Felix Salmon

When plutocrats call for higher taxes

By Felix Salmon
September 1, 2010

Bob Rubin and Julian Robertson have clearly come to the happy conclusion that, having lived through the first eight months of the year, both of them are likely to survive well into 2011 and beyond. But they want to tax their fellow plutocrats who aren’t so lucky, by bringing back the estate tax for the remainder of 2010, and even trying to make the tax retroactive to January.

That’s a good idea, of course. It’s ludicrous that the estate tax is at zero this year. But it’s not going to be easy to pass a retroactive tax, especially when its biggest cheerleaders are these two guys: the person most to blame for the global financial crisis, and a hedge-fund billionaire who carefully skirts residency requirements to avoid paying millions of dollars in taxes.

In the interests of full disclosure, it would have been nice to see the amount of money that Rubin and Robertson have spent between them on estate planning and strategies designed to minimize the taxes that their heirs will pay on their billions.

The subtext to all op-eds like this — the ur-example, of course, being one of those many editorials from Warren Buffett saying that he should pay more taxes — is that the authors are so noble and selfless that they will even pay more taxes themselves if doing so is in the national interest, and if everybody else in their position has to do so too. But of course these guys are always going to have to pay whatever the estate tax happens to be, and will probably go to pretty great lengths to avoid as much of it as possible.

So while I agree with what they’re saying, I’m still a little bit nauseated by the self-congratulatory undertones to the fact that these men, in particular, are the people saying it. Rubin, in particular, needs to embark upon a very great deal of apologizing to the nation before any of us should listen again to anything he says. Even — especially — if it seems as though it makes sense. If he hasn’t learned any lessons, he’s a very bad guide to what we should be doing going forwards.

11 comments so far | RSS Comments RSS

Felix, here’s a quote from your blog from last week: “it doesn’t really matter who wrote the op-ed: it should stand or fall on its own merits.”

http://blogs.reuters.com/felix-salmon/20 10/08/27/should-we-listen-to-el-erian/

Why consider Mohamed El-Erian’s words regardless of his motives, but question Rubin’s op-ed because he has made mistakes? I think you should take a consistent view on ad hominem attacks.

Posted by Stevensaysyes | Report as abusive

Hm, good point…

Posted by FelixSalmon | Report as abusive

It is always interesting to see lifelong antitax capitals suddenly get socialist ‘religion’ in their old age. Robertson is not the first and he certainly won’t be the last. Buffett and Soros, while they didn’t blaze the trail, certainly turned it into a six-lane expressway.

My friend and coworker cynically says, ‘Oh that’s just an old guy trying to get into heaven.’ After a certain point, perhaps some people are too old to make good use of their money, but what why should they dictate what other people do with their money?

Further, if an estate tax winds up breaking up businesses, or causing equity to be sold immediately, it is decapitalizing the economy and is therefore GDP-negative, methinks.

Posted by DanHess | Report as abusive

I think that the adj. skirt implies something shady. New York has a certian number of days required to be considered a resident. He apparently was not there for that number of days and didn’t qualify. He did qualify in another state and I am sure that he paid his taxes there.
Eric in austin

Posted by ericinaustin | Report as abusive

Sorry,, Verb

e in austin

Posted by ericinaustin | Report as abusive

Technically, the estate tax is not gone…it’s reverted back to the old ‘no capital gains exemption’.

Let me explain. As of last year, any assets you had, on death, were automatically ‘revalued’ to the value they have on date of death. This figure is what is inherited by your heirs, and what is taxed by the estate.

This stricture is not in effect for the current year. So, that building you bought for $1 million and now worth $10? 9 million dollars is taxed for capital gains. Ditto stocks, paintings, whatever.

So, the estate tax is being reverted back to the absolute capital gains tax it used to be, minus the exemption. Still lower then most of the capital gains rates, unless you do some spectactularly bad planning.

==Bob D.

Posted by REDruin | Report as abusive

@DanHess “Further, if an estate tax winds up breaking up businesses, or causing equity to be sold immediately, it is decapitalizing the economy and is therefore GDP-negative, methinks.”

If someone is selling, then someone is buying, and therefore is not decapitalizing. Same with the whole “cash on the sidelines” meme.

Now, perhaps the breakup or semi-forced-sale price is less than what the original owner thinks the business is worth, but I would say that most often means the original owner is overvaluing the business, not that the estate tax is destroying value. An arms-length-transaction not under duress is a better valuation method than the original owner’s mere assertion.

And in the few cases where a business is liquidated-for-little or shuttered due to estate taxes due, then the business was worth little outside of an income stream to the proprietor (probably a lot of hidden costs, or low enough ROI to not be interesting to any capital purchaser). If I have an small business that is not worth buying after my death, then that “enterprise” was not worth much, although my labor was.

None of those destroy value – the estate tax simply forces the recognition of previously unrecognized lack-of-value.

There are many other arguments for and against the inheritance tax, but I don’t think enterprise value destruction is one of the important ones.

Posted by SteveHamlin | Report as abusive

Tax rates are minimums and not maximums. If Rubin, Robertson and Buffet think that they should pay more taxes, nothing in the tax code prevents them from doing so. Personally, I think I am already fully taxed and decline to voluntarily pay more, and I appreciate Buffet, Rubin and Robertson to mind their own business.

Posted by Tshak | Report as abusive

Felix – the inheritance tax and increasing taxes on the rich are stimulative – think of all the incremental business that CPAs, tax attorneys, etc will receive! At the end of the day, the government probably will not see an appreciable increase in taxes directly from these changes, but the second derivative increases will be great.

[stated only partially tongue-in-cheek]

Posted by David.L.Smith | Report as abusive

The estate tax only falls on the estates of people who are sloppily organized. It is the closest thing the country has to a voluntary tax, which on the one hand explains why it collects so little revenue, and on the other hand makes a good argument for keeping it.

Posted by johnhhaskell | Report as abusive

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