One of the fallouts of Queen Elizabeth II’s death is that her son, the former Prince Charles and current King Charles, gets her estate, free of charge. That is, King Charles III inherits $17.5 billion ... tax free! That seems to be the royal way of things; they also pay a voluntary income tax. If the king wants to pay it, he can. If he doesn’t, he doesn’t!
That’s contrary to a democratic system of government. It is a remnant of rule by royalty in Great Britain. But it is interesting to note that the relatives of billionaires in our country enjoy similar benefits. Yes, we have an estate tax of 40 percent for estates in excess of $24 million. In Washington, we have a state estate tax of 20 percent for estates in excess of $11 million.
But seldom do those taxes actually get paid.
Why? Because the federal estate tax statute includes huge loopholes that are replicated at the state level. Bequests, legacies and contributions to charitable organizations — including family foundations — are all subtracted from the taxable estate.
We saw the impact of these loopholes after Microsoft cofounder Paul Allen died in 2018. Allen’s estate was estimated at $26 billion. If taxed at 20 percent, the state of Washington should have received about $5 billion. But it didn’t. The estimated amount was about $300 million or roughly 1.5 percent of the estate. The U.S. government was similarly shorted. How did this happen? Look carefully at Section 2055 of the Internal Revenue Code. With the allowed deductions, including transfers to family foundations, billionaires can escape estate taxes.
Our democracy is the worse for this.
Think of what $5 billion could have meant for the citizens of our state. We could have abolished community college tuition for all students ($500 million), provided all child care teachers with $5 an hour bonuses ($250 million) and reduced the cost of child care for all parents by $500 a month ($1.2 billion). That’s a start — about $2 billion in new state investments. Instead, the Paul Allen Foundation now has an estimated value of $1.1 billion, with revenue of $45 million in 2020 alone.
It is not just the dead billionaires who get away with avoiding their taxes. The living ones do, as well.
When Bill Gates gives billions to his foundation, he skips out on paying federal taxes. For every billion he gives, the government loses $370 million. Then Gates gets to decide how he wants to spend this money. Some of the things he does are in the public good, and some actually detract from public wellbeing.
Let’s consider the foundation’s investment in the fight against COVID-19. The foundation, plus three other organizations that Gates helped to start, collectively gave $10 billion toward COVID-19 efforts. The organizations’ leaders had unprecedented access to the highest levels of governments, spending at least $8.3 million to lobby lawmakers and officials in the United States and Europe. The organizations pledged to bridge the equity gap in vaccine access.
However, during the worst waves of the pandemic, low-income countries were left without life-saving vaccines. The biggest blow to good public policy was Gates’ insistence on maintaining copyright protections on vaccines. He stomped all over Oxford University, which had promised to donate the rights to its promising coronavirus vaccine to any drug maker. That would have meant access to vaccines free of charge or at very low cost. But Gates doesn’t really believe in the provision of public goods, so he forced Oxford to make a deal with AstraZeneca that gave the pharmaceutical giant sole rights with no guarantee of low prices. That’s called “monopoly medicine,” ensuring super profits and denying millions of people access to COVID-fighting vaccines.
Another hidden gem for Gates is that his foundation pays an excise tax of 1 percent on income from the foundation’s investments. And, thanks to the foundation’s ability to maneuver money, it actually got $38 million in excise taxes back from the federal government. Compare that 1 percent or less to what you pay in payroll taxes on your wages for Social Security and Medicare: 7.65 percent. Just to note, the foundation’s assets exceed $103 billion.
The American Revolution was a rebellion against the British monarchy based in the democratic notion that “all men are created equal.” With modern-day oligarchies, Americans have replicated monarchical privilege and power. It is not only the British royals and the oligarchs of Russia who have their uber super yachts. Paul Allen had one; Jeff Bezos is having his 400-foot-long yacht built now. This yacht is so massive it has an additional “support yacht” with its own helipad.
We don’t tax any of this oligarchic wealth. In our state, we don’t even tax any of the income from this wealth. We have an estate tax that lets the super wealthy escape taxation.
These taxes are essential to realize a nation in which people are actually treated equally and share a solid foundation of economic security for all. Instead, our tax system enables the replication and reinforcement of intergenerational privilege and, for that matter, intergenerational poverty, along with the incessant undermining of the American middle class.
Read more of the Sept. 28-Oct. 4, 2022 issue.