Would an Estate Tax-Based Social Dividend Bring Affluence?

Inequality of wealth and income has been increasing hugely. Here is one way we might reverse this trend.

Concentration of wealth in a few families has two main causes. The first is vast wealth amassed by people who invested early in new technological enterprises that hit the jackpot: Microsoft, Amazon, Google, Facebook, you name it.

The second reason for concentration of wealth is inheritance by the children of those who hit the jackpot or who have themselves inherited great wealth. It is also easier to become more wealthy when you grew up in a family that was already wealthy, with the advantages that such families often confer on children — a stimulating home environment, education, social status, contacts.

Denying creative people opportunity to become very wealthy is a bad idea. Their new technologies and talents often improve life for everybody. These people are doing well by doing good.

Inheritance of wealth is a completely different matter. Heirs have done nothing to create the wealth they receive and have not created benefits thereby for anybody else.

Here's an idea to consider: Incredible amounts of money are on the way to being inherited. Cerulli Associates estimates that during the next 23 years, a yearly average of $4.5 trillion (that's trillion, with a T!) will be passed down. $4.5 trillion is more than half of the United States' annual budget, or about 13 times the net worth of Elon Musk.

Imagine that all of this money could be captured through an estate tax and the proceeds disbursed equally to every man, woman, and child living in the U.S. It would come to an average of nearly $13,000 for every U.S. resident every year! Check the math.

Of course a 100% estate tax could motivate people to minimize it by increasing their gifts and charitable donations and other strategies. So there probably would not be enough collected to distribute $13,000 a year to everyone. But assuming tightly drafted and vigorously enforced legislation, a substantial annual social dividend could still go to all Americans.

In effect, we would be making all Americans the heirs of all Americans.

Critics might object that the people receiving this money would have done nothing to earn it. But this point is already true for anybody who inherits money.

The social dividend would be like the biblical (Exodus 16) manna from heaven. Like manna from heaven, there is no reason to distribute it unequally since no recipient has done anything to earn it.

The people harmed by such a policy would be the tiny number of individuals who would otherwise receive huge inheritances. As I already noted, they would already have a head start in life by being brought up in wealthy families. And they too would still get their equal share of the annual dividend.

Making everybody heirs to everybody could be politically difficult. People with wealth and connections have great ability to influence legislation by lobbying, campaign contributions, and employing spin doctors.

But the beneficiaries would be the overwhelming majority.

To minimize political resistance, the new system could be introduced gradually, starting with a small inheritance tax on all estates and an equally small social dividend, then upping the tax a few percent every year for 10 or 20 years.

There should probably be a postponement of the tax for a surviving spouse.

An equal social dividend based on an estate tax would reduce concentrations of wealth. It would also reduce income inequality for two reasons.

As concentration of wealth is reduced, inequality in the income earned by investment of that wealth would also be reduced. And adding an equal social dividend to unequal earned incomes would reduce the inequality of everyone's total income.

Would there be any bad side effects for society in general from making everybody heirs to everybody? If so they should be carefully considered. I am putting the basic idea forward to encourage thought and discussion.

Paul F. deLespinasse is Professor Emeritus of Political Science and Computer Science at Adrian College. Read Prof. Paul F. deLespinasse's Reports — More Here.