Inheritance Reform for the 21st Century?
The United States has around 900 billionaires and 24,000,000 millionaires.
None will live forever. About $4 trillion (with a T!) will be inherited annually for the next 30 years from all estates.
Most Americans will inherit little or nothing.
Fortunes will be retained by a few rich families.
Economic inequality will continue increasing.
Wealth amplifies political power.
Increased inequality reduces government's concern for the general welfare.
Changing how people inherit wealth could improve life for most Americans.
To understand how this could work, we first need to establish several principles.
People must own resources before bequeathing them.
But how is property rightfully obtained in the first place?
John Locke (1632-1704) gave an excellent but partial answer: Applying labor to natural resources (like land) should give workers a property in the results, assuming there are enough resources "left in common for others."
Resources no longer being plentiful, given Earths current population, someone must determine who can use particular natural resources.
Government always does this, but should not continue doing it arbitrarily.
Acting as trustee for the public, it should auction off temporary rights to use particular resources. Receipts would go, not to government's treasury, but into a trust fund.
This fund must be distributed equally to everybody. As Locke understood, the public owns all natural resources in common and no one deserves more than an equal share of their fruits. The Alaskan oil dividend could be a model here.
We can amplify Locke's point into a first principle: people have an unequal right only to the value added to natural resources by their work.
A second principle: dead people cannot own property. As Jesus said, "It is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God." (Luke 18: 25)
You obviously can't take it with you.
If people have property when they die, who should inherit it?
The first principle applies here: Deceased persons' property was not created by those remaining alive.
Therefore, like natural resource "rents," estates should go into the trust fund and be distributed equally to everybody subject to the government — men, women, and children.
Deposit of a departed soul's estate into the trust fund could be postponed for a surviving spouse. A limited amount dedicated to support of an incapacitated child might also be reserved.
If four trillion dollars will be inherited annually, dividing it equally among all U.S. residents would distribute $11,760 per person or $47,000 annually for a family of four.
Those receiving the $11,760 annually would not have earned it.
But those inheriting vast amounts now also have not earned it.
And like everyone else, they would still get their equal share of the annual inheritance.
Making everybody heirs of everyone could create new problems or intensify old ones.
Entering the U.S. illegally would become even more attractive.
We might need to require a few years of residence before immigrants can inherit.
And one way or another, we would need to get control of the borders.
Billionaires might threaten to leave the country.
That is certainly their right.
We do not want to become like Cold War era East Berlin, where leaving was illegal.
But laws would need to prevent them from taking their fortunes with them.
Ideally, universal inheritance would apply at the world rather than the national level, eliminating the immigration and billionaire emigration issues. But until world economies are more equalized, world-level inheritance will be politically impossible.
Capturing inheritances would not constitute an estate tax.
Taxes support government and government, acting as trustee for the public, gets no estate money. This would simply be a reform of the rules under which money is inherited.
Government revenues could, however, be increased if we follow tax expert Ray Madoff's advice to define gifts and inheritances as taxable income.
To smooth the transition from today's inheritance rules, the new system could be phased in gradually.
This gradual transition could begin by creating a new government agency.
Many Americans, especially those who are childless, sometimes leave estates to favored charities. But there is no current organization that could distribute estates to all U.S. residents if some people would like to do this.
A government agency to distribute such bequests could distribute all estates to everybody if that is later enacted.
Inheritance reform would not eliminate billionaires, nor would that be desirable.
Often, first generation billionaires become rich by introducing innovations that are generally beneficial.
Under our first principle, they have earned it.
Inheritance reform would not eliminate billionaires; it would only eliminate hereditary billionaires.
Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. Read more Prof. Paul F. deLespinasse Insider articles — Click Here Now.
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