As we all know there’s been some form of inheritance tax in both hte UK and US for over a century now. And as we’re all also being told there’s been an increase in wealth inequality back to the levels we had before inheritance tax. This will sound a little counter-intuitive but one of the reasons is that we have that very inheritance tax. Consider this from the US:
Their name tags read like a catalog of the country’s wealthiest and most influential clans: Rockefeller, Pritzker, Marriott. They were there for a discreet, invitation-only summit hosted by the Obama administration to find common ground between the public sector and the so-called next-generation philanthropists, many of whom stand to inherit billions in private wealth.
It’s not quite that they’re going to inherit billions. It’s that they’re going to inherit control of billions, a rather different thing:
Policy experts and donors recognize that there’s no better time than now to empower young philanthropists. Professionals in the field, citing an Accenture report from 2012, estimate that more than $30 trillion in wealth will pass from baby boomers to younger generations by around 2050. At the same time, the Dorothy A. Johnson Center for Philanthropy (no relation to this reporter) and the nonprofit consulting group 21/64 have concluded in a recent study on philanthropic giving that heirs are becoming involved in family foundations at an earlier age — specifically in their 20s and 30s — and imprinting them with the social values of their generation.
Note “family foundation” there. Because of that inheritance tax rich peoplpe do tend to (and they have to be very rich for it to work) stick all of the money into a foundation. This wealth can then be maintained by professional money managers down the generations. Tax free, of course, as it’s inside a foundation. The stipulation is that said foundation must give away 5% of its assets each year. But such “giving away” obviously includes employing family members to run it. At pretty much any salary desired.
This obviously wouldn’t happen if the money could just be left directly to children without tax being due. And the effect of it going into such a foundation where the professional money managers can maintain it, rather than the heirs blow it, is that we’ve lost one of the major forces that disperses wealth through the society. The feckless heir.
So, we end up with the imposition of the tax leading to the continued concentration of old wealth, as the avoidance of the tax reduces the ability of the inheritors to waste it.
As an example, who thinks that any of the Kennedys would still be rich if they’d been able to get their hands on old Joe’s money directly?
I rest my case.