John Stoehr: Millions made the old-fashioned way
The conventional wisdom is that Connecticut taxes people to death before taxing them again with an onerous estate tax (aka the “death tax”). This, according to the conventional wisdom, is fueling a veritable exodus, as senior residents especially flee to states that do not tax income or the wealth they will leave to their families.
I have in the past tried to cast some doubt — only some! — on this conventional wisdom. People move for a variety of reasons, some having to do with taxes, some having nothing to do with taxes, or a mix of the latter. The fact is moving is profoundly disruptive, and most people most of the time won’t endure it unless they must.
But earnest people persist in telling me they must, because there are more millionaires in Connecticut than I know, so there are more people subject to the estate tax than I know, so the reason for Connecticut’s exodus is directly attributable to our tax fetish.
For evidence, I’m encouraged to read Thomas J. Stanley’s “The Millionaire Next Door,” a tome solemnly held aloft by talking heads at Fox Business and CNBC as an exemplar for would-be millionaires. What some may not know, however, is that the late Stanley wrote about a world already vanishing by the time the book was published 20 years ago, a bygone era in which honest people amassed fortunes with hard work, shrewd investing and pluck.
Stanley’s bestseller was about millionaires who aren’t flashy. They are humble and even boring, often the owners of small firms that may not exude Wall Street glitz but that are nonetheless vital to their communities. A central figure in his book was Ronald Read, a Vermont janitor employed by JC Penney who managed, it was later revealed, to amass $8 million. He worked dutifully, spent little, and evidently suffered no serious illness (he died in 2014 at age 92).
When news broke in 2015 of Read’s bequeath to beloved institutions in his hometown of Brattleboro, it spoke to our collective belief in the American creed: that anyone, even a lowly janitor, can be rich as long as he has the right virtues and as long as he has enough ambition and grit. And it’s this American creed, I suspect, that makes the idea of a “death tax” so offensive to so many. If a man like Read can build a fortune despite coming from nothing, how dare the state confiscate what’s rightfully his.
I love the American creed, but I believe it’s more inspirational than aspirational. Millionaires coming from nothing were rare 20 years ago and are now close to extinction if they are not already extinct. Why? Wall Street does not perform today as it did for Read.
At the time of his death, Read owned at least 95 blue-chip stocks in, among other holdings, Wells Fargo, Procter & Gamble and Colgate-Palmolive. He left them untouched for decades during which the equities market experienced an unprecedented bull run. As the Los Angeles Times’ Michael Hiltzik wrote a few months after Read’s passing, if you invested $100 in the beginning of that period starting around 1980, it would be worth about $2,000 today.
So Read was lucky. Very lucky. Not only did real hourly wages peak in the 1960s, Read used his to make long-term investments during a period the likes of which we may never see again. As Hiltzik said: “These trend lines occur less than once per lifetime, and ’70s-vintage rock-bottom valuations, which were themselves the product of a high inflation and interest rate environment, aren’t in place today, when inflation and rates are near historic lows.”
None of this will stop the talking heads from claiming that you too can be a millionaire, because the talking heads trade in myth-making as much as market analysis. The more we believe the myth, the more we watch talking heads on CNBC reporting with approval the heartwarming story of a librarian who left behind a ball of cash.
Heartwarming — and rare. There may be a millionaire next door, but he or she is not the kind Stanley extolled more than two decades ago. Increasingly these days, you must already have means to rise to such heights. For those few Ronald Reads still living among us, perhaps they should consider leaving Connecticut. They made their money the old-fashioned way, as the old Smith Barney ads said.
They earned it.
John Stoehr is a lecturer in political science at Yale University. He can be reached at email@example.com.