Half of Prince's $300 Million Estate Could Be Taxed. That's a Good Thing.

AP Photo/Chris O'Meara

Prince performs during the halftime show at the Super Bowl XLI football game at Dolphin Stadium in Miami on Sunday, February 4, 2007. 

The massive global outpouring of emotion in the wake of the sudden death of pop sensation Prince has mostly subsided. What’s left is likely a prolonged dispute over his sizable estate, valued in the hundreds of millions of dollars—a dilemma made ever more complicated by his lack of a will. 

Rooted in this dispute is an open question: How much of what Prince earned should go to the U.S. Treasury? 

By any measure, Prince was an exceptionally productive musician. He racked up seven Grammy awards and released 39 studio albums, not to mention the reported 100 albums he recorded but never released. For this work, he was paid handsomely, generating a fortune worth over $300 million at his death. 

Beyond his own talent, hard work, and a bit of luck, though, what else contributed to this fortune?

If you're a taxpayer, you did.

Consider the help that Prince, a lifelong Minnesotan, received from the country’s public intellectual property laws, which protected his music from exploitation. Or the public judicial system that famously (or infamously) adjudicated his numerous contract disputes. Or how about the public telecommunications network that enabled millions of listeners to hear his music on the radio, on television, and later online?

Not to mention the standard benefits we all embrace, like public roads, schools, hospitals, and universities. Fire fighters ensuring safety at his concerts and his home, police protecting him from potentially overzealous fans—the list goes on. Would Prince have been able to generate his fortune without such taxpayer-funded systems in place?

Advocates of small government like to make sweeping claims about how they will unleash free enterprise, most often by shrinking public programs and the tax system that funds them. What they don’t mention is what happens to countries with little or no government in place. War-ravaged Somalia, which hasn't had a unified central government since the early 1990s, comes to mind. Low taxes: check. Limited government: check. Freedom from regulation: check. Also: famine, disease, extremist violence.

Indeed, not many people would argue that Prince would've been more successful if he'd been born in Mogadishu instead of Minneapolis.

Which brings us to the estate tax. The modern federal estate tax, which dates back 100 years, was put in place to generate revenue from the estates of the wealthiest households. It’s also designed to check the intergenerational transfer of immense fortunes and thus reduce inequality.

Since its inception, the levy has only fallen on the small subset of well-off households at the top of the wealth pyramid, although that portion has shrunk precipitously in the past two decades. Today, only estates larger than $5.4 million (or twice that for married couples) are subject to the tax, which amounts to fewer than two in every 1,000 households. Those that do pay have a menu of avoidance options at their disposal, bringing the effective tax rate to just 16 percent — less than half the statutory rate written in the tax code.

Yet, reading the anti-tax rhetoric in the business press, one might get the impression that the estate tax—often demonized as a “death tax”—was an evil weapon designed to allow big government to snatch your fortune. This rhetoric grows out of a multi-decade anti-tax campaign by conservative ideologues and their wealthy backers. The anti-tax lobby has used unscrupulous tactics, as well as outright lies, to push estate tax repeal from the far-right fringe into the mainstream.

In a recent speech at Boston College law professor Michael Graetz called this effort “one of the most effective legislative campaigns in recent times.” At the root of this effective campaign is a powerful and effective narrative that supporters of repeal have used to stir up public empathy for people paying the estate tax.

One oft-repeated story centers on Chester Thigpen, an African American tree farmer from Montrose, Mississippi, who at age 83 testified in front of the Congress in 1995 against the estate tax.

In his testimony, Thigpen claimed that the estate tax would tear apart his family farm, and that only full repeal could protect his family from this fate. The grandson of slaves, Thigpen was “the perfect poster child for the repeal campaign,” Graetz said in his speech, “a front for wealthy white families who were financing the repeal machine.” Thigpen’s story was repeated over and over again, and its racial undertones implied that the tax disproportionately impacts black families.

The only problem? It was a complete lie.

Thigpen’s estate never paid the estate tax—it was below the minimum taxable threshold. According to his son, he didn’t even write his own testimony. Still, since then, prominent Republicans have repeatedly hammered home the myth that the tax falls heavily on small farmers, despite their inability to actually identify a single farm lost as a result of the estate tax.

But what, you might ask, does all this have to do with Prince?

After the dust settles, family members—whoever among them win out in the courts—will claim around half of the iconic pop star’s lucrative estate. But first, about a third will go to the federal government, and 16 percent will go to the state of Minnesota.

That's because Minnesota is one of the 18 states that maintained its state-level tax on inheritances after Congress effectively zeroed them out in 2005, a result of the 2001 Bush tax cuts. Together, those 18 states raise over $4 billion in revenue annually, while the 32 states that forgo estate taxes leave between $3 and $6 billion on the table every year.

Prince’s story stands as a counter to the false tales told about Chester Thigpen and others used as props for the estate tax repeal lobby. Prince didn't engage in the tax dodging chicanery now commonplace among the wealthy. He didn't use elaborate trusts and offshore tax havens to hoard his assets.

Yet he still managed to generate a large fortune to pass down to his heirs, who will receive plenty enough to keep them comfortable. This arrangement—giving some to maintain the system that helped you succeed and the rest to your heirs—is exactly how the estate tax system was designed to work. 

Prince wasn't born into wealth, and his rise to fame is as unique as it is inspiring. Given the prodigious benefits he derived from our taxpayer-funded system of wealth creation, it seems only right that part of his legacy will be to help ensure that other children have the opportunity to make it out of poverty.

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