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Friday, August 04, 2006 

Is the Estate Tax Justified?

WASHINGTON (Reuters) - Democratic senators blocked their own goal on Thursday of raising the U.S. minimum wage for the first time since 1997 after Republicans added a huge tax break for the rich to the legislation, actions sure to reverberate in this election year.

AFL-CIO President John Sweeney said the proposed estate tax reduction, estimated to cost hundreds of billions of dollars, would have led to cuts in health care, food stamps and other government benefits and "end up hurting the very same people that a minimum wage increase is supposed to help."

Frist countered that the failed package was "important to millions of hard working Americans." And he said the "death tax" on inherited wealth has meant "90 percent of family businesses do not survive that third generation" because they cannot afford the taxes or the cost of finding tax shelters.

I have decided to essentially debate myself on this one, and really break from my usual stance on the estate tax. Believe it or not, but Mr. Frist’s statements about “third generation businesses” is what sent me down this road. So, with no further ado:

At the eve of the French Revolution, the “bourgeoisie” of society were quickly accumulating wealth and increasing the gap between working class and the “rich”. Of course all of Europe was used to the royalty’s monopoly on true wealth, but now with the advent of Europe’s Industrialization, a new “middle class” began to develop. But as we see in our history books, they eventually tipped over the edge of gaining a market share into creating another form of wealth monopoly.

Fast forward to today. America is full of a middle class. There are some in the “lower class”, and some in the “rich”, but in general, America is all “middle class”, and the term bourgeoisie is now reserved for the rich elite. This brings us to the obvious predicament of how to sustain a “middle class” and how to elevate a “lower class” without destroying the “upper class” to do it. It is the nature of people to strive for a better quality of life. In today’s world, this is roughly defined by one’s material standing, or ability to provide material comfort for their family.

With that in mind, realize that to accumulate wealth, you need to begin to realize “ownership” in your life. A paycheck and/or checking account do not equal wealth. The accumulation of things equals wealth. We can, for the sake of this post, use land and “estates” as our measure of wealth for the time being.

Under that premise, if we lived in a lazie fare society, it can be assumed that those with the material capital and ability would use that capability to accumulate wealth (see definition above). As they do this, their ability to accumulate wealth would increase on an exponential level. The more wealth you have, the more wealth you can accumulate.

At this point, you can see where the race to accumulate wealth, in order to improve your quality of life, becomes somewhat uneven. There are those in the “middle” whom have limited capability to accumulate wealth, those in the “lower class” that have almost no ability, and those in the “upper class” have the majority of wealth accumulation ability.

This proposes that at some point, since land and estate are a finite resource, that all available wealth would be taken, and it would leave us back in a state of Royalty versus Peasant (a la pre-Revolution Europe). Because the “royalty” owned all the land and wealth, the rest would become a peasant class forced to serve them in order to provide for themselves.

Wealth may exchange hands between the “royalty”, but with no wealth to start with, the peasant class is forced into a state of submission to the royalty. America was/is the most successful nation in the world because it transcended this philosophy. It was able to move past the idea that a select few should have the ownership, and the rest would serve that ownership to sustain it.

At the risk of sounding Marxist, is this success sustainable without methods of redistribution (e.g. Estate Tax)? Is the success of an ownership driven American sustainable if the “upper class” is able to continually distance themselves from the “middle” and “lower” classes? As the gap grows, remember that available wealth is a finite resource, the ability of the lower two classes to elevate themselves becomes severely hindered.

To some extent, are we already at this threshold? Even now, is there any except the extremely rich that do not have to rely on banks to finance their ability for ownership? 90% of America relies on the “wealth” of a select few to provide for themselves or to attempt a gain in wealth. We are slowly losing our ownership society to revolving credit and finance charges, while the “rich” increase their wealth holdings and estate sizes.

What happens when they are not selling any more? What happens when the proverbial “piece of the pie” is no longer on the shelf to buy? What happens when that bonus check you got at the end of year is no good, because there is nothing left to buy with it?

Makes me wonder… is a socialistic structure required to sustain a capitalistic society?