Why You Should Care

Let me cut to the chase. This posting is about Estate Taxes, known in the tax world as Transfer Taxes, or called by either dim or conspiring Conservatives as The Death Tax. It is also a posting about how you can know something about your world and still not have a conceptual understanding of it.

We all know there is a concentration of wealth in the United States. Historically there has always been a small wealthy class and such has been no different in other countries around the world. Yet the subject makes news, mostly in the liberal intellectual circles, and for good reason.

It is perhaps the single most destructive condition that can beset growth in a modern economy and undermine democracy as a viable social structure.  If wealth inequality in America was a cancer, we are now at stage 4.

Politicians pander to it from different directions. Economists and authors address it to a limited audience. People like Bernie Sanders try to elevate it to the level of a populous revolution.  For the most part all of this is ignored by the vast majority of Americans.

Statistics regarding this concentration float about somewhat. A common one, for example, claims that 40% of all private assets in the United States are owned by 1% of the population. Another is that the bottom 80% of the population own 15% of the Nation’s wealth.  Although the numbers may vary slightly, there are none that contradict the vast disparity or the general accuracy.

In an attempt to confuse the issue the subject is often misdirected (by interested parties and media alike) to differences in published rates of income, where the disparity is around one-tenth as extreme. Income minus expenses is the engine of wealth accumulation, but, as is commonly known; most wealth is accumulated by “income” that never sees the light of day, statistically speaking.

Whenever you hear wealth disparity described in terms of income either you or the source have been led astray.

My befuddlement relates to why these blatant facts are so meaningless to a majority of adults in America?  Even most of those few who see the extreme nature of the inequality are neutral as to the problems created therein. What are the problems? Immense.

They include stagnation of economic growth, disenfranchisement of the working poor, undermining of democratic rule, formation of oligarchies, increase in class dependencies, and international policies that are not representative of the nation as a whole…to name a few.

However, the affects are the subject of another post. Here I want to look at the why in the question why don’t people care, and the how in the question how can we make it better.

Most Americans, say 90% (just a guess on my part, could be bigger), live in a world of 5s, 10s, and 20s. Whether it is the person who lives with assistance, who works paycheck to paycheck, or who lives comfortably without financial fear, he or she moves through their fiscal life with numbers they can understand.

The use of money is conceived in multiplies of what one can actually hold in their hand. Children are still taught about finance with coins placed in their grasp. A $10,000 windfall is a big deal.  It doesn’t matter if generations affected by inflation view the cost of a tomato differently; it is still understandable, despite how inflation may impact behavior.

What people don’t understand is hundreds of millions of dollars, or billions, or trillions. These numbers are a conceptual black hole for everyday Americans and therefore are not calculated into how we intellectually or emotionally view the world.

Bernie Sanders consistently makes reference to the Billionaire Class without giving it much definition. I define it as individuals with over $200 million in net assets that have relative liquidity.  I do so because I feel that number is a point in which the number itself loses all meaning to the average American. It could be more or less, but no matter.  There is no rational association the average American can make with someone who controls that kind of wealth...and the wealthy know it.

You know the truth when you hear Americans of limited means honestly argue that the wealthy are “the jobs creators”, that they pay “more than their fair share of taxes”, that addressing the issue is “class warfare”, that they achieved their great wealth from “hard work” (as if they dug it from the ground), that they are burdened by “Government regulations”, that Government spending is un-American, or that the only answer to national concerns like education, health care, or even the military is the “free market”. These everyday Americans cannot assimilate the wealth of those they are unwittingly defending. They are sadly duped.

How in this muddled mess can we change things? There are many ways to begin to tilt the nation toward greater equality and, as a side effect, greater prosperity… too many to cite here. The one I want to address is by far the best, because it, over time, redirects assets based on the obscene accumulations themselves.  It is Transfer Taxes (aka Estate Tax, “Death Tax”, Gift Tax, Inheritance tax).

These Transfer Tax laws currently affect less than one-tenth of one percent (>0.001) of Americans.  You’re not even in the game until your taxable net worth is over $5.3million (twice that for couples). However the tax laws are extremely complex and over the years modifications (aka loop holes) have been built into the law allowing the tax to be dodged in part or entirely. Current revenues from Transfer Taxes amount to less than three-tenths of one percent (>0.003) of the Federal Budget.

If you are an ordinary American citizen and want to make one small step in the right direction, support those who advocate rigorous Transfer Taxes.  Leave or even increase the current starting level of taxation ($5-10 million), but tax rates should rise above that to total taxation of 50 to 75% or more.  Your individual with a billion dollars in net worth would leave his/her heirs to struggle along on say $300 million.  Are you kidding me? There is no argument here, just a lack of conceptual understanding.

This is not injustice.  The “system” in the words of our current billionaire leader “is rigged”, and has been for at least the last 50 years. It’s been rigged for a selective few (including him) and redistribution into spending for the benefit of the nation as a whole is in order. The revenue from those transfer taxes could, for example, cover the cost of healthcare for the entire nation for decades and beyond.

Think about that the next time you pay a health insurance premium or forgo health care due to cost; while Trump and his family pay for concierge doctors from the money they find in their sofas. Perhaps that's something you can understand.