George Steinbrenner had good timing. By dying on the day of the All Star game he got a final bit of attention from all of MLB. And by dying in 2010, he saved his estate a half billion dollars in taxes and likely kept the Yankees in his family.
Now Steinbrenner isn’t exactly a sympathetic figure. In fact, I’ve been joking that the Steinbrenner estate is one of the few that I wouldn’t mind see being hit with the estate tax. But of course, what’s good for the goose is good for the gander, and I think the estate tax – and the gift tax – should be permanently abolished.
The death tax has its roots, like many of our laws, in English law. Because in England everything in the domain ultimately belonged to the King or Queen, it was only right that when someone died his property was split up between the King and the heirs. In fact, it was an act of generosity that the King left the heirs anything at all.
However, that’s exactly the kind of thinking that irritated people like George Washington and the Adams cousins in the first place. And indeed for most of America’s history, the estate tax did not exist except for in times of national crisis – a “will tax” to finance a new Navy in 1797, a 5-6% tax for the Civil War, and a 15% tax for the Spanish-American War, all repealed after the crisis. When World War I broke out, a 10% tax on estates over $5 million (about $100 million in 2009 dollars) and a 25% tax on the portion of estates worth over $10 million (about $200 million in 2009 dollars) was enacted. The top rate was lowered to 20% after the war.
Then FDR came along and decided that the rate of 20% – something that might be able to be argued as reasonable – was too low and jacked the rate up to 70%. From then until G. W. Bush the rates bumped up and down, but was always around half. Insidious things like generation skipping tax were introduced. (More or less, a generation skipping tax means that if you leave money to your grandson in your will, it will be taxed as if it was left to your son and then he left it to your grandson.)
So back to Steinbrenner. Here’s a guy that turned a $10 million investment into the Yankees into a billion dollar net worth over the course of 35 years. And while he was making that money he was paying taxes on it much of it, and he was certainly paying taxes on his income. (I understand that much of his wealth is in the form of unrealized capital gains, which have never been taxed. However, if there is no step up in basis upon generational transfer, the government will not ultimately lose that money once there is realization of the investment.) He was employing ball players and front office staff who paid plenty in taxes. He built an empire while paying his share of taxes on the way. I fail to see a justification for the government taking half of what he had built, likely meaning that the Yankees would have had to have been sold by his family, if he had died six months later. The crowning achievement of Steinbrenner’s work would have been ripped away from his family because he was successful. That’s sick.
The estate tax is politically expedient because it only targets the rich. But it is un-American, contrary to the very principles that the country was founded on. The estate tax rears its ugly head again on January 1, with a 55% rate on estates over $1 million. Long live the King.
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