In my annual review of my financial situation, I also called on my Angel of Death loophole; as he is part of the critical framework, for my lineage to succeed or fail. Currently the tax law allows me to pass on appreciated assets to my heirs without any capital gains tax liability, for our deficit strapped nation. I found my Angel of Death crying and very upset as there may be some changes coming and the capital gains tax loophole would go away, removing his powers. He is upset that the inherent inequalities between the top 1% who love this loophole, is up against the ordinary wage earners; who support Social Security, Medicare and other social programs through direct taxes on their income. Meanwhile the wealthy just avoid this obligation and pass their accumulated and inherited wealth gains, on to their heirs at death, without paying anything in the form of taxes to the state.
So a trust fund baby, say Mr. Slim in my example is automatically enrolled by the Angel of Death loophole into the elite, while an ordinary working class baby say Mr. Fat is left to live paying taxes on every income dollar, he makes in his lifetime. Mr. Slim stands to go to the best private schools and universities and remain above the proverbial glass ceiling, while Mr. Fat is consigned to public schools and maybe a community or state college if lucky, and then work on an hourly wage basis for the rest of his life (not even realizing that there is a glass ceiling). Mr. Slim will hire and fire Mr. Fat based on his inheritance and superior circumstances of birth due to ownership of assets. He will pound the gavel of injustice saying that these working class blokes; should work and study harder, to rise out of their poverty reinforcing circumstances.
I consoled my Angel of Death and requested him not to worry and to hush up, as there is no way that the powerless 99% can overcome the powerful 1%. I said that I and my heirs will continue to pay Capital Gains and Income and other taxes, as we need to sell our assets to live, as we are more Mr. Fat than Mr. Slim. The wealthy will ensure that this Angel never dies, as all kinds of erroneous arguments will be made to protect this tax loophole.
- Reduction in capital gains tax improves tax collections and allows productive investment in our economy. I do not see billionaires lining up to pay their fair share and instead see tax and financial consultants, spending huge amounts of time helping the wealthy ensure; they can pass the capital gains to their heirs. No productive deployment of capital is possible in a model where huge capital gain investments are kept “locked in”, just to avoid tax, and not because it is best for our economy.
- Capital gains help the poor come out of poverty as they encourage innovation and entrepreneurship. In my example Mr. Slim does little or nothing to promote innovation and entrepreneurship because his grandfather left him billions in capital gains, which he will pass on to his heirs on his death, also tax free. Mr. Fat on the other hand may become hugely successful and then end up paying millions in taxes, as he and his heirs will need to continually sell and invest; in new ventures, and risk taking entrepreneurships. In fact this Angel is truly one of death, as it encourages protection of the status quo, and not the wild adventures of swashbuckling pirates needed for development of our economy.
- Cutting Capital gains tax will lead to an economic boom. Detailed analysis over a long period has shown that there is no clear relationship between Capital gain’s tax rates and GDP growth as increases in rates have not caused an economic collapse or a decrease in rates caused an explosive growth in GDP.
I pointed out to our Angel that half of our tax code is used to just define the difference between Capital Gains and Income and we can reduce all this complexity by just going to a single consumption tax. The current code is unfair, inefficient and overly complex. When I said that congress can do all this at one stroke, he brightened up considerably. I smiled and said that as it is so simple he need not worry as the Angel of Death, will become the Angel of Life for a new economic boom. It was then I realized that he was happy not at the easy solution but at the mention that only our Congress can change this complex tax law. He passed my financial plan for the year and I left I saw him smiling; as he knew he was secure, as the do nothing congress, will make sure he lives forever.