“Life, Liberty and the pursuit of Happiness" is a phrase in the Declaration of Independence that most Americans consider to be foundational to what it means to be American – that we all have a right to be happy. One of the things that makes people happy is feeling that they are treated fairly – that they have equal opportunity; that equal work results in equal rewards. One of the things that makes opportunity unequal is inherited wealth: winning the game of life in part because of relative economic advantage – and others’ disadvantage – that was baked in by the system. A system you – if you were born wealthy – did nothing to create, yet may believe you owe nothing for having helped create your wealth. As the saying goes, “Some people are born on third base and go through life thinking they hit a triple."
Leaving aside the question as to why people who were born wealthy may not realize that they never hit the “triple” to get there, a brief examination of some key numbers reveals what put them on third base to begin with: the top 1% expecting to inherit over 42 times more than the bottom 50%; estate tax is paid only on assets greater than $13.6 million per individual ($27.2 million per couple) – and even billionaires pay nothing on the first $13.6 million left to their heirs. For example, the estate tax raised only $8.4 billion in 2012 which is less than 1% of the $1.2 trillion inherited that year, and only 1 out of every 700 deaths results in paying the federal estate tax today – these metrics have not changed much in the decade since. 99.9% of estates pay no federal estate tax at all. For comparison, in Germany, a nation with a large middle class and vast social benefits (namely largely “free” healthcare that is financed largely through taxes) and far less inequality (although there still is quite a bit), they begin taxing inheritance and estates between $400 and $600 thousand depending on who the money is going to (spouse, child, niece, etc.). These estate and inheritance taxation laws do far more to level the playing field and in turn create a society with much less inequality and much better social benefits. The same can be said for many other European countries.
While the opposite can be said for the United States – the wealthiest Americans are amassing huge fortunes, passing them on to their heirs and in doing so, locking in their generational advantage – which, as a result, puts the rest of our society at a disadvantage. Although I don’t believe that wealth should simply be seized from the rich when they die, a substantive portion of it – more than is taken today – should be put back into the economic (and social) “machine” that helped produce their wealth to begin with: our American society. This is a step toward equalizing the playing field and would allow everyone in our society a more equal shot at earning their own advantage.
The Biden administration has considered pushing for this: increasing the estate tax to finance their infrastructure proposals. Pre-Trump, estate taxation rates came into effect at $5.5 million and above. Post-Trump, estate taxes are now nonexistent until the $13.6 million mark ($27 million untaxed per married couple). Although these specific figures may not catch the eyes of everyone (because they impact so few… or so we think), US citizens across the political spectrum dramatically underestimate the current level of wealth inequality in the US, and would prefer a far more egalitarian distribution of wealth.
This raises the question, why should the people at the very top be forced to contribute a greater fraction of their wealth when they die to those at the bottom? Let’s start by looking at how wealth is created. In part, it is a function of systems. Jeff Bezos, Bill Gates, Warren Buffett, Elon Musk… all of these people are American billionaires. But Elon Musk left South Africa to make his fortune. And it looks like he has no intention of going back home. Instead, he is moving (or is threatening to move) his $650 billion company, Tesla, from California to Texas because the economic system there – which he did not create – is more favorable to creating wealth and maximizing the value of his business ideas. In other words, the systems in California – and now Texas – systems that he did not create – have been instrumental to his fortune. What does he owe these systems when he dies? And consider the “other” world’s richest man – Jeff Bezos – does anyone really believe he would be worth 197.6 billion dollars had he tried to start Amazon in the Amazon? Brazil has 69 billionaires. The U.S. has 756. Which translates into a per capita rate of NINE times as many ultrarich. Is that because Americans are nine times smarter than Brazilians? I don’t think so.
Clearly, there is something in America that creates the conditions for the creation of great wealth – but what do those who have benefitted from these conditions owe to the rest of us? I believe people who were born on “third base” have a responsibility to help more people be born on first base – and equalizing the relative disadvantages between children who did nothing to deserve their economic advantages (or disadvantages) by redistributing wealth through estate and inheritance tax is imperative. This is society’s opportunity to shift the advantage of the children of the privileged – those who have benefitted from society the most – to the children of those who have not benefited, in order to create the conditions for more Americans to pursue happiness.
Money does not necessarily buy one’s happiness – I know – but scientific studies have proven that up until a certain point, it can. Experts say that the relationship between happiness and wealth peaks at $75,000 in earnings per year (per CNBC, Princeton University and others). Yet, 50% of American households, or 161 million US citizens, live below this standard.
And the unequal distribution of wealth is increasing. Today, eight people control more wealth than half the world’s population – more than the combined net worths of over 4 BILLION people (evidenced by dividing the combined wealth of the bottom 50% of society by the world's 8 largest net worths.) Let’s say each of the world’s eight richest people have two kids, resulting in 16 people who grow their wealth by 10% a year. (That’s a healthy rate of return but these folks have access to the best financial advisors!) Pretty soon, those 16 people could theoretically own more than 60% of the world’s wealth. And so on.
This trend towards global inequality is arguably even worse in the United States. As of 2021, multiple credible sources reported that the wealthiest 1% of Americans possess nearly as much wealth as the bottom 90% of the nation's wealth while the bottom 80% own just 14%. The gap between the wealth of the top 10% and that of the middle class is over 1,000% and that number increases yet another 1,000% for the top 1%. To put this into real life context, the average employee at any given company in America needs to work more than a month to earn what their CEO earns in an hour.
The uneven distribution of wealth – which is baked in by tax laws, including estate tax laws – is in part what inspired Bill and Melinda Gates and Warren Buffet to start the Giving Pledge, “an open invitation for billionaires, or those who would be if not for their giving, to publicly commit to giving the majority of their wealth to philanthropy.”
And for those American ultra-rich who don’t want to sign the Giving Pledge, I suggest we create a “Taking Pledge”: a commitment to raise the estate and inheritance taxes on ultra-rich families to produce additional revenue to raise the standard of living for tens of millions of poor Americans – without appreciably diminishing the happiness of the ultra-rich.
To those who might argue that this approach is “un-American,” I would again argue that most Americans agree, we all have a “right” to the basic needs of life – and ideally, the baseline resources necessary to be "happy." And as happiness depends on a minimum amount of wealth – as a practical matter this means wealth needs to be more evenly distributed in society. And as one of the barriers to a more equal distribution is the Estate tax, which locks in (dis)advantages – and (un)happiness – for generations, these laws should be changed. Wouldn't it be nice to live in a country where more kids have a better shot at a happy life? I think so, and one way to create this kind of society is by increasing taxes on the rich when they die – and then redistributing this wealth to poorer kids through better education, better and cheaper health care, etc. that will set those kids up to be happy – which will make all of us members of a happier society.
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