"I guess it is all about how you want to live. If you want to live in a place where there are no safety nets, and where capitalism has few breaks on it- you have no further to look than the 3rd world. For those libertarians who think that sounds like paradise- there it is- rampant polution- along with contaminated food and water- serious issues with beggars, class violence, and often kidnappings. Sound like paradise little liberterians? You know where to go."
I've always liked this perspective from Bill Gates, Sr. regarding the value of taxes. I saw him give a variation of this speech. For the part at the end with God and two souls ready to go to earth, he offers them (speaking to the audience as proxy) the choice to be born in Nigeria or the US for a stated % of their estate at the time of their death.
"How many of you would choose to be born in Nigeria if you have to give up 25% of your wealth at death?" Zero hands go up.
"How many would choose to be born in the US?" 100% of the hands go up.
"How many of you would choose to be born in Nigeria if you have to give up 50% of your wealth at death?" Zero hands.
"How many would choose to be born in the US?" 100%
"How many of you would choose to be born in Nigeria if you have to give up 100% of your wealth at death?" Again, zero.
"How many would choose to be born in the US?" 100%
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The discussion today, of course, has at its base the need for some reform, some liberalization, and most particularly in terms of the exempt amount, and depending a little bit on where that number lands, the number 2 percent goes down to as little as three-tenths of 1 percent. That would be the case when the current bill finally arrives at the $3.5 million exemption, then the number of people paying estate tax in our country in any given year would be three-tenths of 1 percent of those who die.
It seems to me that that particular prospect needs to be addressed. It seems to me that there might well be a sense that someone would say, "Do we want a tax in this country that applies to such a small number of people? Is this a thing that is consistent with our basic principles?" And let me talk about that for a minute. I grew up with a sense that society at large, in this country at least, was accepting of the notion of progressive taxation, that it made sense to our country and to its economy that taxation of wealthier people would be at higher rates than taxation of people in lower income levels or lower net worth levels. I don't know whether that is still an accepted thing. It seems to me that there is some change in that thinking, that people are less comfortable with that. And I'd like to speak to that for just a moment.
Let's talk about the question of why people are wealthy. There is a myth that it's a function of enormous personal attributes. There's a myth that achieving wealth is a function of personal intelligence and energy and thus that the product of that intelligence and energy being wealth is the sole and exclusive possession of the person who developed and earned it. And that myth is so egregious. It's just egregious. You know when you start off with a proposition, let's take our mythical hero and as Warren Buffet loves to say, let's take this person and instead of having him born in the District of Columbia, let's have him born in Abuja, Nigeria, and let's reexamine his life in that setting and let's look at what his net worth turns out to be when he or she dies. And of course the answer is zero.
What is the difference? The difference is being an American. We live in a place which is orderly. We live in a place which has markets that you can count on. Next Tuesday is going to be very much like today and the Tuesday after that. This is an orderly, stable place. It's a place where markets work because there is legal structure to support it. It's a place where people can own property and protect it. It's a place that has a court system that works. It's a place that has basically a government that works, so that you have the opportunity to think and to plan and to build and to create.
To me, the thing that is left out of that equation, you know, the orderliness, the stability, the markets, those things are arguably a bit indirect. There are some things that our government does with its tax money which directly create personal wealth and that is the enormous federal research activity. Do you know there would not be an Internet but for federal research money? There would not be new biotechnological companies but for the federal research effort. There would not be an examination of the human genome without the federal research effort. In those university laboratories is the seed of the health of our economy.
We have a wonderfully robust economy, which may be a gutsy thing to say on a Tuesday in January 2003, but in fact it is an enormously robust economy, and the individual wealth which is generated in this economy is, in my judgment, and I doubt that there is much that anyone could disagree with about this, is a function of the innovative businesses which are created as a result of federal research. But you understand that the people who benefit from that research get it free. The universities own it under federal law. And the universities have the ability to license it, even the professors who are in many cases the inventors generate a direct personal stake in the products of that research. So, if somebody starts a software company or a biotechnology company, or even if somebody owns a building in downtown Washington which you rent to those people, it starts from the same place. It starts from this incredible research activity which is going on with federal money.
That leads me to a very simple conclusion. I think that people who have the good fortune, the skill, the luck to become wealthy in our country simply have a debt, simply have a debt to the source of their opportunity. So I just don't see any problem with an estate tax which recovers from those folks at the time of their death, and at the time of the transfer of that wealth to their progeny or wherever, of imposing a tax which in some part recovers and generates payment of what seems to me to be a very clear and simple obligation. That is why so many of us feel that this is not only an appropriate tax, it strikes me as about the fairest of all. It's the most progressive element of the federal tax system. It is a tax which is based on a simple proposition, that if you achieve enormous benefit as a result of somebody else's effort then there is at least an implied indebtedness.
I haven't even mentioned another element of this, which is huge. Imagine if you will, once again let me use Abuja as a place; imagine if you will having in your possession a wonderful invention of a new pharmaceutical which you want to manufacture and promote and you're in Abuja. Now, where do you find somebody to work in your place to help you create this? Where is the expertise? It's not there. You couldn't do it. But in this country you just put up a flag and here are all these well-trained, bright young people, eager to have a stock option or whatever the heck it is, and they'll come work for you and they'll help you get that pharmaceutical out on the market. Where did they come from? They came from a subsidized education. If you don't have that cadre of skill and training, you can't do business, regardless of how energetic, how intelligent, or how perceptive you may be.
Our country, it seems to me, needs to face up to a simple proposition, that one of the ways that we support the things that the country, the conditions that it creates for our economy and for the opportunity for people to become wealthy, to live a comfortable, wonderful life in which because of their resources they have this huge array of choices before them every day when they get up in the morning. It seems to me so simple that we should impose a tax on those folks' wealth when they pass on, to say nothing—to say nothing of the, in my judgment, foolishness of allowing free passage of that wealth to their offspring, which is no good for anybody.
Let me take one more minute and tell you my fable. My fable is that God has, like so many of us, had an excessive investment in the dot-com stocks and His treasury has diminished substantially and He has a need to replenish His funds. And He's worried quite a bit about this, and suddenly it occurs to Him that, being a long-range thinker, that there is a way of solving this problem. So He looks around and He finds the two spirits of the next two children to be born and He calls them into His office. He says, "Now you folks are about to be born and I have one spot in America and I have another spot in Western Africa.
"What I'm going to do is I'm going to auction off the birth in America. So I'm going to hand you each a piece of paper and you write on that piece of paper how much of your net worth you're willing to cede to my treasury on the day of your death, and the one of you that writes down the highest percentage will get the spot in America." So He hands them each a piece of paper.
And you're sitting over in the corner watching this and you say to yourself, "He's not going to get anywhere with this," or "She's not going to get anywhere with this because they're both going to write down 100 percent." So my question is, what is it worth to be an American? Thank you.
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