Rethinking Soaking the Rich 3

People smart enough to create vast fortunes, are smart enough to spend it wisely.

CNBC exultingly reports:

According to a new poll from Gallup, young Americans are souring on capitalism. Less than half, 45 percent, view capitalism positively...

Meanwhile, 51 percent of young people are positive about socialism.

Yes, that economic theory of taking from the haves to give to the have-nots which led directly to the deaths of somewhere around a hundred million people last century is now the wave of the future, or at least the ripple.  Or so we're meant to think anyway.

In reality, millennials have as little understanding of the reality of socialism as they do of using a folded dead-tree map: when socialism is presented to them concerning something they have and care about, namely their grades, the reject it with outrage.  What A student wants to instead receive a C so an F student can also have a C?  But that's the very definition of socialism: From each according to his abilities (to excel), to each according to his need (to pass)!

We don't think of our Founders as being socialists, quite the opposite: they fought a war against over-taxation in the first place.  But in the earlier articles in this series we've seen that, as much as they hated big central government and taxes, they hated hereditary wealth even more.

And it's true, a great many trust fund kids foolishly waste the loot their parents earned by decades of hard work.  While taking the money away from undeserving drunken inebriates who lucked out in the birth lottery would possibly improve the moral tenor of society, does giving all that money to the government, as the Left proposes, really improve anything?

Useful Government Spending

So let's imagine that a Democrat-style death tax works out as planned, and instead of rich wastrels spending it all, The People take it instead.

If a government were sensible, whatever revenues this new tax garnered would offset other taxes, allowing them to be lower.  This would be economically neutral, and since by definition the bulk of death taxes would be paid by the very rich, it would have the effect of lowering taxes on people of more pedestrian estate.

We all know that's not how government works, at least not ours today.  Consider the state of Connecticut, which used to have no income tax.  Over time, their property taxes became annoyingly high.  The solution?

In 1991, state lawmakers asked the residents of Connecticut to support a compromise: in return for an income tax, lawmakers promised to abide by a constitutional spending cap which would, they said, ensure fiscal responsibility.

Yeah, that didn't happen:

State government spending grew 71 percent faster than inflation between 1991 and 2014.

In the first three years after the passage of the income tax, the fastest growing area of spending was welfare, which saw a 30 percent increase over those three years. During those same years, the number of people living in poverty in Connecticut grew from 6.8 percent to 10.8 percent, which is where it stands today.

The end result?  Connecticut's government takes in far more money today than it did in 1991, spends even more than that, and is further in debt than it was then - with absolutely no social benefit to show for it, poverty having increased.

That's a solid reason why it's a bad idea to allow a modern government to ever raise taxes, much less create new ones: the money will not only be wasted, but will fuel even more borrowing and wasteful spending which will leave everybody poorer and worse off than before.

Does this torpedo the idea of a death tax to prevent hereditary dynasties of vast wealth - a good idea, for good reasons, but which will create more problems than it solves?  Not necessarily, because it's based on a completely fallacious assumption: that rich people are idiots who will make no changes in their behavior if the tax laws change.

Decisions, Decisions

It's inherent to human nature for parents to want to pass on what they have to their children.  Sometimes that's merely a tendency to pimples and bad teeth.  Other times, it's a great estate, a vast fortune, or even an entire country.

This isn't so bad if the heir is actually competent to handle the inheritance, as Donald Trump proved to be with his father's "small loan of $1,000,000."  Alas, history shows that the aging titan rarely says, "You know what?  My son's a complete moron.  I'm leaving it all to my cousin's grandkid instead, he seems pretty sharp."  Instead, you end up with a Caligula, a George III, or even modern China's "Little Emperors" that make a mockery of the People's Republic.

Our Founders believed that it was essential to avoid this problem, not by confiscatory taxes on earned income, but if necessary by heavily taxing inherited income.  A rich man's kid is always going to have all kinds of advantages anyway, he doesn't need a vast fortune handed to him on a platter as well.

But they didn't anticipate that the government would actually collect these vast fortunes directly - and for good reason.  By definition, a self-made wealthy man is aware of which end is up financially.  What prudent, successful person is going to work hard all his life only to let his wealth vanish into the maw of Uncle Sugar?

Even at the height of the Gilded Age, rags-to-riches plutocrat Andrew Carnegie trumpeted that this was a bad idea.  In his famous article "The Gospel of Wealth," he argued that rich people had a responsibility, at the end of their lives, to apply their experience, contacts and managerial skills to disposing of their fortunes in a way that benefits the people.  He himself chose to dispose of his fortune by founding hundreds of free libraries all around the world.  History shows that this turned out to be about as pure a way of benefiting people as can be imagined.

Carnegie, like many of our Founders, believed in estate taxes to be applied at death:

By taxing estates heavily at death the State marks its condemnation of the selfish millionaire's unworthy life. It is desirable that nations should go much further in this direction.

But he didn't intend that rich people like himself should end up actually paying those death taxes.  He viewed them merely as an encouragement to the wealthy, to wisely get rid of their money while still alive to watch over where it went.

The man who dies thus rich dies disgraced.

 - Andrew Carnegie

And that's key: all too many conservative wealthy people created permanent foundations to carry on their beliefs, but after many decades, those foundations use their fortunes to promote the exact opposite of what the founders would have wanted.  Henry Ford, for example, would today be a member of the alt-right: his anti-Semitism was notorious and anti-unionism even more so.  Yet the modern-day Ford Foundation is an pillar of the modern far-left establishment, as Wikipedia explains:

The Ford Foundation is one of the primary foundations offering grants that support and maintain diversity in higher education with fellowships for pre-doctoral, dissertation, and post-doctoral scholarship to increase diverse representation among Native Americans, African Americans, Latinos/Latinas and other under-represented Asian and Latino sub-groups throughout the U.S. academic labor market.

Henry Ford himself, if he'd known what his money would be used for, would rather have burned it all up in a massive bonfire.

Of course, we neither need nor want a billion-dollar foundation whose purpose is to promote the infamous anti-semitic forgery Protocols of the Elders of Zion, which Henry Ford paid to have published in the U.S.  Perhaps a more pleasant example is Joseph N. Pew, the 19th-century founder of what became Sunoco.

During his lifetime, as a faithful Christian and devoted Presbyterian, he contributed generously to many religious works and charities, most notably Grove City College.  GCC has a special place in conservative history as one of the handful of colleges which entirely refuse all Federal government grants, loans, or other funds, and as a result are entirely immune to Department of Education regulations like Title IX.  They made this choice after losing a lawsuit at the Supreme Court which decided that Federal student loans did, in fact, grant Federal government control of the college to whatever degree the federal bureaucrats decree from time to time.  Nearly unique in the history of charitable recipients of capitalist largess, GCC holds true to the beliefs and principles of Mr. Pew.

Unfortunately, most of his wealth was inherited by his sons J. Howard Pew and Joseph N. Pew Jr., who while being worthy successors in the Sunoco executive suite, chose to create the Pew Charitable Trusts.  As with the Ford Foundation, the modern-day Pew Charitable Trust espouses political causes ranging from neutral to leftist:

The modern day organization works to encourage responsive government and support scientific research on a wide range of issues, including global ocean governance, correction reform, and antibiotic resistance... The Trusts' public policy areas include the environment, state policy, economic policy and health and human services.

The Pews might not be so furious about what their money is being used for as Henry Ford - concern for antibiotic resistance is a legitimate scientific issue - but they certainly wouldn't be ecstatic either.  Indeed, aside from their specific actions, these giant foundations give great power to the Left simply by existing.  Like public colleges, they provide well-paid sinecures for leftist academics, journalists, and politicians to drop into when they run into trouble in the real world.

Indeed, as we noted ten years ago, the Pew Charitable Trust sponsored propaganda to reduce oil usage.  That's right - Joseph N. Pew made his fortune in the oil business, and a century later, his money is being used to agitate against the very business that created the fortune in the first place!

Controlling the Past, Present, and Future

So far, we've seen that our Founders identified a very real problem - unearned inherited wealth - but didn't come up with a satisfactory solution.  Just letting rich people leave their fortunes to their kids eventually leads to an incompetent and uncaring aristocracy who brutalize the masses and bring about violent revolution, which nobody wants, not even the abused masses.  Taxing it is worse than flushing it down the toilet because the sudden windfall leads to a permanent increase in government programs that will be paid for later by increased debt or higher taxes.

The knowledge of the impending estate taxes, and the disappearance of their hard-earned wealth, drives plutocrats to shield their wealth from the taxman by hiding it in a charitable trust.  This sounds like a good idea, and might even have had appeal to our Founders.

Two centuries on, we know what they could not have: those charities move inexorably leftward, using the money for purposes that would have been anathema to their original earners.  Surely the Founders would have found that morally repugnant, and we certainly do ourselves.

In the last article in this series, we'll examine one more possible solution to what is clearly a far more difficult problem than it first appears.

Petrarch is a contributing editor for Scragged.  Read other articles by Petrarch or other articles on Economics.
Reader Comments

You said "What A student wants to instead receive a C so an F student can also have a C?".

Let me try to redefine the problem, which is what I think today's students believe in: The lousy student receives a D, and the top student is given a B. They want a better safety net... they will probably never be content, but want that redistribution to the poor.

That way, the recipients are kept in an underclass, always fearing they can sink to that F if redistribution isn't there. And the top students are in debt to Big Brother, who can make them or break them down further. Maximize the captive voters, not the equality.

These somewhat dim students think they can be like Sweden, not like those totalitarian dictatorships. They think "socialism" means no more than a formal system of caring for poor people, and think "capitalism" means everybody is like Ayn Rand. Remember, these are students of public schools, so don't judge them too harshly. Their education is just woefully incomplete.

March 24, 2019 7:57 PM

@M.Johnson -

remember, these students, as victims of the leftist indoctrination system, are not really dim; they are, as U said, just uneducated. one might even think of them as cavemen in regards to their ability to think about society and politics in society. there were without a doubt geniuses who lived among our primitive ancestors of the distant past, but none of the intellectual tools provided by civilization had yet been invented, so were they around today, their understanding would likely be like that of the best of today's students.

the solution is *real* education, but that will take a cultural turnaround to effect, and under the current circumstances, it is unlikely. if intelligent - but uneducated - people pay attention, perhaps the collapse of eurabia into civil wars and chaos (no doubt abetted by turkey and iran, and perhaps saudi barbaria) will open their eyes, make them question what hard-core leftist liars have told them, and give us a few more decades of peace here in the u.s. with those decades, however, i see civil war coming to us as well.

March 27, 2019 4:26 PM

These students have been educated in the history of Woodrow Wilson and Howard Zinn. They are only doing what they were taught.

March 28, 2019 2:35 AM
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