This report examines the growing wealth of billionaires and other ultra-high net worth individuals in Massachusetts — where voters will have the chance to levy a 4 percent surtax on those making more than $1 million a year this November.
In Five Easy Theses, James Stone traces out his program to address five areas of national bewilderment: fiscal balance, inequality, education, health care, and financial sector reform. The precision and logic of Stone’s writing and proposals inspired me to want to rename his book, “Mr. Spock Fixes America.”
Stone’s “theses” emerge from a lifelong journey of public service and private sector leadership. He is currently CEO of an insurance company often rated as one of the best places to work in Massachusetts.
As a younger man, he served as the Commissioner of Insurance for the Commonwealth of Massachusetts and then as Chairman of the Commodity Futures Trading Commission under President Jimmy Carter. As early as 1979, Stone was challenging the practice of overly leveraged financial derivatives.
In his section on inequality, Stone ably summarizes the dangers posed to democracy, prosperity and social mobility by concentrated wealth and corporate power.
While not dismissing solutions addressing wage inequality and worker bargaining power, Stone zeroes on what he calls “the sequestering of wealth in the rarified top percentiles.” (p. 65)
“My focus derives in part from an observation that this is the subpart of the equality debate that has received the least serious attention over the years and in part from my lack of optimism that antipoverty programs and modest adjustments to the wage distribution can free up a meaningful portion of the increasing sequester. Unless that is done, and the impoundment of wealth reversed, slight shifts in shares within painfully squeezed middle and lower ranks may be all that can be accomplished.”
Stone believes that efforts to raise the minimum wage are important, but he fears all workers will be losers if “the incremental wealth our nation’s great economic engine produces continues to flow to a smaller and smaller fraction of the public.”
Stone’s principal proposal is to tax inheritances more effectively, especially the vast pools of unrealized capital appreciation. “No tax is truly fairer and more useful in a meritocracy than an inheritance tax,” Stone writes. “The greatest well of capital in the country –accumulated capital gains passed down within families –is seldom plumbed.”
Stone urges us to rally around the much attacked Estate and Gift Tax and to eliminate the “least justifiable” of loopholes, the “step up” of unrealized capital gains at death. Stone gives the example of someone who bought stock for $1 million and many decades later it is worth $90 million. If that stock transfers to an heir, the basis value is reset and $89 million in appreciated wealth escapes any form of taxation. “It’s gone, a gift from the rest of the taxpayers to enhance family wealth maintenance,” Stone writes.
“This weird treatment is categorized by some as an income tax loophole rather than an estate tax flaw, since it forgives a tax that would have been paid only when gains were realized. I prefer to think of it as an estate tax giveaway, because death provides the best of all opportunities to tax unrealized capital gains and because the existence of the loophole has such a powerful effect on estate planning and investment decisions. The step-up serves no purpose other than the perpetuation of inherited wealth, and the sooner it is repealed, the better.”
In order to protect the integrity of taxing inheritances, Stone makes a detailed case for closing all the special trust provisions and loopholes that allow hereditary fortunes to pass hands. Stone labels these complicated mechanisms as “Frankenstein’s monsters, serving only to increase the concentration of assets in wealthy families over generations.” He laments that the picture he provides is a “lock-tight guarantee that the assets of the wealthy in American never meet a tax collector.”
Even with these reforms, Stone observes, massive amounts of wealth and advantage will still flow from generation to generation in wealthy families. Such reforms are better viewed, in Stone’s words as “restoring sanity” rather than “radical leveling.”
Eliminating subsidies for massive fortunes will “advance the causes of democracy, meritocracy, and tax equity, as well as the economic prospects of your descendants.”
To learn about Stone’s “theses” for financial system reform, education, health care and fiscal balance, you’ll have to get the book!
Chuck Collins is a senior scholar at the Institute for Policy Studies and a co-editor of inequality.org. His forthcoming book is Born on Third Base.