The nation is on the cusp of the largest inter-generational transfer of wealth in history. A study from the Boston College Center on Wealth and Philanthropy projects a total of $59 trillion passed down to heirs between 2007 and 2061.
As the French economist Thomas Piketty reminds us, this is the kind of dynastic wealth that’s kept Europe’s aristocracy going for centuries. It’s about to become the major source of income for a new American aristocracy.
The tax code encourages all this by favoring unearned income over earned income.
The top tax rate paid by America’s wealthy on their capital gains — the major source of income for the non-working rich – has dropped from 33 percent in the late 1980s to 20 percent today, putting it substantially below the top tax rate on ordinary income (36.9 percent).
If the owners of capital assets whose worth increases over their lifetime hold them until death, their heirs pay zero capital gains taxes on them. Such “unrealized” gains now account for more than half the value of assets held by estates worth more than $100 million.
At the same time, the estate tax has been slashed. Before George W. Bush was president, it applied to assets in excess of $2 million per couple at a rate of 55 percent. Now it kicks in at $10,680,000 per couple, at a 40 percent rate.
Last year only 1.4 out of every 1,000 estates owed any estate tax, and the effective rate they paid was only 17 percent.
Republicans now in control of Congress want to go even further. Last Friday the Senate voted 54-46 in favor of a non-binding resolution to repeal the estate tax altogether. Earlier in the week, the House Ways and Means Committee also voted for a repeal. The House is expected to vote in coming weeks.
Yet the specter of an entire generation doing nothing for their money other than speed-dialing their wealth management advisers is not particularly attractive.
It puts more and more responsibility for investing a substantial portion of the nation’s assets into the hands of people who have never worked.
It also endangers our democracy, as dynastic wealth inevitably and invariably accumulates political influence and power.
Consider the rise of both the working poor and the non-working rich, and the meritocratic ideal on which America’s growing inequality is often justified doesn’t hold up.
That widening inequality — combined with the increasing numbers of people who work full time but are still impoverished and of others who have never worked and are fabulously wealthy — is undermining the moral foundations of American capitalism.