The guilty conscience of America's millionaires

Why the super-rich are making it hard for George W. Bush to put through even modest plans for estate tax cuts.

President George W. Bush knew from the start that his tax cut plan might face some opposition. What he probably did not expect was that the charge against him would be led by America's multimillionaires, a group he thought he was helping.

Last week a number of these multimillionaires launched their battle against the president by publicly assaulting an obscure and relatively unimportant corner of his programme: the abolition of America's inheritance tax, the estate tax. The most outspoken of the group was that emblem of free-market virtue, Warren Buffett himself. While the attackers are concentrating on blocking estate tax abolition, it is already clear that their campaign may jeopardise other, more significant changes, such as the president's across-the-board rate cut.

That the anti-wealth hostility would be so strong, and that it would emanate from this particular group, may seem somewhat surprising. After all, Americans today are generally more comfortable with the idea of wealth than they were in other periods.

The nation's best-seller lists are replete with how-to books on money accumulation. The best-known of these is The Millionaire Next Door, the thesis of which is that anyone can become a millionaire if he emulates millionaires' habits (invest; do not waste cash on flashy cars). Society has elevated Mr Buffett and other entrepreneurs to the level of national icons.

So why is the animus so strong? The answer lies in America's 1990s prosperity. It has been so sustained as to change Americans' attitudes towards money, giving rise to what may be called the new guilt culture.

The new guilt predominates among people who have done well and now feel compelled to pay society back, both through philanthropy and by offering political support for economic redistribution.

The culture abhors classic Republican free-market thinking as unfair, extreme and declasse. The newly guilty find great appeal in the idea of "dying broke": they want to purge themselves and their children of the sin of money. Even though they themselves have benefited from the social utility of the private sector, they feel their legacy will be most socially useful in public and collective hands.

America has always had its share of guilty wealthy. Recall the "limousine liberals" of the 1960s, 1970s and 1980s. Many of this well-to-do crowd were heirs. Some of their hostility was psychological. They wanted to revenge themselves upon their parents, or at least show them up.

The new guilt culture is a bit different. Its members start out as middle-class children. They tend to divide their lives. They devote the first stage of their careers to making money in the most exemplary and aggressive fashion. Then, in mid-life, they enter a second stage, repudiating or ignoring their own shark-like behaviour.

The lottery-style mood of the internet boom helped to fortify the new guilt culture. Many of the newly wealthy accumulated their wealth in months, or years. It did not take them the lifetime that was the old norm for fortune-building. They fear they do not deserve their money.

In last year's elections, the new guilt culture buoyed the Democrats, giving them victories in former Republican strongholds such as California. There were even a few explicit new guilt candidates - self-made millionaires who spent their money to campaign for less capitalism and more redistribution. The popular victory of Vice-President Gore was to some extent a new guilt phenomenon: the newly guilty liked his focus on "doing our share".

While aware of this cultural shift, Mr Bush probably still thought he had a decent shot at abolishing the estate tax. There is a number of legitimate reasons to do so. The first is that the tax is a heavy one. It kicks in slowly - the first $675,000 of assets are currently exempt. But the tax then moves up smartly to a top rate of 55 per cent of assets.

The principal casualties of the estate tax tend not to be the Warren Buffetts, whose attorneys find ways to help them escape its snares. More often the estate tax hits people who lack the foresight to build elaborate defences. In America, families whose main wealth consists in a single illiquid asset - a house, or a family firm - tend to be particularly hard hit.

The final point in its favour is that the revenue the tax pulls in is a relatively small sum in budget terms: only a fraction of the amount of some of Mr Bush's other reforms.

None of this deterred abolition's opponents, who advertised their hostility in The New York Times. On a website, "www.responsible", new guilt joined old guilt (Frank and Jinx Roosevelt and others with reverberating surnames) to defend the levy. They argued that American society had become too prosperous and that, without the estate tax, the US would soon be at the mercy of a new wealth aristocracy.

Mr Buffett told The New York Times that dropping the tax would be like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics".

Within 48 hours of the Buffett assault, Mr Bush received the bad news that the razor-thin support for his overall plan was eroding: two Republican senators had said that they would not vote for Mr Bush's legislation. One of them, Lincoln Chafee of Rhode Island, said that "the public doesn't want us to do anything too radical".

None of this is to say that Mr Bush will fail in his programme, or at least preserve features of it that are far more significant than estate tax abolition. The case the president makes - that lower rates bring opportunity - is enormously strong, particularly given America's international record in past decades. Still, the battle will be tough, for it is not merely a tax battle. It is also prosperity's new culture war.

© Copyright 2001 Financial Times

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