Sociology 4035 Information about Inheritance

Writing about the possible arguments that can be made about whether or not American society wishes to reduce inequality in wealth ownership, economist Lester Thurow wrote:

"Proponents of equalization.... can point to the high nominal tax rates (rates before loopholes) that have been built into the estate and gift tax codes (77 percent on estates in excess of $10 million)...the legislative process has demonstrated that it wants a more equal distribution of wealth. Those who feel that the electorate really does not want to do anything about the distribution of wealth can point to the low effective tax rates (rates after loop holes) in estate and gift tax codes (actual collections amount to 0.2 percent of net wealth.....The most obvious purpose of high nominal rates and low effective rates is to use the high nominal rates as a smokescreen to hide the transfer of wealth from generation to generation. The public is led to believe that stiff inheritance taxes exist when they do not in fact exist."

From Lester C. Thurow, "Tax Wealth, Not Income," pp. 145-150 in Celia S. Heller, STRUCTURAL SOCIAL INEQUALITY. A Reader in Comparative Social Stratification. N.Y.: Macmillan Publishing Co., 1987. p. 148.

1. "Most people will receive from their parents either a zero inheritance of property or an inheritance composed of depreciated consumer durables and/or housing."
2. "The children of more wealthy families will receive an inheritance partly in the form of human capital and partly in the form of property; at the margin, inheritances are solely property." p. 201
3. "Where equal sharing among children is the norm, the concentration of inherited property will decrease over time to the extent marriages are random or negatively assortative."
4. "To the extent that the propensity to consume of heirs is abnormally high and exceeds returns on assets, inherited wealth will diminish over time." p. 204
5. "The tendency for inherited property to become concentrated or be fragmented over generations depends on average family size, social patterns of inheritance, de degree of assortative mating, and the rate of return (minus consumption) of inherited wealth."
6. "Inherited property is an important part of the assets of the top 2.5% to tp 5% of the wealth distribution, but for the VAST MAJORITY of the population the inheritance of property is a fairly small part of lifetime economic resources."
7. "A substantial portion of the population, perhaps a third, own very little personal property at any age. A small fraction (2.5% to 5% inherit most of their property and are joined at the top of the wealth pyramid by a few "self-made" fortunes. For the remainder, the acquisition of personal property (houses, automobiles, consumer durables, bank balances) over the life cycle and the building of pension rights provide the main sources of wealth." pp. 216-217.

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"In the great majority of cases, the large fortunes of one generation belong to the children of those who possess the large fortunes of the preceding generation" J. Wedgewood, THE ECONOMICS OF INHERITANCE, 1929 (cited in Osberg, p. 205).

From Osberg (op.cit):

"In the U.S., nominal rates of taxation were as high as 77% on estates over $10 million (Cooper, 1979:1). These high rates might be thought enough to ensure that large fortunes are broken up over time but Cooper (1979) has argued that loopholes in the law were sufficiently numerous to ensure that these rates were largely cosmetic. The du Pont family fortune, for example, which dates from the founding of the family firm in 1802, is still approximately $500 million and has paid an effective state tax, over the last two generations, of only about 5 % (Cooper, 1979:1). A cynic might claim that such "laws with loopholes" kept both rich and poor happy -- the rich because in fact they paid little tax and the poor because they thought that justice was being done. However, as a result of the 1981 changes in tax law, "the government has abandoned all pretense of taxing transfers of wealth between generations" (Tobin, 1981:13). p.213

"...anyone who does not own a fairly substantial amount of income producing property or does not receive an earned income sufficiently large to make substantial regular savings or does not hold a well paid securely tenured job is poor. He may be healthy, handsome and a delight to his friends -- but he is poor. By this standard, at least 70 percent of Americans are certainly poor, although not all of these by any means are destitute or poverty stricken. But, as was shown in the 1930s, Americans can become destitute overnight if deprived of their jobs, a strong support to mindless conformity....even many of those who never lose their jobs discover in medical and similar emergencies that they are as helpless as wandering beggars. They are, in fact, poor. In such eventualities, the man of property is evidently in a different position. He is definitely not poor." from Ferdinand Lundberg, THE RICH AND THE SUPER-RICH. N.Y.: Bantam Books, 1973. p. 23.