Theodore Roosevelt Tax Plan to Curtail Rising Oligarchy
Inheritance Taxes Can Succeed Where Wealth Levies Cannot
Theodore Roosevelt has returned to public consciousness in recent years. In part this is a cyclical phenomenon. When people sense a failure of national leadership, TR tends to emerge as a standard if not an ideal.
In our moment there’s an additional factor: many of our national challenges echo those of the early twentieth century.
Roosevelt emerged as a political force during what Mark Twain enduringly characterized as "The Gilded Age.”
Fundamental challenges are rising to the fore of our own Gilded Age. Responding to them requires thought about the nature of our national project: What do we owe one another as Americans?
High on the list is the dramatic expansion of income and wealth inequality. For a series of reasons—from the rise of the internet to the reemergence of oligarchic tendencies in our political economy—the top percentile is pulling away from their fellow citizens.
Proposed Taxes on Wealth and Unrealized Capital Gains
Over the past two decades the partisan dysfunction in Washington has yielded major statutes that are not subject to ordinary congressional procedures. Members of Congress often have little or no familiarity with the provisions of laws they vote on. The citizens they are sworn to represent know even less.
This is happening yet again in 2021. An armada of stealth legislation is zig-zagging ahead, encompassed within omnibus budget reconciliation packages.
Politicians cast about for sources of new revenues. Some are presenting proposals to move beyond taxing income, additionally tapping the wealth attained by billionaires and multimillionaires. Such thinking is given additional force by the massive increases in asset values resulting from long-term, artificially low interest rates from the Federal Reserve, combined with the financial consequences of the pandemic.
Another proposal is to extend income taxes to unrealized capital gains. Such taxes would be levied on fluctuations in the market value of assets, even when gains are not realized from a sale. For example, the capital gain represented in the increasing market price of a home could be taxed, even though the home is being held rather than sold. From the point of view of the taxpayer, this too might be experienced as a tax on wealth.
Such ideas are not new. They prompt many questions. Is a direct tax on wealth constitutional? Would such expansions of tax liability prompt capital flight from the US? Would the precedents set by such levies on the rich ineluctably make way to the middle class, where the aggregate revenues would be much higher? Would the complexity of such provisions render them liable to financial manipulation or widespread evasion?
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Roosevelt’s Advocacy of Inheritance Taxes
Epicentral considerations of tax policy were front and center in public debate in the early 1900s, preceding the ratification of the federal income tax amendment in 1913.
Theodore Roosevelt, himself a scion of a leading New York family, proposed taxes on inheritance. Speaking to journalists in 1907, he declared:
I do not believe that any advantage comes either to the country as a whole or to the individuals inheriting the money by permitting the transmission in their entirety of such enormous fortunes as have been accumulated in America….Such a heavy progressive tax is of course in no shape or way a tax on thrift or industry, for thrift and industry have ceased to possess any measurable importance in the acquisition of the swollen fortunes of which I speak long before the tax would in any way seriously affect them. Such a tax would be one of the methods by which we should try to preserve a measurable equality of opportunity for the people of the generation growing to manhood.
In this rendering, inheritance taxes would be targeted toward the largest fortunes. Unlike taxing income or savings, this need not limit economic progress. It might strike against the seizing up of social mobility that reflects and reinforces tendencies toward highly concentrated financial and political power.
Taxation is a powerful tool to adjust incentives and advance national values. If we want more of one thing—such as income—that would suggest taxing it less. If we want less of another thing—such as accumulated oligarchic wealth, serving as the basis for a hereditary class or caste system—that would suggest increasing taxes on the handful of massive estates.
From the nation’s perspective, there can be consistency in holding those two views simultaneously.
Implications for Our Moment
One can assemble strong arguments for the societal benefit of the extraordinary financial accomplishments of our most renowned entrepreneurs, such as Jeff Bezos and Elon Musk. To the extent they are conducting business appropriately and within legal limits, their fortunes derive from value created for everyone.
It is more difficult to defend the position that such fortunes necessarily serve the greater good after the death of their creators.
This is implicitly acknowledged in “the giving pledge” voluntarily undertaken by Bill Gates, Warren Buffett and others among the super-rich. The donors comprehend that their wealth is far too extensive to be transferred to their families or other individual heirs. They commit to bequeath the preponderance to worthy causes and institutions.
In our digitized, globalized, financialized economy the extent of such fortunes dwarf those of the early twentieth century.
Decisions relating to intergenerational wealth transfer should be deliberated and decided with much greater care than can be achieved amid the grotesque, unseemly cosplay of representative democracy afflicting us in Washington.
Nonetheless, the resolution of such questions could have lasting effects on the evolving rights and duties of Americans, living and working amid the turbulence looming in the decade ahead.
Image Credits: Theodore Roosevelt, Public Domain; Income concentration graphic from Center on Budget and Policy Priorities.