[v3rt]

The purpose of the estate tax is not so much to ensure that the capital being taxed is put to better use (which I'm not sure would be the case on average; the government would surely be a better entity to entrust with the money than a profligate son, but those are not the norm from what I can tell, and wiser offspring could be better investors than Uncle Sam), as to ensure the continuation of the meritocracy in our society. By their inherited wealth, scions of prominent families can exercise significant power over the rest of the nation, and this power will tend to be exercised to the detriment of meritocracy, since a system that rewards talent and energy runs exactly contrary to the interests of the inherited-wealth class. (Humans care about relative wealth and power socially, even though absolute wealth production is not a zero-sum game)

However, it is true that being able to pass on wealth to one's children can be an incentive to produce more, so that on the other hand points to the benefit of a lower estate tax.

So, I think the best compromise is somewhere between the pro-meritocracy 100% tax and the pro-short-term-productivity 0% tax; that way there is still a significant incentive to earn for one's offspring, but if 1/x of the money is taxed away in each generation (and the important thing is not where it goes, but that it is taken out of the hands of the rich family), there is an exponential-decay curve for the wealth and power of the family. However, it's important that the tax is high enough to counteract the interest gains that even uninspired investing can bring. I won't venture to propose a sweet spot, but I think that approach should provide the most balance and social benefit overall.

[chasingsparks]

I think wealth decays naturally anyway; especially if the descendent are not fit. Inflation and the exponential growth of offspring are already pretty good tools of attenuating growth. Moreover, it is easier to lose a fortune than to make one.

However, I do agree with you that it might be a robust guard against the inherited wealth class gaming the system. I would prefer to intervene when such injustice is committed, but admit that that is not always easy to do. The argument you use for curtailing that risk is similar to the argument I would make in favor of term-limits.

[fnid]

You would be surprised how hard it would be to lose billions of dollars. That kind of wealth is usually locked up pretty tight such that access is only available to some trickle of dollars coming out of the interest, trust funds, etc...

If a trustee loses everything then the next year, they have access to another annuity distribution.

[chasingsparks]

Which is to say, they are well diversified. With increasing diversity and massive assets it becomes more and more difficult it to earn exceptional rewards. Does most paths of asset returns exceed inflation and familial growth?

This is actually an interesting experiment. I'll run a crude test this weekend bootstrapping against the S&P500 to see how likely it is for wealth to propagate X generations into the future and report on Monday.

[fnid]

That is interesting. Warren has a bet out against someone that a portfolio of hedge funds will not outperform the total market returns after accounting for taxes, management fees, etc.

as diversity approaches 100%, performance approaches market returns.

The question is, how long can extreme wealth remain extreme wealth? Considering the wealth gap is increasing, I would suggest forever unless there is a "market correction" like socialism or something.

[chasingsparks]

If that was the case, you would expect there to be a few hundred-billionaires out there.

[Retric]

There are a few hundred billionaires out there. 5 billion barely get's you into the top 100.

[steveplace]

But then those funds are managed in a family office and provide liquidity/investments/etc. and that capital on its own can provide value.

[yummyfajitas]

Actually, if 1/x of the money is taxed away, there will only be a power law decay curve for the wealth and power of the family.

There might not be decay at all if you account for the exponential growth of investments.