Robert Reich is professor of public policy at the Richard and Rhoda Goldman School of Public Policy at the University of California, Berkeley. He was secretary of labor in the Clinton administration.
Before your good senator pulls the plug on the estate tax—and keep an eye on him or her this week and next—consider this: the earnings of nearly everyone used to rise with rising productivity. That’s no longer true. Today’s workers are 24 percent more productive than they were five years ago but their median real earnings have barely budged.
What’s happened to all this extra value? A big chunk has gone to people earning over $1 million a year—mostly CEOs, investment bankers and hedge fund managers. This past year, 25 hedge fund managers each took home at least $130 million. Henry Paulson, our about-to-be Treasury Secretary, pocketed over $30 million. Average CEO pay back in 1966 was 60 times that of the typical American worker. Now it’s 400 times. Exxon’s former chairman just got a thoughtful retirement package of close to $400 million.
Wealth is even more lopsided than income. Henry Paulson’s net worth of more than $700 million doesn’t even earn him a place among Forbes richest 400 Americans. You have to have at least $900 million to get there. Most are billionaires.
What does this mean for the nation? Thirty years ago, the richest 1 percent owned less than a fifth of America’s wealth. Now, according to a recent report by the Fed Reserve Board, they own more than a third. Not since the days of the robber barons of the 19th century have we seen this much wealth concentrated in so few hands.
Super-rich couples can now pass on $4 million to their heirs tax-free. Anything over $4 million is taxed at a 45 percent rate. Why, exactly, is it so important to repeal the estate tax altogether? Repeal will cost the Treasury nearly a trillion dollars in its first 10 years—more than the entire shortfall in Social Security. That means more federal debt or higher taxes on the middle class.
Those who argue for repeal say the estate tax discourages entrepreneurs. What? Passing on $4 million tax free to your kids is not enough incentive?
Talk about discouraging entrepreneurship. Repeal the estate tax and within a few decades control over America’s productive assets will be in the hands of non-productive Americans who never lifted a finger in their lives except to speed-dial their financial advisors.
People who inherit great wealth just because they’re lucky enough to have super-rich parents don’t have any particular incentive to be entrepreneurial. They don’t have any particular incentive to do anything. Giving them control over the American economy is like giving control over a Boeing 777 to teenagers with joysticks.
According to a new report from United for a Fair Economy, 18 families worth a total of $185 billion have financed and coordinated the repeal campaign. They’ve underwritten the massive PR drive that fooled most Americans into thinking the estate tax was a "death" tax that would fall on them. They posed as small businesses and family farmers, saying their livelihoods would be threatened unless the tax were repealed. In fact it’s hard to find a small business or family farm with an estate valued at more than $4 million.
Most of these 18 families have been wealthy for decades. Only five of them include any of the people who first earned the family fortune. If they succeed in their repeal campaign, they’ll save a total of $71 billion on their tax bills. That’s a healthy return on their investment in politics. Maybe you call this entrepreneurship. I call it further proof of the danger of concentrated wealth.
Editor's Note: This piece originally aired on the public radio program Marketplace on June 7, 2006.