Class Envy and Getting Rich Quick

by | Mar 14, 2001

It may be easier than you think to get rich quick. Let’s take a fairly common situation in California. A couple buys a little square box, two-bedroom house on a modest-sized lot during the 1970s for $30,000 or $40,000. Then, over the years, they pay off their mortgage, raise a family and die at the […]

It may be easier than you think to get rich quick.

Let’s take a fairly common situation in California. A couple buys a little square box, two-bedroom house on a modest-sized lot during the 1970s for $30,000 or $40,000. Then, over the years, they pay off their mortgage, raise a family and die at the end of the century. They have never been rich a day in their lives but, when they die, they suddenly become “rich” when it comes to paying estate taxes. Their little house may be no more fancy than it ever was, and it is 20 or 30 years older than when they bought it, but it can now be worth half a million dollars or more in the inflated California housing market.

Any hope that their children can inherit the house depends on those children coming up with hundreds of thousands of dollars to pay the estate taxes. Chances are the only way they can get that kind of instant cash is by selling the house. They may be “rich” as liberals define the term, but that just shows how slippery words can be, especially when used by politicians.

Ironically, it is California’s many [Leftist] restrictions on building which have caused the prices of very modest homes to skyrocket up to levels charged for mansions in other parts of the country. But these big numbers on paper do not translate into any higher standard of living for the people who own these homes.

If the home owners sold, then they would have to either pay similarly stratospheric prices to buy another house or pay astronomical rents for an apartment. Only by leaving the state, or by moving to one of the few areas of the state not dominated by liberals — and which therefore have much lower housing prices — could they gain any benefit from being “rich” on paper.

This is only one of many ways in which you can find yourself getting rich quick — as liberals define “rich” when they are trying to keep taxes from being cut. When they oppose “tax cuts for the rich,” liberals often talk about what a small percentage of the people own some large percentage of the total wealth of the population. But they fail to note that the population includes babies, toddlers, and teenagers, as well as young people just starting out their careers in their twenties.

Households headed by young adults in their twenties have only a fraction of the net worth of households headed by people in their sixties. Most of those who are called “the rich” could more accurately be called the middle-aged or the elderly. They are a major reason why a small percentage of the population owns a large percentage of the wealth.

Older Americans may have been paying down their mortgages for years and now have some equity in their homes. The money in their pension plans has also grown and they may have saved some money in the bank, as well as having collected a few possessions with some value over the years. All that may be enough to put them in the top 10 or 20 percent in wealth, without their being in any real sense rich. But they are rich enough to be taxed heavily.

A census study a few years ago showed that the median net worth of households in the top 20 percent of income earners was $123,166 in 1991– and most of that was equity in their homes. You don’t buy yachts or your own private jet with that kind of money. There are some genuinely rich people, but most of those who are described that way in political rhetoric do not fill the bill. Most people have no idea that, when politicians talk about “the rich,” that is a category that is likely to include them at some point in their lives. Even among people who were in the bottom 20 percent in income in 1975, a majority were also in the top 20 percent at some point over the next 17 years.

It is bad enough to envy others. But to envy yourself at some other period of your life is madness. Yet clever politicians who promote class envy can get gullible people to support high taxes that will fall on themselves, sooner or later. And if they own a home in coastal California, then their children are also likely to be considered “rich” when time comes to pay estate taxes, even if they don’t have enough money to be able to live in the house their parents paid for, but have to sell it to pay the taxes.

It is a similar story when parents try to leave a farm or a small business to their children. The only way the children can keep it is if they have enough money to pay huge estate taxes. Otherwise, they will have to sell the farm or business because they are too “rich” to have their taxes cut — and not rich enough to be able to pay them in cash. Getting rich quick has its problems.

Thomas Sowell has published a large volume of writing. His dozen books, as well as numerous articles and essays, cover a wide range of topics, from classic economic theory to judicial activism, from civil rights to choosing the right college. Please contact your local newspaper editor if you want to read the THOMAS SOWELL column in your hometown paper.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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