kennedys, and of course, Hiltons. Why is that?

Because the way wealth is manipulated has changed. The modern American-Royalty member doesn’t own a thing. The family wealth is tied up corporate funds, distributed through figurehead positions within the corporations. Technically, Paris’s parents will die penniless.

You on the otherhand, most likely do not possess such wealth. It is well within the means of the average family, through hard work and frugal living, to accumulate $2 million dollars for retirement in today’s economy. As it stands now, $2 million is the lower limit for the estate tax. So, if you die with that amount in your coffers, your estate will be subject to the tax.

Let me interject here by pointing out that I don’t suffer from class envy. I don’t wish to redistribute the wealth of anyone. I hope someday to have made wise enough investments to be counted among them. I completely disagree with the founding fathers that wealth is inherently corrupt. I believe congressional term limits would go a lot further to prevent a “bought and paid for” government.

That said, the biggest problem with the estate tax as it stands is the way we assess the wealth of an individual. How do you assign a dollar value to a company position? Do you multiply the salary of that position by the number of years that person is expected to hold that position? How do you tax a foreign investment held by a corporation as income of an individual? Seems the simplest way would be to divide the net worth of the corporation by the number of board members and tax them accordingly. Of course that only works if the token position is on the board. It will take someone much more educated in these areas than I to find the solutions, but if we ask the right questions, I’m confident it can be done.

The other problem is a set dollar amount for the brackets. The bracket for the modern estate tax was initially set at $50,000 ($850,000 in today’s dollars). It has risen over the years to the current $2,000,000. However, having set at an exact dollar figure means that it always lags behind inflation. If you were to set it at $1 Billion dollars, within thirty years, a $billion would be the requirement to live comfortably in retirement. Instead, it should be set based on an index of inflation or a current value standard (gold index), anything that reflects the flexibility of the economy. For instance, gold is going for $645/oz. right now. Congress is considering raising the lower limit of the estate tax to $4million. If instead they set it at 62000% of the market value of gold, then thirty years from now when gold is worth $1000/oz., the bracket would automatically rise to $6.2 million. I’m not suggesting we use the gold standard, I’m just using it as an example.

Until those two things can be done, the death tax is wrong.

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