What would happen if very little wealth was ever inherited?
By Bitcoins arent the future? Follow Mon, 31 Oct 2011, 10:12pm 5,871 views 77 comments
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Bellingham, WA
Inherited wealth is part of the problem but it is not the major problem.
Per-capita health care is $8000 in the US and half that everywhere else.
Paris Hilton isn't lifting $4000 out of my wallet every year, but our health care system is.
Inherited real property tax basis is something of a massive problem in California, especially income property. This is just retarded.
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This post is less logical than bitcoins.
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Davis, CA
After the Bubonic Plague came the Renaissance.
Freeing up wealth to CIRCULATE instead of being buried in circle-jerk finance games is always a good idea.
The Walton family would hate this idea.
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33 male
Fort Mill, SC
The Rockefeller family STILL enjoys the fruits of their ancestor's labor 100 years after the breakup of Standard Oil. Not a single member of that family have been innovative enough to create wealth since - that is, everything that anyone in that family has achieved since has been only because of John D's wealth. Under the current system, this wealth will surely exist for 100 years more....
How is that fundamentally different from the feudal aristocracy popular in Medievel Europe?
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33 male
Fort Mill, SC
Just some fun math....
Assuming 30 years between generations and a 5% average growth rate, inherited wealth will never decrease under the exemption as long as each split of the estate has four or less offspring, regardless of the tax rate above the exemption.
That is, under the current exemption of 10 million, an estate that is split 4 ways (2.5M each) will grow to exceed 10 million by the time that generation goes to pass it on the next. Only inflation would erode the relative value of that wealth through time. 95 years from now at 2.5% inflation, that inheritance is still in excess of $1M in todays dollars. It takes about 190 years for its real value to fall to $100k. In about 215 years, the value in todays dollars will finally fall below the median annual household income of $50k.
This scenario is if tax rates are 100% above the $10M exemption. Lower tax rates expand the number of generations that it takes to get the transfer to $10M.
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Well the original argument for non profits about 100 or so years ago was largely a way to hide wealth. Olympic sized swimming pools, massive libraries, access to the latest a/v equipment were all in some of those victorian era ones.
The funny thing about the estate tax is although it can be raised to where it was very few really pay it. Estate planning largely can avoid paying for it to start with.
But at the same point with wealth the argument should also examine what is being bought. Ever see Brewsters Millions? He spent tons of money on a rare stamp only to mail it. He ran for office and gave way tons of food and drink only to say don't vote for me.
The IRS will clamp down on people giving money away...but if someone just buys things and gives them away that's away around it.
One issue when scandle hit is frankly people waste other peoples money on items that drop in value.
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46 male
Menlo Park, CA
I'm not sure about taxing legitimately created and saved wealth, but I am sure that we should heavily tax wealth derived from mere ownership of wealth. The rich should not be paid to be rich.
We should tax unproductive rent-seeking and not tax actual productive labor at all. So the interest on inheritances should be taxed at 100%, for example. But some guy earning all his income from physical labor should have 0% income tax.
The tax system should allow the lower and middle classes to rise. The tax system should not protect unproductive trust-fund babies and all their descendants from ever having to do any real work, ever.
Every single policy of the Republican party (and half the policies of the Democrats) are designed to enrich and protect the aristocracy at the expense of the 99%.
Even the issues that don't seem at first to be protecting the aristocracy (God, gays, guns, flag) are designed to divide us and make us easier to conquer by the aristocracy.
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Moraga, CA
To me it's just as important where a person's income comes from as how much income he/she has when determining tax rates. If someone like Oprah can overcome just about every disadvantage society throws at her and ends up a billionaire through her own productive endeavors then I don't think she should face punitive tax rates just b/c she's in the 1%; Income which is the fruit of one's labor and the product of one's endeavors should be lightly taxed compared to income which is the unearned proceeds from a trust or inheritance. Someone with a $20K per year trust fund should pay a much higher rate on that income than the billionaire who earned his/her wealth through their own legal activities. Also, while it is true that our genetic inheritances are unequal and some people are naturally more gifted and intelligent than others, the person with the superior genetic inheritance must still apply their gifts and intelligence in the work place in order to produce an income - so genetic inheritance is not analogous to monetary inheritance.
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Interesting ideas here. How would a higher rate be applied to the interest/return on inherited wealth?
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Patrick says
How is it that they are being "paid" to be rich? They are not being given any additional money, but rather left to keep what is actually rightfully theirs. The money that these wealthy people leave behind to their children has already been taxed and they should be given the right to do whatever they wish with it. Your logic is clearly delusional as it would mean that no parent would be able to leave anything to their children since you propose a 100% inheritance tax. Your ideas actually strike at the core of what this country stands for. Every American's dream is to provide a better life for your kids than what you have had. Your suggestions crush this idea.
Yes, life is not fair and all of us cannot be filthy rich. But it doesnt mean we have to drag the rich down to our levels to make us feel better.
Also, I would prefer if you left politics out of your website as it is clear that you have a strong bias without very good reason to back it up. You lose credibility and I find myself as well as many others losing interest in your website.
feel free to respond so others may read, but I doubt Ill be back to check up on your reply
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Estate Tax: limits the concentration of wealth, power, and privilege while redistributing the tax burden.
Sounds fair to me.
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Have you ever heard the phrase: "Shirtsleeves to shirtsleeves in two generations"?
Just because you inherit wealth does not mean that you will be able to maintain that wealth. Property rights of descent and devise are based on honoring the wishes of the person who freely earned and amassed the wealth legally within the confines of our laws.
You can say that the descendants have not earned the money, but then again, neither have you. Either way, it's immaterial. The wishes of the person whose blood, sweat and tears went into earning the money should be honored. "Society" doesn't work until late at night, weekends, holidays, etc., to grow a business -- people do.
The probate laws assume that the wealth creator would want his or her heirs to inherit the wealth (a fair assumption). But a will or trust can give the estate to a charity, or the government, a foundation, or a friend.
Providing for ones family after death is one of the chief drivers of wealth creation. If laws are enacted that remove that incentive people won't work as hard. This has been tried in communist countries during the last century. It failed miserably.
Property rights are a fundamental cornerstone of liberty. If you don't own the products of your own labor then you're a slave. This is unarguably true during life so why should this change at death?
My advice to the author is to stop envying others success. Make your own luck by working hard. But, don't be too successful or the jackals like yourself will circle around your own deathbed.
Cheers!
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We don't exactly have a direct taxation on wealth because frankly that would run avow of the 5th amendment. Let's say 12 or so years ago someone bought a bunch of gold coins ($275 each) they died and left them to their grandkids and they are now worth more than 5x that. The government frankly is not going to know.
Sales taxes are dependent on a sale, income taxes are dependent if someone has earned income, capital gains taxes depend if someone had a gain. The estate tax I'd say is the only real tax on "wealth" but since it is payable upon time of death and people have lived longer estate planning largely nullifies it as any real source of taxation.
Bill Gates put most of his money in his foundation..by law they have to spend 3% a year.
Way back in the day old wealth tended to build large structures. I hear in Europe that's how large estates developed. It does not stand out so much now but to have a mansion BEFORE suburbia was made really stood out at the time. Now there's plenty of ways to spend money and divert it.
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Baltimore, MD
I would have to wonder if this was done in the Soviet Union and if so how did that work out?
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Miike says
Yes, my favorite Thomas Jefferson quote is "Life, Liberty, and the unquestioned right to the labor of my parents".
Or maybe it was "There is also an artificial aristocracy founded on wealth and birth, without either virtue or talents [...] The artificial aristocracy is a mischievous ingredient in government, and provisions should be made to prevent its ascendancy."
I always get those mixed up.
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russell says
If you can call being a celebrity "productive". Oprah is about as "productive" as Jerry Springer, Rush Limbaugh, and Paris Hilton. Celebrities don't produce anything, they just extract wealth from their duped followers and groupies who buy their crap/books/endorsed products. Oprah specifically is almost like a cult leader and/or televangelist.
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how odd .... folks want to take something earned by one person and hand it to whomever they feel deserves it .... seems so foreign.
It was wrong for the RElenders to privatize gain while making loss a public matter. It is just as wrong to make profit a public matter and then privatize the losses. If Heinz makes good catsup, then Heinz can keep their money and I do not deserve any of it. It was Heinz that took the gamble, and was the winner ... to the victor goes the spoils. I do not want to be on the hook for saving Joe's Catsup, ala Solendra, due to leftist activity in Gov.
Let the capitalism work.
Repopulate mexico.
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Corning, NY
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Miike says
Fair enough. But what about the risk of ending up with a society with a parasitic aristocracy that just collects the fruits of everyone else's labor? Also, with enough money a person can buy politicians...and thus buy laws that further entrench a their power to effectively enslave their fellow citizens.
Remember, this is America. There is no such thing as "right and wrong" here...just money and power. We despise any kind of ultimate moral authority. In America, might makes right. It took a WAR to end slavery, for crying out loud.
So if we the 99.9% don't want to be slaves to the 0.1%, we'd better tax the 0.1%. Remember it was Warren Buffet that came out and said there was in fact a "class war" and that his side was winning big time.
I used to believe in American Exceptionalism, capitalism, etc...until the Big Banks were bailed out. Then I realized the U.S. is just another third-world kleptocracy with a government for sale to the highest bidder. Crony caplitalism is the name of the game in America.
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I am sorry but young people like me 30 years old, i am not wealthy but i have no debit and never bought a house my parent own there house and 12 rental unit and a small business that they have ran for 32 years, they have like 2.2 mill invested, it was over 3.6 mill before the crash, the business they own are two mini storages, they have about 1300 units that they own, now i understand if young people like me are pissed but anyone over the age of 45 on this site that is bitching, i dont what to here it, you guys had your chance to make your money if you did not tough, i was working in realestate and mortgages from 2003 tell 2008 with my mom, i was able to save like 160k i have a house i still owe 80k on, and have no debit, my mom works like 65 hours a week still helps run the mini storage business. her and my dad own, but her realestate business and mine has really slowed up but i am working for them part time and i work at a gym, to say your are going to tax wealth, that my parent and me and my sister have been working for, even if it was made under a corrupt system is communisum, i understand that alot of people are pissed off, but that type of reasoning is not every going to happen. number one thing that must happen, stop regulating health care, out law insurance of any kind, because it is the definition of communisum, stop regulationg energy, and cut the pay of every government worker making over 30k pery year period. The reason these college kids are screwed is there parent did not plane of save for them, my grandpa owned a taxi cab company before that is was the great depression everyone was broke. My dad was an engineer in the 70's, my mom worked in realestate, saved and started a business, but all the growth was fulled buy some demand, but mostly wall street and government regulations. Look go to any other country in the third world it is rich and poor and that is what is happening here, if you have debit and can not afford it declair bankruptsy, get it out of the way but stealing people hard earned money and sacrafice, that is just wronge my mom and dad. Have worked hard there whole life and to here this is not good. I understand that my generation and younger are screwed. But i will say this we are charging less for storage because of less demand, that is called the freemarket, but the government and all these lobbiest and politicians think just kick the can, everyone is living different, my mom is selling house still but only like 150k houses or less and there are alot fewer selling.
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The inheritors of the Rockefeller fortune pioneered the creation of the venture capital industry.
Capital rationing works out much better in the private sector than when the government allocates capital which apparently would be the case with 100% inheritance tax. In the case of homeownership, the government expanded the allocation of capital by encouraging Fannie and Freddie to make riskier and riskier loans. This created the housing bubble and crash and the government response has simply prolonged the agony. In the case of green energy we have the Solyndra debacle. If we had 100% inheritance tax, the government evidently would allocate the capital rather than private industry and the results would be typical government results.
100% inheritance would disincent the type of hard work (i.e. typically almost total consumption of one's time) needed to create new businesses.
The tax code needs to incent work and savings. The more people we have that can attain a basic level of self-sufficiency through investments and modest inheritance, the more freedom and less potential burden on the working taxpayer to finance them. I am glad that the baby brat generation stands to inherit a lot of money. While a few will inherit millions, most will inherit a relatively modest sum. The baby brat's me-generation profligacy has led to their low rates of savings for retirement. I do not want to be burdened with the entire generation looking for even higher social security transfer payments for their retirement. The current system encourages personal responsibility for figuring out how to make ends meet. With 100% inheritance tax, this generation will vote for the government to redistribute everything to them so that they can be on the golf course while the younger generations just have to pay higher and higher taxes to finance it all.
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Bellingham, WA
PhPh says
LOL. Liars gonna lie.
http://research.stlouisfed.org/fred2/graph/?g=37Y
blue line is total mortgage debt.
red line is GSE debt + ABS (I think this is correct)
http://research.stlouisfed.org/fred2/graph/?g=380
shows YOY change, and I added Case Shiller in yellow.
When the housing market was peaking in 2005, the red line (GSEs) was actually going down.
GSEs didn't get back into the game until after the market peaked in 3Q05.
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Baltimore, MD
I'm still wondering if this has ever been the case, anywhere. Even in prehistoric times, wouldn't one inherit the cave?
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Moraga, CA
Of course people should be able to leave their money to their hiers but the hiers should pay high taxes on the money. Government can and should use the tax code to reward and encourage work and innovation. The huge and growing gap between the haves and the have nots in the US can be substantially reduced by beefing up taxes on all inherited wealth. In addition to making ours a more fair society it may also improve the economy as more people spend their money on themselves instead of socking it away for future generations. There used to be a bumper sticker "I'm spending my kid's inheritance" - nothing wrong with that! Trustifarians who are forced to earn a living will also lead to a more productive and innovative society. Simply focusing on the 1% ignores the fact that many of those people earned thier wealth through hard work and innovation - something the government should encourage more of.
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Los Angeles, CA
This liberal attitude that 'the government should own and control and regulate everything' is crazy.
Go to cuba you idiots. The 'rich people' in communism/socialism are the government employees/fleecers. Its way worse there and we know the flow of migration is FROM those countries TO the US.
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Bellingham, WA
PockyClipsNow says
. . . really now. Where does the successes of Norway, Sweden, Finland, Denmark, Germany, and The Netherlands figure in your worldview?
Or do you just studiously ignore them?
The US's way of life and standard of living, since 1980, has been built on increasing piles of consumer, financial, government, and corporate debt.
http://research.stlouisfed.org/fred2/graph/?g=349
But for every debt issue there has been a seller of debt. The game has been the fantastically wealthy giving us the credit rope to hang ourselves.
And boy have we ever.
http://research.stlouisfed.org/fred2/graph/?g=37V
Sweden's national debt actually went DOWN this year. Canada's has been under control for a long time.
Us, we're out of control. That graph shows our national debt is up 400% since 1990.
Here's how it looks scaled by wages:
http://research.stlouisfed.org/fred2/graph/?g=385
I'm all for cutting Federal spending, but I know this will utterly destroy communities that are dependent on government cheese.
Same thing with state & local spending, too. We can cut, but with every cut we will lose the redistributional benefit of government spending.
Without government spending $5T+ each year, things would be TONS worse for the middle class. The hiring situation sucks now, but I think the economy would simply seize up if government were cut down to size.
The professional rich, largely, don't spend. They invest. They're like black holes wrt money.
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zzyzzx says
That sounds like a good topic for you to research. Throughout human history tribes have been organized under the wealthy and familial perpetuation via inheritance. Part of the American Experiment (a/k/a "American Dream") was to change that.
Quoting Thomas Jefferson: "The question Whether one generation of men has a right to bind another [...] merit(s) decision, but place also, among the fundamental principles of every government. The course of reflection in which we are immersed here on the elementary principles of society has presented this question to my mind; and that no such obligation can be transmitted I think very capable of proof. I set out on this ground which I suppose to be self evident, "that the earth belongs in usufruct to the living;" that the dead have neither powers nor rights over it. [...] The portion occupied by an individual ceases to be his when himself ceases to be, and reverts to the society."
http://www.twcenter.net/forums/showthread.php?t=231858
Here is an except from "Wealth and Our Commonwealth" written by Bill Gates, Sr. (father of founder of Microsoft). It's an approachable reading of some early American history: http://www.tompaine.com/Archive/scontent/7082.html
Quoting: "The essence of the American experiment is our collective rejection of European hereditary aristocracy and grotesque inequalities of wealth. [...] The nation's founders and populace viewed excessive concentrations of wealth as incompatible with the ideals of the new nation."
Etc.
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46 male
Menlo Park, CA
Miike says
They are being paid to be rich via rent, interest, dividends, and capital gains on assets which they did not work to get.
So:
1. They do no work to get the inheritance.
2. They do no work to get the rent, interest, etc on the inheritance.
Number 1 is being paid to have rich parents.
Number 2 is being paid to simply be rich.
It's very good work if you can get it. Not only is their income probably much higher than yours, their tax rate is much lower than yours.
You will always lose ground to them. Your honest labor becomes meaningless and wasted, because their slacking is better paid, and they extract the fruit of your labor simply by being the "owner" of everything.
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Kent, WA
John Bailo's website
I make a different proposal, which is that assets (wealth) should be taxed each year in the way we tax income.
Interestingly, this article makes the proposal..in 1996...and presciently predicts the upcoming imbalance problems!
Time for a Wealth Tax?
http://bostonreview.net/BR21.1/wolff.html
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Patrick says
FWIW, capital gains is no different than any other middleman. I bought something for one price and sold it to someone else at another. It could be a security or it could be a pair of cheap plastic sunglasses.
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Vicente says
LOL! there was also something called a housing glut. True stuff.
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46 male
Menlo Park, CA
John Bailo says
I agree, but we should try to distinguish between wealth derived from honest and productive labor, and wealth derived from taking from the rest of us without doing any productive work. The rich desperately want to confuse you about the two kinds of wealth. They will claim they "earned" all of their wealth, even when that obviously is not true.
A land value tax is ideal, IMHO. No one created the land. But also, taxes on other things which no one created, like the radio spectrum, are very good.
I think ultimately we will arrive at some form Georgism, because it's fair and it makes sense:
http://en.wikipedia.org/wiki/Georgism
"A tax on land value has been described by many as a progressive tax, since it would be paid primarily by the wealthy, and would reduce income inequality."
But back to assets in general. If the total assets in the US are about $200 trillion and all taxes put together are about $4 trillion then we could pay all taxes with a 2% annual wealth tax.
Just think: ZERO income tax, ZERO sales tax, ZERO inheritance tax, and just a 2% annual tax on every asset. Sounds pretty good to me.
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Bitcoins are the future says
Well did you consider that many in their will, give part or all of their wealth to charities. In the tax code you can give as much as 100% from your estate.
Howard Hughes Medical Institute (HHMI) is a United States non-profit medical research organization based in Chevy Chase, Maryland. It was founded by the American businessman Howard Hughes in 1953. It is one of the largest private funding organizations for biological and medical research in the United States. HHMI spends about $1 million per HHMI Investigator per year, which amounts to annual investment in biomedical research of about $450 million. The institute has an endowment of $14 billion, making it the second-wealthiest philanthropic organization in the United States and the second best endowed medical research foundation in the world. HHMI is the former owner of the Hughes Aircraft Company - an American aerospace firm which was divested to various firms over time.
List of wealthiest charitable foundations
http://en.wikipedia.org/wiki/List_of_wealthiest_foundations
The William and Flora Hewlett Foundation is a private foundation, established by Hewlett-Packard cofounder William Reddington Hewlett and his wife Flora Lamson Hewlett in 1967. The Hewlett Foundation awards grants to support educational and cultural institutions and to advance certain social and environmental issues. It is one of the largest grant-giving institutions in the United States, with assets of over $7 billion.
The Foundation has grantmaking programs in education, the environment, global development, the performing arts, philanthropy, and population, and it also makes grants to aid disadvantaged communities in the San Francisco Bay Area. Since its inception, the Hewlett Foundation has made grants of over $2.2 billion to thousands of organizations in the San Francisco Bay Area, across the United States, and around the world.
In 2007, The Hewlett Foundation awarded a total of $483,654,925 in grants and disbursed $426,384,396 in grant and gift payments. The Hewlett Foundation is based in Menlo Park, California.
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Patrick says
Wealth is the residual of After Taxed profits.. so you want more additional tax on after tax.. and than some more after that ?
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46 male
Menlo Park, CA
What about eliminating income tax and sales tax, and just having a 2% annual tax on all assets?
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Patrick says
And you would value those assets by which method ?
Historical purchased costs or current market value ...
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Bellingham, WA
We already have that, it's called inflation.
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Patrick says
We already have this (kinda). It's called the inflation rate and is a flat tax on anything backed by currency.
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46 male
Menlo Park, CA
thomas.wong1986 says
It would have to be current market value to work. Sure, there would be fights about valuations, but we have those fights now anyway.
Bellingham Bill says
Sort of. Inflation doesn't really tax the asset, just the currency itself. This tax would tax real estate and stocks too.
You know, this 2% asset tax is such a freakin brilliant idea I'm going to start a new thread about it.
Here it is: http://patrick.net/forum/?p=1133205
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Kent, WA
John Bailo's website
Patrick says
Really...would you do the same for income?
I don't care how it's "derived" from...the thing people have to understand is that every dollar held creates a cost.
A dollar held has to be defended by the Army.
A dollar held has to be supported by the Treasury.
Most of all is the belief system in that dollar...each and everyone of us has to "believe" that that dollar is exchangeable for our hard work and labor.
Hence, we should be taxing dollars held...because they exert a cost on every citizen.
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46 male
Menlo Park, CA
OK then, would you support a 2% asset tax if it eliminates all other taxes?
Wait, I guess it was you who proposed the asset tax, above in this same thread. So you probably would support it.