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Sunday, April 02, 2017


Why we have an inheritance tax

by Tom Sullivan

Inheritance taxes date back to ancient Egypt, according to several sources. The earliest of several short-lived inheritance taxes in the United States date back to its founding, the last of those being rescinded in 1902. The Internal Revenue Service explains what happened next:

The years immediately following the repeal of the inheritance tax were witness to an unprecedented number of mergers in the manufacturing sector of the economy, fueled by the development of a new form of corporate ownership, the holding company. This resulted in the concentration of wealth in a relatively small number of powerful companies and in the hands of the businessmen who headed them. Along with such wealth came great political power, fueling fears over the rise of an American plutocracy and sparking the growth of the progressive movement. Progressives, including President Theodore Roosevelt, advocated both an inheritance tax and a graduated income tax as tools to address inequalities in wealth. This thinking eventually led to the passage of the 16th Amendment to the Constitution and the enactment of the Federal income tax. It was not until the advent of another war, World War I, that Congress would enact the Federal estate tax.
Winston Churchill observed that death duties are “a certain corrective against the development of a race of idle rich.”

The topic comes up this morning on the news that Donald Trump's 36 year-old son-in-law, Jared Kushner, will oversee a White House Office of American Innovation to "overhaul the federal government" and "fix government with business ideas." The government desperately needs this, Stephen Colbert quipped, because "somebody keeps putting totally unqualified people in charge of really important stuff."

"The government should be run like a great American company," Kushner told the press. His "SWAT team of business executives" (Washington Post) will, Matthew Norman of The Independent snarks, "apply the commercial mores that have done so much for US wage growth and job security." Perhaps Kushner will also sort out the Israel-Palestine question on his lunch break.

Kushner, as Colbert points out, was born into a wealthy real estate family and married into a wealthy real estate family. He got into Harvard "despite poor grades" the same year his father donated $2.5 million to the school and made "similar one-off donations to Cornell and Princeton." This makes him well-prepared to teach America how to pull itself up by its own bootstraps. To advise the Office of American Innovation, Kushner has recruited "Apple chief executive Tim Cook, Microsoft founder Bill Gates, Salesforce chief executive Marc Benioff and Tesla founder and chief executive Elon Musk."

When Kushner bought the New York Observer in 2006, he hired Gawker founding editor Elizabeth Spiers as editor-in-chief. On Thursday, Speirs offered her observations on Kushner's qualifications for his latest White House job.

At the Observer Speirs inherited an office computer of Kushner's: a recent-vintage Mac loaded, counterintuitively, with a Windows operating system. Her IT tech explained that Kushner preferred the Windows OS, but liked the Apple box for its design:
“So he was basically using a $2,500 desktop as a monitor?” I asked. The IT guy shrugged.
It was a vanity object for Kushner, and a metaphor for his view of the Observer. Speirs explains that even after the paper had its first profitable quarter, Kushner wanted to lay off staff to further goose the returns. He would not put money into the paper to build for the future, saying, “Why should I put more money into the Observer when I could invest in a software company?”

Why buy a newspaper and expect it to work like a software company? Speirs asks. She suggests Kushner in his new role will again attempt to misapply to government lessons from industry that don't apply, say, to maintaining a nuclear arsenal. This is the same forward-looking bureaucrat whose office expects to be "modernizing the technology and data infrastructure of every federal department and agency" when those offices, Speirs suggests, are still using floppy disks because Congress won't appropriate the money for the upgrades.

Kushner’s claim to business knowledge, beyond admiring Silicon Valley, boils down to his work for his family’s commercial real estate company, which is hardly comparable to a government institution. And if industry dynamics are not transitive across the board, expertise isn’t, either.

On that count, I don’t even know how to quantify Kushner’s expertise, anyway. Yes, he ran the company — which he inherited, not uncommon in New York’s dynastic, insular real estate world. But he was sure he had the goods. When I worked for him, I didn’t think he had a realistic view of his own capabilities since, like his father-in-law, he seemed to view his wealth and its concomitant accoutrements as rewards for his personal success in business, and not something he would have had in any case. To me, he appeared to view his position and net worth as the products of an essentially meritocratic process.
Speirs concludes, "You could construe my evaluation as a reasonable observation by an outsider with a set of 'fresh eyes,' but you’d be nuts to hand me a billion-dollar commercial real estate company because of it." Or appoint someone to remake American government who doesn't know how it works.

Churchill gets the "idle rich" wrong, or else England's rich are not as insatiable as America's. The problem with the "idle rich" here is not their propensity to drop out of the labor force. It is inflated egos that convince them their wealth is proof of capabilities that are not there, and that encourage them to seek greater fame and fortune mucking about in affairs for which they are ill-prepared. Donald Trump and his family are proving the Dunning-Kruger effect is not limited to individuals with limited education.

Here's how the Office of American Innovation might present itself on television: