Intergenerational Wealth Transfer, you say? More like creating an American Oligarchy.
It's time to talk about Trust Reform.
When I see a headline like this: “Tax-Free Inheritances Fuel America’s New $73 Trillion Gilded Age”, it sort of gets my attention.
Because we talk a lot about wealth inequality in this country, and if you’ve read Piketty or Girihandas or Andrew Yang or anything by Robert Reich, you know that barbell’ing wealth in this country has officially gone plaid.
But when it comes to action, it’s a big ol’ bag of donuts.
But if there were ever a case for trust reform (a must if we are ever to tackle wealth and income inequality in this country) this Bloomberg Wealth Manager Magazine article by Ben Steverman makes it. That's because Steverman estimates that tax-free inheritance over the next 25 years will soar to $72.6 Trillion, with more than half going to the top 1.5% of US Households.
Let's do a little 'rithmetic, shall we?
By Steverman's math, 1.8M US Households will inherit $36.3 Trillion (with a "T") tax-free. That's approximately $20M per household. A modest tax on this sum - say 25% - would mean $9.1T in federal tax revenue over the next 2 decades. That's nearly 2 YEARS worth of the entire budget of the US Government.
But instead of being used on public goods - infrastructure, defense, education, research, climate change mitigation, shoring up our social safety net, elder care, universal Pre-K, free community colleges, student loan forgiveness (should I go on…) - the entire corpus - $36.3T - is being passed along to our richest 1.5%.
In other words, to the people who need the money the least.
We talk a lot about climate change in this country, and for good reason (though the ones who will gain the most from the clean energy transition - the investor class - have the most to gain). But to me, our most existential threat is income inequality.
And it's time we talk about what consolidated wealth and income inequality means, because just like climate change, it's bad for everybody.
This 2018 piece by The Washington Post's Chris Ingram shows that income inequality leads to high rates of health and social problems, lower rates of social engagement, lower life satisfaction, and worse health and wellbeing. The 2017 Republican tax overhaul made this already bad situation much, much worse by doubling the jack that wealthy families can hide and pass to heirs without triggering the estate tax, which caused estate tax revenue to fall by more than half - with just 1,275 families paying $9.3 billion in 2020, according to Internal Revenue Service data.
While some will celebrate “starving the leviathan”, these are also usually the same people who think that the US is borrowing too much money, running up an enormous National Debt, and so on.
But really folks, how are we to pay back our debts if we can't raise revenue from those who can most afford to have it taxed?
The punditry talks a big game about wealth consolidation and its effects on democracy, but it's mostly hot wind. And as this Bloomberg article states, it may finally be time to acknowledge the real culprit of this accelerating trend towards oligarchy: the US trust and estate system, a system gerrymandered to hardwire privilege, wealth, and status to the richest people in America, laws passed by our legislators, who coincidentally rely on these same families for campaign donations (see also, Reform, Campaign Finance).
Unwinding this system will take a lot of time, energy, and force of will, but if we are serious about income and wealth inequality, the urgency of this undertaking cannot be understated.