New Orleans For years, economists and policymakers have written and spoken about generational wealth and the huge transfer that is happening now. For all of the talk, governments don’t really publish statistics about inheritance, so what is the happening? Some time ago, The Economist took a shot at figuring out the “annual inheritance flow.” It’s worth a look at the value in cash, property, art and more that is moving on down the line, and what it means for national economies and any notions of equity, domestically or globally.
In general, inheritances have doubled in France since 1960s, tripled in Germany since the 1970s, in Britain they are more important than earnings for those born in the 1980s, and in Italy, inheritances make up 15% of GDP. As they report, “In America today, for every $100 employers pay in wages, the dead leave behind $20.”
The other big change is how little of inheritances are taxes around the world. “Australia, Canada, India, Norway, and Russia, have abolished them entirely.” Inheritance taxes account for less than 1% of “government revenues across rich countries.” The US has drastically reduced inheritance taxes for families, creating magical millionaires if the total estate is under $13.61 million for an individual or $27.22 million for a married couple through one Congressional tax reform after another, largely under Republican administrations. Another factor in the deepening impact of inheritances that isn’t the first thing that comes to mind, but turns out to be very significant, is smaller family sizes creating fewer slices of the inheritance pie, if there’s no need to share with numerous brothers and sisters.
The post-WWII expansion of economies in the US and many other western countries also allowed boomers’ wealth to expand greatly because of the increased value of their homes and the rising stock market. The Economist reports that “Germans aged over 65, who make up fifth of the population, own a third of the country’s wealth. American baby-boomers, also a fifth of the country’s population, own half of its net wealth, or $82 trillion…leaving large estates to their heirs.”
Of course, this increases the gap between rich and poor. The Federal Reserve data “suggest the average American in the top 5% of earners has received well over $50,000 in heritance, compared with about $5000 for someone in the middle.” Some researchers argue that inheritances are responsible as well for “a quarter of the wealth gap between black and white Americans.” All of this can make a huge difference in the ability of young people to become homeowners in this time of growing numbers of tenants, if they can get help from relatives and parents. If not, they are often out of luck.
These are “just the facts, ma’am.” In dealing with the increasing wealth gap, there are some US states and countries that do tax inheritances. There are increasing numbers of proposals for “wealth taxes,” which often are focusing on income, but could certainly include taxes on estates. In the US, there’s little hope from help in Congress, as it’s currently constituted, but somewhat more likely in certain cities, like New York for example, and states. As the federal government retreats from supporting state budgets and their programs, many won’t have much choice but to look at this huge segment of its population, and whether it should be taxed more fairly to benefit the whole. For our future, there has to be more work to build bridges across the gap, rather than expanding it further.