Members Only | December 17, 2021 | Reading Time: 5 minutes
New report reveals a century-old aristocracy incompatible with democratic flourishing. It should be undone with 100% estate tax
The sovereignty of the dead.
The United States was founded on the idea of freedom by equal rights, not freedom by bloodline. But that has not stopped the super rich from creating what can only be called an American aristocracy. So much of our politics is shaped by a few hundred families, the .01 percent. Many of them can trace their wealth and power to the late 19th century.
This week, ProPublica posted a barn-burning report on fortunes amassed by the robber barons of old that are still going strong, generations later, in the 21st century. That’s thanks to a federal tax code designed and maintained in large part by these feudal lords, whose sons and daughters, and institutions, define politics, even what constitutes private property rights and whose job is to protect them.
“The eternal inheritance of great wealth, even the growth of it, perpetuated by the state no less, because it is the job of the state to enforce property rights and transfers, is feudalism in disguise. Some of these tax avoidance schemes – dynasty trusts – actually make trust fund beneficiaries immune from certain laws, making them have a superior civil status simply in virtue of being inheritors of wealth.”
“The estate tax has eroded to the point that last year the estates of just 1,275 people in the whole country owed the tax — down from a peak of 139,000 in 1976 — despite historic amassing of wealth by the very richest,” according to the report, “The Great Inheritors: How Three Families Shielded Their Fortunes From Taxes for Generations.”
To understand the ideas behind the making of this aristocracy, and how it imperils any common sense notion of democracy, I got in touch with Barry Lam. He’s a professor of philosophy at Vassar College. He produces and hosts “Hi-Phi Nation,” a podcast about “philosophy in story form that integrated narrative journalism with big ideas.” We started with the ProPublica report. I ask him for his big takeaway.
Barry Lam: It should be not that tax law is trying to keep up with tax avoidance, but that tax law is in many ways designed for tax avoidance. Byzantine tax laws exist to benefit those who designed it and those with lawyers and estate planners clever enough to shield money. This has been going on since at least the end of the 19th century.
John Stoehr: Explain why this is a problem.
BL: I like to explain this by analogy to nature. Imagine 10 squirrels and through sheer might and force, one of those squirrels happens to amass a hoard of nuts in his lifetime, while the other nine scramble to survive. We can debate until dawn whether this is a just state of nut distribution. Maybe you think the super-hoarder deserves every last nut, because of their innate talent or might or social skills. But what happens when that one squirrel dies? Nothing their offspring did entitles them to those nuts more than anyone else. In nature, upon death, the resources belong to the commons. We can see how well the next generation divides things up by force or cooperation or whatever.
It would be bizarre to think it’s the job of those other nine squirrels to protect the hoard of nuts and see to it that they only do with the nuts what the dead squirrel wanted them to do, be it give it to their own offspring or whatever. It would be utterly insane if the other nine set up squirrel police and squirrel courts and squirrel prosecutors to enforce against each other the wishes of that one dead squirrel.
JS: The sovereignty of the dead.
BL: That’s one way to think about it. The other way is that we don’t live in feudalism anymore. We don’t think a person’s civil rights, political rights and economic rights in the world ought to be inherited and passed on in perpetuity. And we believe this for good democratic reasons. The eternal inheritance of great wealth, even the growth of it, perpetuated by the state no less, because it is the job of the state to enforce property rights and transfers, is feudalism in disguise. Some of these tax avoidance schemes – dynasty trusts – actually make trust fund beneficiaries immune from certain laws, making them have a superior civil status simply in virtue of being inheritors of wealth.
JS: What we’re talking about is almost literally an aristocracy, no?
BL: In some ways, it’s worse. The Propublica piece hinted at is the creation of nonprofit foundations. It’s a way of preserving not only aristocracy, but past aristocracy. It’s letting your money speak for you forever after death. We would never put up with this if a dead person insisted on voting. But the equivalent is happening in the spending of the dead person’s money in a trust on their political projects.
JS: Warren Buffett once said money is better spent through philanthropy than through government. That’s contempt for democracy, but you’re saying it’s more dangerous than contempt.
BL: Philanthropy can be good. Some of it can be better than the government. But it’s also unaccountable, and it’s also de facto inefficient. A lot of trusts put their millions or billions in endowments that invest in stocks, bonds, crypto, whatever, with about 4 to 5 percent, in a good organization, going to causes. And that doesn’t even get to whether those causes are in fact good or not. Billionaire philanthropy is growing money to ensure it’s large forever.
JS: ProPublica‘s report illustrated what’s done with the money. On the one hand Andrew Mellon’s heir covered 98 percent of the cost of building a border wall in Texas. On the other EW Scripps’ heir buys gold-plated AK-47s, private jets and “fleets of Lamborghinis.” So a dangerous ideologue on one side, a total degenerate on the other. Either way, the money isn’t spent for the benefit of the common good.
BL: Go back to the squirrel analogy. Those nine squirrels had the opportunity, and in actual nature will in fact, just collect those nuts themselves. None of us humans observing would think twice about it, we certainly wouldn’t think it was unjust. Now think about those nine squirrels watching the two children of that one nut-hoarder, one using all those nuts to build a border wall, the other to gold-plated AK-47s, and not only shaking their head, but actually helping and promoting and enforcing a system that permits that kind of thing, even thinking that any alternative would be theft of nuts from those who are entitled, namely the offspring of that one nut hoarder.
The way we think of property rights in this country, whether through indoctrination or otherwise, is just off the charts deranged. I’m criticizing the 90 percent here because we’re still in a democracy for now. These are our tax laws, our inheritance laws, we have complete say over them. But when I talk to people, the very first reaction is to think of a billionaire’s money as theirs to do as they see fit, because they own it, and to think of all inheritors as having the same rights to that property as the billionaire. That to me is like the nine squirrels sitting around hungry, trying to figure out what to do with the nuts of that one nut-hoarder, since it’s clearly wrong, to them, to take it.
JS: Put another way: The authoritarian drift we are experiencing in this country is being financed by the .01 percent, whose wealth is being protected by tax laws passed with the consent of the other 99.9 percent. In a democracy, we’re all responsible and complicit.
BL: I think so. What’s interesting about the intergenerational case that the ProPublica piece highlights is that no one can make a good faith argument that inheritance is a matter of earning. In what way does an offspring, or a fifth generation descendant earn anything as a matter of merit? Even the most ardent libertarians historically have had a very difficult time explaining why intergenerational wealth transfer is a reflection of merit, earning and justly acquired property rights.
Some of the most free market libertarians have, for instance, thought hard and concluded that there should be a 100 percent estate tax with all of the money distributed as a universal basic income. This is from people who hate taxation and have the highest admiration for ownership, markets, and keeping the government out of these things.
JS: I agree with the libertarians on that one.
BL: They’re thinking like actual squirrels.
JS: Thank you so much for your time.
BL: No problem. Thanks.
John Stoehr is the editor of the Editorial Board. He writes the daily edition. Find him @johnastoehr.