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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, exacerb

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_Century https://en.wikipedia.org/wiki/Capital_in_the_Twenty-First_Ce...

bawolff 1y ago
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 staying the same? 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.
- thrance 1y ago
  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.
  - bawolff 1y ago
    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.
    - thrance 1y ago
      > "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.
    - johnnyanmac 1y ago
      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.
- insane_dreamer 1y ago
  > 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.
rufus_foreman 1y ago
>> 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.
- insane_dreamer 1y ago
  > 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. Sure, but that's a small fraction, doesn't really move the needle. Also, much of that is given to wealthy foundations (their own or others, such as colleges) who typically invest it (to make it perpetual). It rarely "trickles down" thus reducing inequality. > Inherited wealth can be split among many heirs, in which case returns would need to be much larger to keep inherited wealth from diminishing. How does that math work? If I invest $1M at 5% yield I get $50K. If I break it into 5 tranches of $200K, each yielding 5%, that's $10K each or $50K total. Sure you may get 5 people with $1B instead of one person with $5B but that doesn't reduce inequality.
  - rufus_foreman 1y ago
    >> Sure, but that's a small fraction, doesn't really move the needle Andrew Carnegie was the richest man in the world at the beginning of the 1900's. What does "r > g" say happened to his wealth? What actually happened was that he gave it all away. Many of the richest people in the US have pledged to give away the majority of their wealth. You can't hand wave that away. We know that "r > g" is not a good model of how the world works because 90% of the time, wealth is dissipated by the 3rd generation. If you want to know how that happens, you need to start adding more information to the model, including charitable giving, spending, taxes, and multiple inheritance. >> Sure you may get 5 people with $1B instead of one person with $5B but that doesn't reduce inequality Of course it reduces inequality. It's not particularly equal, but taking money from one person and giving it to multiple people reduces inequality. Take it to the extreme case, if someone with $5B gave $15 to each of the 340 some million people in the US, would that not reduce inequality? If it would, but giving it to 5 people would not, what is the number between 5 and 340,000,000 where it would start reducing inequality? In addition, your case is only talking about one generation. If the same thing happens for 10 generations, you're talking about 10 million people. After 15 generations, it's 30 billion.

bawolff 1y ago

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 staying the same? 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.

thrance 1y ago
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.
- bawolff 1y ago
  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.
  - thrance 1y ago
    > "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.
  - johnnyanmac 1y ago
    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.
insane_dreamer 1y ago
> 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.

rufus_foreman 1y ago

>> 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.

insane_dreamer 1y ago
> 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. Sure, but that's a small fraction, doesn't really move the needle. Also, much of that is given to wealthy foundations (their own or others, such as colleges) who typically invest it (to make it perpetual). It rarely "trickles down" thus reducing inequality. > Inherited wealth can be split among many heirs, in which case returns would need to be much larger to keep inherited wealth from diminishing. How does that math work? If I invest $1M at 5% yield I get $50K. If I break it into 5 tranches of $200K, each yielding 5%, that's $10K each or $50K total. Sure you may get 5 people with $1B instead of one person with $5B but that doesn't reduce inequality.
- rufus_foreman 1y ago
  >> Sure, but that's a small fraction, doesn't really move the needle Andrew Carnegie was the richest man in the world at the beginning of the 1900's. What does "r > g" say happened to his wealth? What actually happened was that he gave it all away. Many of the richest people in the US have pledged to give away the majority of their wealth. You can't hand wave that away. We know that "r > g" is not a good model of how the world works because 90% of the time, wealth is dissipated by the 3rd generation. If you want to know how that happens, you need to start adding more information to the model, including charitable giving, spending, taxes, and multiple inheritance. >> Sure you may get 5 people with $1B instead of one person with $5B but that doesn't reduce inequality Of course it reduces inequality. It's not particularly equal, but taking money from one person and giving it to multiple people reduces inequality. Take it to the extreme case, if someone with $5B gave $15 to each of the 340 some million people in the US, would that not reduce inequality? If it would, but giving it to 5 people would not, what is the number between 5 and 340,000,000 where it would start reducing inequality? In addition, your case is only talking about one generation. If the same thing happens for 10 generations, you're talking about 10 million people. After 15 generations, it's 30 billion.