Friday, April 24, 2015
FREELOADING ON DYNASTIC WEALTH
Six of today’s ten wealthiest Americans are heirs to prominent fortunes. The Walmart heirs alone have more wealth than the bottom 40 percent of Americans combined.
Americans who became enormously wealthy over the last three decades are now busily transferring that wealth to their children and grandchildren.
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.