What is the source of jobs and wealth?
If we listen to Andrew William Mellon, captain of industry, banking, art collecting and policymaking – he was the driving force behind the step-up in basis law – it is initiative, pure and simple.
“Any man of energy and initiative in this country can get what he wants out of life.” This from his book, Taxation: The People’s Business, freely available online. We favor more inclusive language today, but forgive him for reflecting his day. Times have well changed.
Ask my particular hero, Dr. Peggy Whitson, a biologist who has spent more hours in space than any US astronaut. I admire her for many reasons, but point particularly to her seeding in my generation, one year younger than no-goodnik me – a rare success among a cohort chided for underperformance.
Dr. Peggy may not be captain of anything (until they build a starship), yet where might her work lead us one day? This is rather Mellon’s point, I believe.
AW – not the root beer, that’s what Andrew William’s friends called him – had more thoughts to share. Here’s a good line:
“But when that initiative is crippled by legislation or by a tax system which denies him [get with the program!] the right to receive a reasonable share of his earnings, then he will no longer exert himself and the country will be deprived of the energy on which its continued greatness depends.”
In savvy-speak, he means the ‘producing class’ will take those jobs and profits offshore to more amenable climes; sock their wealth into trusts, shells and other blind alleys; or petition their representatives – fund them, even select and run them for office – to get friendlier rules into law.
If you don’t like this system, take it up with Cleisthenes, who daydreamed the Athenian democracy into life 2,600 years ago. Never critique a Greek ghost: conjure him up, he’ll raise his short tunic to demand a Callipygian kiss. Athenians – just shameless. They pained us Byzantines with their philosophy and conquest; we preferred building, trading, sailing and rioting – our kind of democracy – which explains why we left such paltry ruins.
Consider President Joe Biden. Creaky old Joe, he seems steely-eyed firm for a guy supposedly cognitively challenged. He doesn’t like the step-up in basis. Cancelling it would wring $40 billion a year in taxes, he figures, drained fair and square from the undeserving wealthy (get ready for AW’s spectral visit, Joe). The funds will help the neediest families, feed the hungriest school kids, allow free community college and so on. It sounds splendid, yes?
Sure, even to my hard-nibbled ears – if, that is, all works as planned. Ooooooh – that’s not the sound of great AW and Cleisthenes’s ghosts rocking out; rather, of politicians bemoaning how best intentions tend to steer for the rocks.
Take Vladimir Lenin. Did e’er a heart tick ‘round more twisted a mainspring? Riddle yourself this: he thought the Soviet Union could be run via telephone, simply by issuing orders to the bureaucracy. Guess what he found: ‘I turn the wheel to port, and the ship heads toward the rocks to starboard. So I spin the wheel starboard, and the ship keeps on turning, yet picking up speed.’ This mystified him, the dunce-ski.
It’s common knowledge: the ship of state does not sail true. Mind you, this scurvy fellow had no previous experience of governance, or even a job to learn life’s quirks. In our land today, some wonder if ‘politician’ as a career provides sufficient contact with reality, as some fools on the Hill don’t seem to cotton the sloop’s ropes.
It’s not the industry of the rich that raises Democratic ire. Some doubt this view, sensing spectral Lenin’s paltry spirit poisoning the air at party rallies. Yet I believe Biden’s thinking runs this way: just because the parents created riches doesn’t justify passing those assets tax-free to the kids. The government needs money, and the original earner won’t be there to feel the pain. Why not skim off a bit?
Yoko Ono inspired the thought: oh boy, when you’re dead, you don’t take nothing with you but your soul. I’m sure Joe has that record around, just don’t ask him where. Recall, Biden’s wallet is packed: his estate may be in line for a wallop. I guess he’s sincere-ish. Should the wealthy just pay up?
AW wants to weigh in: “The problem of the Government is to fix rates which will bring in the maximum amount of revenue to the Treasury and at the same time bear not too heavily on the taxpayer or on business enterprises.”
Sagacious and simple, thanks.
But: “I have never viewed taxation as a means of rewarding one class of taxpayers or punishing another.” I’d like to hear that from a podium today. Is anyone game?
These quotes alone should drive some lively dinner-table banter, firing the tongue-tied into flames of contention. Try it next weekend; call it your ‘experimental model for an ideal democracy’. Friends and acquaintances may soon rate you a firebrand, and hopefully not someone ‘who listens to bad influences’.
One last thing: some commentators claim the step-up ‘robs’ the government of $40 billion a year; others say it ‘saves taxpayers’ the same amount. Spin, baby, spin. Perceptions influence elections, but legislation is made via political commerce. The step-up may live or die: it’s yet to be ruled. You still have time to influence the outcome.
Recap: President Joe Biden proposes eliminating the step-up in basis, which allows appreciated assets to be revalued at current market value on the owner’s death. This saves heirs from paying capital gains tax on inheritance. If the plan becomes law, assets would be revalued at death and assessed at a top tax rate of 39.6%. Biden’s plan allows an individual exemption of $1 million, plus the current $250,000 home-sellers’ exemption. These exceptions are doubled for married couples, potentially taking the ‘pass’ to $2.5 million.
Opponents say ending the step-up would stifle business, cost jobs and create an impossible task in determining the initial value of assets. Supporters say it would make the tax system more equitable and progressive, force wealthier taxpayers to contribute a fairer share and address income inequality.
If the president’s proposal becomes law, it will likely include exceptions protecting family farms and small businesses.
What do you think? Do your Congressmen know? If the Biden plan becomes law, are your assets protected?
Don’t be passive while there is still time. Get cracking and contact the White House and Congress – but call your estate planner first.