The danger of dynastic wealth
National Economic Council Director Gary Cohn, former president of Goldman Sachs, said recently that "only morons pay the estate tax."
I'm reminded of Donald Trump's comment that he didn't pay federal income taxes because he was "smart." And billionaire Leona Helmsley's comment that "only the little people pay taxes."
What Cohn was getting at is how easy it is nowadays for the wealthy to pass their fortunes to their children tax-free. And therefore why no one should worry about getting rid of the estate tax, as Trump and Cohn plan to do.
Actually, there's good reason to go a step further by raising and expanding the estate tax.
Right now, the estate tax applies only to estates worth about $11 million per couple. Wealthy families stash money above this about into "dynastic" trust funds that escape additional taxes.
No wonder revenues from the estate tax have been dropping for years, even as wealth has become concentrated in fewer hands. The tax now generates about $20 billion a year, which is less than 1 percent of federal revenues. And it applies to only about two out of every 1,000 people who die.
There's another part of the tax code that Cohn might also have been referring to, where revenues have been dropping -- capital gains taxes paid on wealthy people's stocks, bonds, mansions and works of art when they sell them.
If the wealthy hold on to these assets until they die, the tax code allows their heirs to inherit them without paying any of these capital gains taxes. According to the Congressional Budget Office, this loophole saves heirs $50 billion a year.
The estate and capital gains taxes were originally designed to prevent the growth of dynasties in the U.S. and to reduce inequality. They've been failing to do that. The richest one-tenth of 1 percent of Americans now owns almost as much wealth as the bottom 90 percent.
Many of today's super-rich never did a day's work in their lives. Six out of the 10 wealthiest Americans alive today are heirs to prominent fortunes. The Walmart heirs alone have more wealth than the bottom 42 percent of Americans combined.