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The estate tax replenishes the financial soil

By Murphey Johnson • Nov 22, 2017 at 12:00 AM

Autumn is finally here. The leaves are falling. The changing colors have been beautiful. They also signal the start of the holiday season. For many, those leaves mean extra yard work. I’m fortunate that I only have a couple of trees that produce a small amount of leaves. I handle them the same way I handle the grass — with a mulching blade on the mower. The leaves almost disappear.

I like mulching. As grass, trees, and other plants in our yards grow, they pull nutrients from the soil. The mulched leaves and grass help put some of those nutrients back into the ground to feed next year’s growth. It’s the natural order. In our yards, many of us disrupt that order by removing “yard waste,” though there are ways of replacing the lost nutrients with fertilizers and top dressing. If you want a healthy lawn next year, you can’t continually deplete the soil’s resources this year.

When a great tree dies, its decaying trunk and branches eventually release the rest of its borrowed molecules to start the cycle of life over again. It also surrenders its advantage of height in the struggle to capture sunlight, as well as its network of roots used to draw in water and nutrients. This transfer of wealth and power from the tree to the environment gives future generations of seedlings a chance to try to grow as tall as their forebears, or maybe even taller.

Farmers understand this cycle. The ground must be replenished if future plantings are to succeed. When the harvest is taken from the field for use or consumption elsewhere, nutrients go with it. Judicial use of fertilizers and crop rotation are established ways of dealing with this potential problem to maintain productive fields.

The estate tax is a way of doing the same in the economy. Opponents will tell you that the revenue lost from eliminating it completely would have very little effect on the deficit. I say that every little bit helps. The true benefit of a tax on large masses of inherited wealth, however, is not that it provides funding to run the government. The real benefit is that it helps to prevent the creation of dynasties where wealth continues to accumulate generation after generation.

Just as canopy height and established roots are advantages in the forest, monetary wealth is an advantage in society. There’s truth to the saying that “it takes money to make money.” The wealthy can get easy credit on better terms. They pay lower fees, if any at all, with better returns on banking investments. They have access to high-paying jobs and investment vehicles that most of us never see.

The wealthy can afford legal representation to ensure favorable outcomes in financial disputes with those of limited resources. They can afford tax attorneys to ensure they make use of every available loophole in the tax code. Thanks to the disastrous Citizens United decision, they can make their own voices drown out those of the less fortunate in struggles over public policy, and they have become less and less shy about doing exactly that to further their own advantage.

When they want more direct influence in politics as “representatives” of the rest of us, campaign finance laws favor wealthier candidates for office by allowing them to spend unlimited funds from their own coffers. We are nearly to the point where the very wealthy are the only ones who can even afford to run for governorships, Congress, or the White House.

For diehard capitalists, there could be some justification for this. In a capitalist system, it makes sense to be impressed by those who pull themselves up by their bootstraps to build empires. It’s inherently difficult to judge the competence of offspring of the wealthy, however, because following generations start from a position of great advantage. When we allow them to retain all the gains of their parents, they face few obstacles to success, and the financial soil from which their parents grew is not replenished for those less fortunate.

We currently allow an individual to pass on $5.49 million tax-free, with amounts in excess of that being taxed at a rate of 40 percent. Even though it only affects the wealthiest 0.2 percent, Republicans in Congress want to increase this exclusion or eliminate the tax altogether.

If they are really interested in a healthy economy, they could instead consider assigning the exclusion per receiving survivor rather than per decedent. This would increase the overall amount that can be passed on free of taxes while actually encouraging people to spread their accumulated wealth more widely after death.

Murphey Johnson of Johnson City is an engineer. He can be reached at murph@murpheyjohnson.com.

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