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Over $70T of inherited wealth over next decade will widen inequality, economists

theguardian.com

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Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#191

Post by thrance »

bawolff wrote: post #189
thrance wrote: post #181

Earlier quoted context omitted.

Death is often called the great equalizer. By reducing/nullifying inheritance taxes you ensure wealth concentration will escape it, and aggravate the issue. We already live in a country (world, really) where more income is gained through owning capital than through working. However you look at it, it is really hard to justify.

I again fail to see how that is an argument that inheritence will increase wealth inequality. The headline is that wealth inequality will go up due to inheritence. Why would it go up over the alternative situation where nobody died and everyone just kept their money.

> "Wealth inequalities have a forward momentum, as compound interest increases fortunes and, in the absence of effective inheritance taxes, wealth is handed down from one generation to another, undermining social mobility and economic efficiency"

Take it as meaning that, were inheritance taxed, we could curb the progression of wealth inequality. But these taxes are getting relaxed, and so the issue worsens.

Also, with falling fertility rates, we may see more wealth getting concentrated in the hands of single childs. I am in such a case: I will inherit from both my parents, alone. (Although I am not really looking forward to this day). Here, wealth is getting concentrated in fewer hands through inheritance.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#192

Post by jongjong »

jake200 wrote: post #146
jongjong wrote: post #55

What terrifies me most about this is that those in power will keep getting younger, dumber and more complacent. I feel like communism is inevitable at this point. People know communism isn't the solution, but they will still vote for it because at least it pretends to stand for equality. We're going to reach a point of such extreme inequality that even the pretense of equality provided by communism would be welcomed…

> People know communism isn't the solution, but they will still vote for it because at least it pretends to stand for equality. Genuinely curious - why isn't communism the solution? And in your opinion, what are some better solutions? I haven't studied much about political/economic ideologies and at this point don't even know where to start. I do agree with some of what you are saying, but I don't understand why comm…

It could be an improvement but it's not a solution because those in power tend to embody the worst elements of humanity, regardless of the economic system. The real solution IMO is decentralization. Decentralizing power. Any system which centralizes power will have problems because it centralizes power in the hands of increasingly 'bad' people.

In a large centralized system, those in power are selected from an increasingly large pool of people... Two main characteristics which allow people to gain power include greed and the need for control; these two characteristics tend to override all other characteristics as the pool of candidates increases because the level of competition and desperation increases. Near the center of power, the personal compromises that have to be made to be in such position become significant to the point of 'not being worth it' (for most reasonable people) so those who keep going must have a particularly strong thirst for power and control.

It's difficult to both maintain power and also to do good things; those who try to do good will often sacrifice some of their power to do it; the attempt to do good carries political risks which may be seized upon by one's political opponents who aren't inclined to take such risks.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#193

Post by johnnyanmac »

bawolff wrote: post #189
thrance wrote: post #181

Earlier quoted context omitted.

Death is often called the great equalizer. By reducing/nullifying inheritance taxes you ensure wealth concentration will escape it, and aggravate the issue. We already live in a country (world, really) where more income is gained through owning capital than through working. However you look at it, it is really hard to justify.

I again fail to see how that is an argument that inheritence will increase wealth inequality. The headline is that wealth inequality will go up due to inheritence. Why would it go up over the alternative situation where nobody died and everyone just kept their money.

Have a simpler metaphor:

Rich retries with a million dollars and sits on it for 20 years before death. Assuming a very low 3% interest rate, this money makes 800k.

Rich Jr. gets the the 1.8m at age 40. He works 25 years @ a modest 80,000 a year salary as a plumber and doesn't touch the inheritance. Same compound interest. His labor earns him 2 million dollars. His inheritance in that time also earns 2 million dollars.

So Rich Sr's money just sitting at a really low interest rate worked as hard as Jr's 25 years of labor participation. You can argue that Jr could have instead not worked and diversified his portfolio to make more money.

Now let's say Jr dies at 70. Rich 3rd will have 5 million to work with at age 30, and he realizes there's no point in working, even if he could make double the salary as a tech worke. So he day trades and enjoys the fruits of his father and grand-father's labor.

This is 2 generations, and not even the level of money that people really care about throwing heavy taxes on.

>the alternative situation where nobody died and everyone just kept their money.

Why are we thinking about a situation that can't happen? But sure.

Let's say Rich Sr keeps living with his 2M dollars. Jr keeps working and earns 2M in 25 years again, While Sr. "Earns" 2m in interest. The wealth disparity didn't change in this situation if Sr. Just let the money sit longe, but Jr now had to provide his labor just to keep up. He had no options.

Meanwhile, Sr. with his newfound doubled lifespan and no job can be able to do a myriad of things to build more wealth. Start a business, diversify his portfolio instead of letting everything lie in a savings account, buy a beach house that would also accumulate on value, etc. He does anything more than the bare minimum and he's outpacing his son.

Now realistically Sr wont do this as he's focused on taking care of Jr. For after he dies. But Jr can do all of this and he'll be compared to his peers, not his father.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#194

Post by rufus_foreman »

insane_dreamer wrote: post #170
bawolff wrote: post #44

Why would this increase inequality? Inheritence generally goes from rich person to rich person. I would normally assume the rate of equality would stay roughly constant in the face of inheritence.

because r > g (see Piketty[0]) if returns on inherited wealth outperform growth, then the percentage of growth captured by the wealthy grows over time, exacerbating inequality estate taxes can help mitigate that, but they are "anti-American" [0] https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

>> if returns on inherited wealth outperform growth, then the percentage of growth captured by the wealthy grows over time

This is a non sequitur. There are many situations where returns on inherited wealth outperform growth, and the share of growth "captured" by the wealthy does not grow.

For example, some people give away some or all of their wealth and instead of leaving it to an heir. Inherited wealth is not automatically invested, some of it is spent. Inherited wealth can be split among many heirs, in which case returns would need to be much larger to keep inherited wealth from diminishing.

In addition, while returns on wealth in general might outperform growth, people who inherit wealth and invest it do not always invest it wisely (not part of your non sequitur, but an objection to the argument in general).

Did Piketty address these issues that aren't captured by his rather simplistic formula of "r > g"? Along with the fact that what his theory predicts (increasing share of wealth being inherited) has not been happening? The great fortunes of our time are made, not inherited.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#195

Post by johnnyanmac »

bawolff wrote: post #186
johnnyanmac wrote: post #177

Earlier quoted context omitted.

Sounds good to me. Moving that level of money already has so many stupulations. Inheritance is used because of tradition and because it's the one foolproof way to maintain generational wealth.

> Inheritance is used Is it though? I think most very wealthy people are already using more complex structures like trusts and whatnot. > Moving that level of money already has so many stupulations. Like what exactly?

In the general sense that people are using ways to give money to others when they die instead of spreading the weskth, yes. I'm sure there's dozens of methods used to harbor wealth but I'm more talking on the general concept.

>Like what exactly?

In the very brodest sense, anything that involves turning I realizing gains into liquidity will be taxed. Investing it into assets like property will have that taxed, unless you choose to go to very specific areas. Throwing it into a business will jabr capital taxes.

Exceptions are disproportionatly utilized, but there are in fact more ways to be taxed on your money than not. That's why a lot of the current mechanisms lie less in "grab money, get taxed, use it" and more "point to money, get loans, stay in 'debt' and use not your money make money".

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#196

Post by insane_dreamer »

bawolff wrote: post #173
insane_dreamer wrote: post #170

Earlier quoted context omitted.

because r > g (see Piketty[0]) if returns on inherited wealth outperform growth, then the percentage of growth captured by the wealthy grows over time, exacerbating inequality estate taxes can help mitigate that, but they are "anti-American" [0] https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

Yes, but how does inheritence affect that? Its not like inheritence makes money appear out of nowhere. Every inherited dollar is taken from a rich person who died. The amount of inequality should stay roughly the same as you are just transfering money between rich people. You aren't creating any new money, nor are you concentrating it in fewer hands. Why would inequality increase after inheritence instead of just sta…

> The returns on wealth after it is inherited isn't going to be higher then the returns that same wealth would have gotten prior to it being inherited. Its still the same amount of money.

You're right. But the point of the article, and Piketty, is that inheritance policies -- by not taxing (through large loopholes) -- allow the inequality to continue to grow (by virtue of those returns continuing to outperform growth). Estate tax is the opportunity to counter that trend, but we (well, governments at the behest of the wealthy) choose not to.

But you're right in that the title could be more accurately worded; if the wealthy didn't die and continued to hold their assets, inequality would also continue to increase.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#197

Post by ghuffed »

317070 wrote: post #109
ghuffed wrote: post #94

Earlier quoted context omitted.

[dead]

Eddington is a fictional community, with 2 people: Ed and Sue. Unfortunately, due to lack of housing, they only have 1 house. The decision is made to hand it to Sue, because Ed's _parents_ were alcoholics that drank their life away. The decision is not necessarily wrong. But the reasoning to base someone's fortune on the merits of their parents is very arbitrary. Why not base it on their own merits or needs?

[dead]

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#198

Post by lucyjojo »

philipallstar wrote: post #103

Wealth inequality is not an intrinsic bad, and it's not even worth striving to reduce. The only thing that matters is the average (pick your average) standard of living. There's no point paying a fortune to have all the people who created the most value leave your country just so you can reduce a pointless metric, especially when all it does is get the state more money to spend on itself rather than reduce your costs…

this supposes that all resources on earth are infinite, which is blatantly false.

moreover this supposes that wealth does not buy political power, which is also blatantly false.

this is the fastest way to hell in modern societies.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#199

Post by bawolff »

johnnyanmac wrote: post #195
bawolff wrote: post #186

Earlier quoted context omitted.

> Inheritance is used Is it though? I think most very wealthy people are already using more complex structures like trusts and whatnot. > Moving that level of money already has so many stupulations. Like what exactly?

In the general sense that people are using ways to give money to others when they die instead of spreading the weskth, yes. I'm sure there's dozens of methods used to harbor wealth but I'm more talking on the general concept. >Like what exactly? In the very brodest sense, anything that involves turning I realizing gains into liquidity will be taxed. Investing it into assets like property will have that taxed, unless…

> In the very brodest sense, anything that involves turning I realizing gains into liquidity will be taxed.

Sure, but there is a very very big difference between capital gains tax and inheritence tax. Most proposals for inheritence tax are on the entire value of the property being inherited. Capital gains taxes are just on the difference in value between when you got it and when you sold it.

If every transfer of property behaved like an inheritence tax, the economy would probably screech to a halt as you effectively couldn't sell anything without taking a huge hit.

Re: Over $70T of inherited wealth over next decade will widen inequality, economists

#200

Post by koolba »

antisthenes wrote: post #136
JAlexoid wrote: post #118

Earlier quoted context omitted.

> Capital gains should be taxed like income. Arguably capital gains should be taxed at a higher rate than income. But that's not going to happen, because your home's change in value is capital gains.

Homes already have giant flat exemptions for gains when sold.

The purpose of which is to encourage mobility. Sack that tax credit and watch the housing market becomes even more illiquid.
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