No Mercy / No Malice

Rich Kids

Last week, the fiscal lunatics proved they are still running the asylum. The last fit of congressional sanity broke out during the Clinton administration. This week, House Republicans sent the Senate a budget that adds $3.8 trillion to the deficit. Trump’s “Big Beautiful Bill” pairs unfunded tax cuts for the wealthy with a combined $1.1 trillion reduction in spending on programs including Medicaid and SNAP. The math isn’t mathing: Older/wealthier Americans are running up younger/poorer Americans’ credit cards to maintain their lifestyle. One especially offensive provision: a permanent increase in the estate tax exemption to an inflation-indexed $15 million, per person — letting couples pass $30 million to their heirs tax-free while slashing food stamps.

Fiscal Redline

The budget’s fastest-growing line item isn’t defense, or healthcare, but the interest on our debt. Even if this $3.7 trillion middle finger to future generations doesn’t pass, net interest payments on the debt will total $13.8 trillion over the next decade. We’re basically cosigning a subprime mortgage for our grandchildren while giving the wealthy a trust fund top-off.

As interest payments increase, they crowd out any discretionary spending critical for growth (e.g., the internet, medical research, education), and curb our ability to respond to future crises. Nations typically aren’t conquered but go broke. According to historian Niall Ferguson, there’s a redline where debt service exceeds defense spending. In fiscal year 2024, we hit it. The federal budget earmarked $877 billion for defense and $878 billion to pay the interest on our debt. As Ferguson wrote, “America’s fiscal position is far more constrained today than ever before,” adding that the U.S. faces a debt crisis similar to the ones that contributed to the downfalls of the Spanish, French, and British empires. We’re now spending more to service rich people’s tax cuts than to defend the country. So, raise taxes or cut spending? The answer is yes. Note: Both parties engage in this consensual hallucination — taxes went down during the Biden administration and spending (YTD) has gone up under Trump.

The Great Wealth Transfer

The oldest Baby Boomers turn 79 this year. Despite medical advances, exercise, better nutrition, and an industry devoted to anti-aging, biology remains undefeated. Delusions aside, nobody is getting out of here alive or taking anything with them. History’s greatest generational wealth transfer is underway. One research firm projects that the wealth transferred through 2048 will total $124 trillion. That inheritance tsunami won’t be evenly distributed. The 2% of American households that are considered high-net-worth and ultra-high-net-worth are expected to pass half of that ($62 trillion) to their heirs. The majority of Americans won’t see any wealth transfer, however, as only 1 in 5 American households inherits anything at all.

Dynasty Tax

Thirty years ago, pollster Frank Luntz argued that Republicans should rebrand the estate tax as the “death tax,” advising GOP lawmakers to hold press conferences at local mortuaries. It worked. Here’s the con: Americans fear a tax that affects fewer than 1 in 1,000 estates while cheering cuts to programs they actually use.

Smart taxation policy raises revenue with the least collateral damage. This is the foundation of a progressive tax policy: Levying the highest rates on the poor would create massive anxiety and unrest among the most vulnerable. With an estate tax, the collateral damage is small, but the rhetorical damage is significant. Americans understandably recoil at the idea of a “death tax,” even though the vast majority of them are not subject to it. Americans’ optimism can be a policy weakness, as we idolize the wealthy, believing one day we may enjoy their asymmetrical advantage. What we’re taxing, however, isn’t an estate but dynastic wealth. For too long, the death tax misdirect has obscured an elegant (see above: little collateral damage) solution.

Make Estate Taxes Great Again

Critics argue that the estate tax amounts to double taxation. I’m sympathetic, but only to a point, as unrealized capital gains account for 55% of the value of the wealthiest estates, meaning the wealthy are essentially avoiding nearly all taxes. In addition, the cartoon of the family store or farm being put out of business falls flat: Fewer than 100 family businesses per year owe any estate tax. In 2023 the estate tax generated $24 billion in revenue. Speaking to Bloomberg, former Treasury Secretary Lawrence Summers observed that an estimated “$2.5 trillion passing, and the vast majority of that being among 5% or 1% of the people who die, and only collecting 1% of it in taxes? I do think we can do better.” The current plan, however, is to do worse. It’s estimated that the Big Beautiful Bill’s estate tax provision will cost the government more than $200 billion in lost revenue over the next decade, or nearly two-thirds of the projected cuts to SNAP. We’re literally taking food from poor kids to give rich kids bigger trust funds.

My proposal: The U.S. should drop its exemption to $1 million and tax inheritances above that threshold at 40%, without loopholes. According to Brookings, that would raise an estimated $118 billion in annual revenue, or more than $1 trillion over a decade — enough to cover proposed cuts to Medicaid and SNAP. The cost to the families that pay the estate tax? Wealthy kids would no longer be as wealthy, but they’d still be wealthy.

Third-Generation Curse?

I believe wealthy people have the right to transfer economic security to their descendants. But there’s no free lunch, and an inheritance can become an albatross. As William K. Vanderbilt, a descendant of Cornelius Vanderbilt, explained, inheritance is “as certain a death to ambition as cocaine is to morality.”

Still, the third-generation curse makes for good drama. (See: HBO’s Succession.) And anecdotally, the fear of the curse is real. Case in point: Paramount. Just before a deal to sell the company was announced, my Markets co-host Ed Elson asked, “Is there anything more American than the children of three billionaires — Shari Redstone, David Ellison, and Edgar Bronfman Jr. — vying for control of a failed Hollywood studio?”

The Life

In 2010, Daniel Kahneman and another Nobel winner, Angus Deaton, published a study which appeared to show that income was strongly correlated with happiness at low income levels, but that earning more than $75,000 had no impact on happiness. Later, another academic at Wharton, Matt Killingsworth, challenged that finding. Working together, along with a third academic neutral to the dispute, Kahneman and Killingsworth found that the original study had measured the decrease in unhappiness but hadn’t captured the upside high-income people enjoyed. When more carefully measured, happiness continued rising with income. However, there were dramatically diminishing returns. There were real gains to happiness in moving from $100,000 in income to $200,000, but to see that same gain again required another doubling of income, to $400,000. Extend the curve, and it flattens further.

I believe this finding should influence tax policy. A more progressive tax code that levies inherited wealth is a net positive: It raises revenue; holds happiness steady; and motivates the most privileged to strive. As I’ve said many times, greatness is in the agency of others. Most people work their entire life to achieve economic security for their family. Those who receive that security as a birthright owe it to themselves, their families, and society to transform unearned privilege into earned purpose. There is no tax that’s not taxing. But estate taxes come close.

Growing up, I was the kid being raised by a single mom who didn’t have money. I was reminded of this when my friends bolted from our newly integrated public school (Emerson) for a private school (Windward). I was left behind, wearing fake top-siders (real Sperrys cost $32) and being devastated when I lost the Vuarnets my mom had given me for Christmas. But this isn’t a sob story. We were never hungry or afraid, and being the kid who was always late on his fraternity bill ignited embers of desire and grit that have served me well. Also, now that I have some money, I just plain enjoy it more than people born with it.

Fits of Sobriety

As I get older, I drink more but am also more sober. In fits of sobriety I recognize a lot of my success is not my fault. (Note: I am not humble, but among my many skills is basic pattern recognition.) No one thing, but an amalgam of blessings: being born in America a white, heterosexual male in the sixties; having a mother irrationally passionate about my well-being; benefiting from government-funded technologies (e.g., the internet, GPS); beginning my career in a risk-aggressive, entrepreneurial culture; having access to deep pools of capital; and getting admitted to the University of California. That affordable and accessible higher education, funded by California taxpayers, illuminated a path of upward prosperity. Key to my ability to access this path was affirmative action, specifically Pell Grants.

Small-Minded, but Ugly

The GOP’s small-minded, ugly bill would cut Pell Grants by $67 billion through 2034, reducing grants to low-income students by more than one-fifth from 2027 through 2034. More than half of Pell students would have their aid reduced in some way. The math is simple: My kids inheriting a few million less so we can offer millions wider paths to education, jobs, wealth, and more tax revenue is a no-brainer trade-off. The whole point of, and reward from, prosperity is to protect. As the Greek proverb says, “A society grows great when old men plant trees whose shade they know they shall never sit in.” My generation is full of old men who are in the business of clear-cutting. It needs to stop.

Life is so rich,

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