Dystopian Paradox

In 1980, the CATO Institute called the Chrysler bailout a move toward feudalism. The Paulson plan as he proposed it is a giant step in turning the US of A into a feudalistic state. The process has been snowballing since the creation of the federal generation skipping tax.

A little background on the feudal system. All real estate was owned by feudal lords. The surfs, now called taxpayers, were taxpayers and effectively slaves of the feudal lords.

The evolution of anglo saxon jurisprudence beginning with the Magna Carta changed all that. Western Civilization came out of the dark ages and into a period of enlightenment. Our federal constitution is a result of the age of reason.

A cornerstone of modern property rights has been that you can’t put property in a trust and the trust continue in perpetuity. Briefly stated, the rules requires that property in trust must be distributed and the trust terminated within twenty-years after the death of the last beneficiary who was alive at the death of the person who transferred the property in trust. A little confusing, but hopefully an example further down will clear things up.

The reason for this rule is to prevent the return of feudal states. If property can be accumulated in an entity in perpetuity, then it will grow like a cancer that will destroy basic human rights and freedoms.

Prior to the inception of the generation skipping tax, there was no transfer tax on assets in a trust on the death of a beneficiary in the generation immediately below the creator of the trust.

For example, Dad could put $2.5 million in a trust, net of gift tax, for the benefit of daughter and the residue to daughter’s kids 21 years after daughter’s death. No estate tax on daughter’s death and no gift tax on the distribution to Dad’s grandkids. The terms of the trust complied with the rule against perpetuities.

Enter the generation skipping tax and it’s exemption. Dad dies in 2008 leaving his $2.5 million estate in trust for daughter and her heirs in perpetuity. Dad lives in a state that has abolished the rule against perpetuities.

In 2008, Dad’s $2.5 million estate is exempt from federal estate tax. Moreover, there is a generation skipping tax exemption in the same amount. Thus the $2.5 million estate will never be subject to a transfer tax either on a beneficiary’s death or when distributions are made to a beneficiary.

Twenty-five years ago, the rule against perpetuities was sacrosanct. However, state legislatures have become stocked with greedy people who have convinced the guy on the street that death taxes are bad and a person should be able to in effect control property from the grave in perpetuity. So in spite of Congress imposing a tax on transfers that skip generations in the last twenty years, the available exemption from it provides an opportunity to establish feudal states in perpetuity. If the federal estate tax is eliminated, the size of feudal states will grow quickly and exponentially.

It is an immutable law of the universe that the big fish eats the little fish if they live in the same pond. Costs for everything are much more expensive for those who don’t have the money to pay them. Opportunities for main-street America people dry-up. America the land of opportunity becomes America the land of hopelessness.

The feudal states of old were geographical in nature. The present feudal states are virtual, that is, the feudal lord can live wherever he or she wants to. The ownership of all property rights is evidenced electronic documents and transferred electronically.

And the Paulson’s of this world, who is reputedly worth $600 million, in complicity with people like the GW Bush’s of this world, make surfs out of us taxpayers very quickly. Were going to pay for their screwups and they lose nothing, much like the Crusaders of Old.