“We are developing into a plutocracy.” These words are not from Bernie Sanders, but Paul Volker, the former chair of the Federal Reserve under both Presidents Jimmy Carter and Ronald Reagan.
One indicator that we are drifting toward plutocracy is whether great fortunes grow or disperse over decades. A healthy economy and society sees the creation and dispersal of wealth over generations, as families give to charity, pay taxes, and pass wealth down to ever increasing numbers of heirs.
"These dynastic families aggressively use their wealth and power to rig the political rules and preserve and expand their private wealth dynasties." But because of changes in tax law and aggressive use of trusts and tax dodges, we are now witnessing a resurgence of dynastic inherited wealth. There are 15 dynastically wealthy families now on the Forbes 400, according to a report I recently co-authored, Billionaire Bonanza 2018: "Inherited Wealth Dynasties in the 21st-Century United States."
The three wealthiest dynasties are the Walton’s of Walmart, the Mars candy family, and the Koch brothers, heirs to the country’s second largest private company, the energy conglomerate Koch Industries. These are all enterprises built by the grandparents and parents of today’s wealthy heirs and heiresses.
These three families own a combined fortune of $348.7 billion, which is four million times the median wealth of a U.S. family. Since 1982, these three families have seen their wealth increase nearly 6,000 percent, factoring in inflation. Meanwhile, the median household wealth went down 3 percent over the same period.
The dynastic wealth of the Walton family grew from $690 million in 1982 (or $1.81 billion in 2018 dollars) to $169.7 billion in 2018, a mind-numbing increase of 9,257 percent.
These dynastic families aggressively use their wealth and power to rig the political rules and preserve and expand their private wealth dynasties.
There are plenty of examples of wealthy individuals choosing not to build dynasties. Warren Buffett, the third-wealthiest person on the Forbes list, has pledged his entire fortune to charity and taxes.
Instead of lobbying for tax cuts, Buffett testified before Congress in favor of expanded estate taxation. “Dynastic wealth, the enemy of a meritocracy, is on the rise,” Buffett told the committee. “Equality of opportunity has been on the decline. A progressive and meaningful estate tax is needed to curb the movement of a democracy toward plutocracy.”
"To protect our democracy, we need to strengthen and expand taxes that reduce this concentration of wealth and power."
To protect our democracy, we need to strengthen and expand taxes that reduce this concentration of wealth and power.
The federal estate tax has been significantly weakened, most recently through the 2017 Trump-Republican tax cut. Taxing inherited wealth as income would help break up current and future wealth dynasties.
The public should also rally to levy a modest tax on wealth over $20 million. A direct tax on wealth paid by the wealthiest one tenth of one percent could generate significant revenue to be reinvested in creating and restoring opportunities for low wealth households to prosper. A 1 percent annual tax on the wealthiest 0.1 percent of households, those with wealth over $20 million, would generate an estimated $1.899 trillion in revenue over the next decade, according to a forthcoming report from the Institute on Taxation and Economic Policy.
In order to successfully implement these policies, the U.S. must also take leadership in advancing rules and global treaties that discourage aggressive wealth hiding and tax avoidance.
Great dynasties of wealth are unnatural in the United States. A century ago, ordinary Americans rose to the challenge to defend our democracy against plutocratic forces. It is time for us to answer the call again.