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.
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.
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.
> "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.
