Friday, July 16, 2010

Dynasty Without Joan Collins

Cory and his commenters at The Madville Times are starting a little discussion about the estate tax.  At the risk of adding a little fuel to the fire, I think this editorial from the NY Times shows that the rich have found ways to get around the estate tax.

Ray D. Madoff, a law professor at Boston College, points out that "dynasty trusts" will help develop an "American aristocracy" because the trusts allow the rich to "provide their heirs with money and property largely free from taxes and immune to the claims of creditors. And rather than benefit only children and grandchildren, dynasty trusts provide for generations in perpetuity." [Madoff, America Builds an Aristocracy, NYT 7/9/10]

I don't have a problem with the rich leaving their money to their offspring, but these "assets can pass tax-free and creditor-proof to the next generation."  More importantly,
[the] tax breaks are not the only special advantages . . .they commonly include a “spendthrift clause,” which provides that trust assets cannot be reached by a beneficiary’s creditors. If a beneficiary causes a car accident, for example, the victim cannot be compensated with assets from the trust, even if they are the driver’s only resources. So beneficiaries are free to behave as recklessly as they like, knowing that their money is forever protected for themselves and their heirs. [Madoff, America Builds an Aristocracy, NYT 7/9/10]
In short, generations of spoiled brats can live on the wealth of the predecessors and behave badly, but face few, if any, financial risks.  Financially, it seems, they have immunity that foreign diplomats would kill to obtain.

The US has corporations that are too big to fail, a fact that means the poor and middle class have to bail them out when they behave irresponsibly.  Further, the wealthy people who don't want to pay any income taxes or estate taxes but expect the poor and middle class to pay payroll taxes on every dollar.  Now, the rich want their children to remain rich without responsibility.  I'm positive this situation isn't what Adam Smith endorsed.

1 comment:

caheidelberger said...

Seems like repeal of the estate tax is a moot point if the aristocracy already has found its way around it. Grrr!