James S. Henry: Obama's deal with GOP on estate tax ensures very rich families will continue to amass historic levels of wealth and power.
PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay in Baltimore. And welcome to a report by James Henry, who now joins us.
James is a leading economist, attorney, investigative journalist. He's written extensively about global issue. He served as the chief economist at the international consultancy firm McKinsey & Company. His investigative work has appeared in numerous publications, like Forbes, The Nation, and The New York Times.
Thanks for joining us again, Jim.
JAMES HENRY, ECONOMIST, LAWYER, AND INVESTIGATIVE JOURNALIST: You're welcome. Great to be here.
JAY: So what do you make of the fiscal cliff deal? There's been a lot of talk about income tax rates and the fight over the income tax rates, but I don't think there's been a lot of unpacking of what's happened with the estate tax. What do you think of it?
HENRY: Well, there's a lot of things not to like about the fiscal cliff deal: the debt ceiling, the payroll tax that got increased by 50 percent on the employee side that's essentially a tax on labor. And, you know, if you take a look at the—basically, they've extended about 85 to 90 percent of the Bush tax cuts and made them permanent.
But one of the things that hasn't got as much attention as I think it deserves is what they've done with the estate tax. I mean, here we are, an economy that's producing some of the highest levels of inequality to be seen in 75 years, and essentially this estate tax deal that was just approved by the Senate and the House and signed by Obama raised the rate of exemption on the estate tax from what would have been from $1 million to $5 million. And if you're married, that's essentially $10 million. That's of relevance only to the top 0.1 percent of the wealth distribution in this country. They also have established a permanent—so-called permanent tax rate on estates at 40 percent, which, if you go back historically, it was 60 percent in 2000, it was 70 to 75 percent in the 1930s.
And so here we have, basically, a tax cut that's really—.
JAY: Can I just jump in for a sec? Let's just make sure those numbers really resonate with people. So, in the '30s, estate tax was about 75 percent, and as late as 2000 it was 60 percent,—
HENRY: That's right.
JAY: —which generates a lot of revenue, especially given the amount of wealth that's being accumulated by fewer and fewer people, and it's being less and less taxed.
HENRY: Right. Well, the changes that were made by the Bush administration and then extended by Obama basically have almost made the estate tax go away. I mean, in 2011, the estates tax at the federal level generated a grand total of about $10.6 billion, which is a pittance.
But we were hoping here for a recognition of the fact that, hey, there's more extreme wealth being generated in this last five years or so, and before that; and at the same time, we have pressing needs on the part of state and local government, and also federal government, for as much revenue as possible. So, you know, just from an economics standpoint, I think it's bad policy for us to be sanctioning this kind of extreme wealth, in addition to which we've seen the issue of the creation of basically very politically influential dynasties in this country, and that's something that, politically speaking, even apart from the economics of this, you know, I think many of us feel is not a wise move.
JAY: Yeah, a libertarian friend of mine, who I was surprised to find is an advisor to Ron Paul, actually supported an estate tax based on people that believe in free markets shouldn't believe in inherited aristocracy.
HENRY: Well, I think that there are quite a few—you know, we don't have much polling on this issue. It isn't something that has been on the front page of political discussions. But, you know, as we have more attention paid to this particular bill, and if we put more attention behind the impact of this estate tax planning change on wealth and income, I think we could change that scenario. It isn't the case that there are strong incentive reasons to provide, you know, sort of tax-free inheritance for wealthy kids. I think, you know, if anything the argument is just the opposite, that it has terrible incentive effects on people who receive lots of income for nothing. And that's essentially what we've always complained about at the lower end of the spectrum.
Many—you know, the Clinton welfare reform was designed to get people off the dole and into the labor force. Well, at the upper end of the spectrum, apparently, it's okay to inherit millions of dollars tax-free and then go off to Palm Beach.
JAY: And I guess it's very important that it's not just about the sort of unfairness of it all, but it attracts or enables enormous political power to have that kind of money.
HENRY: Yeah, I think we're basically succeeding in creating exactly the kind of class structure that the founding fathers warned us about—you know, at the top, a group of dynasties that essentially have accumulated enough wealth and influence at the same time being able to have, essentially, enough tax avoidance so that they are effectively able to get representation without taxation. And that's a system that I think undermines democracy.
JAY: And if you go back to the economics of it, we at The Real News, we did a story when the Wisconsin protests were on—and we'll link to it; we'll put it below this video player—but we looked at just the billionaires of Wisconsin, and if you just went back to the year 2000 level estate taxes, and if those estates were to pay those taxes, you could pay off the entire debt of Wisconsin.
And then the other point I guess is important is that the lack of demand in the economy—that this money sits in these estates, it doesn't circulate. I mean, they, you know—.
HENRY: Yeah, these are—you know, people at the very top wealth class are not consuming all this. There's only so many $1 million Jaguars you can buy, you know, yachts, and beach houses. And, you know, they say that if you can't be bored in Palm Beach, you can't be bored anywhere. You know, these are people who are basically not consumers. In order to stimulate the economy, we're still in a very slow-growth situation here with the economy growing less than 2 percent a year. We could use as much consumer demand and redistribution to the bottom of the population as possible.
JAY: Now, the defenders of President Obama will say, well, he got the estate tax up. He went—what is it?—from 35 to 40. At least that's something, isn't it?
HENRY: Well, it's not restoring it to the 60 percent that everybody agreed was fair back in 2000. I don't think that we've argued that, you know, we were generating such an equal distribution of wealth and power in this country that we can now afford a low tax rate on estates. I'm not sure that there is any justifiable reason for this policy.
I think there are probably some pretty interesting political interests involved here. You see Senator Max Baucus, who is a Democrat from Montana who's chairman of the Senate Finance Committee, and he also happens to be a very wealthy individual. His family owns a lot of Montana, so, you know, directly benefiting from this kind of estate tax regime that we're seeing going forward. So I think you'd have to look at that level of direct interest on the part of, basically, the wealthy folks in Congress who are benefiting from this new regime.
JAY: Well, on The Real News we're going to make a thing of digging further into the estate tax, and Jim's agreed to help us with this. So we're going to keep returning to this subject, because if you want to deal with the debt, why not go where the money is, as my friend Bob Blair used to say to me in Canada. He used to hold these graphs up on the television show I used to do there, and you'd see public debt going up, and you'd see private wealth going up at the same level as public debt, and he used to say, well, you want to pay off the debt, go where the money is. So we're going to look more at this issue of the estate tax.
JAY: Thanks very much for joining us, Jim.
HENRY: You're quite welcome.
JAY: And thank you for joining us on The Real News Network.