Byrne Hobart writes to me:
One of the purposes of inheritance taxes is to avoid compounding the wealth of generations. But The Lost Billionaires points out that if all American millionaires had invested their money in broad market indexes in 1900, their heirs would have been 16,000 billion, even accounting for taxes, dividing estates among multiple children, etc.
So one of the forces preventing compounding inequality is that rich people tend to have very different minority positions than the rest of us—they own most of whatever made them rich! If we give them an incentive to stay undiversified, and do so even when they are very old and thus not in a good position to monitor or manage their assets well, they will end up with lower portfolios that are more likely to lose most/all of their value than the average retirement account. Given how much volatility can cause returns (witness the 3x leveraged Microstrategy ETF that lost 82% of its value in a year when Microstrategy itself doubled), it’s possible that the increase in the cost base actually had more of an impact on intergenerational economic mobility than the real estate tax collection itself. , by encouraging them to put their heads together during the last years of their lives and put all their eggs in one basket.
I personally am not a fan of the estate tax or the increase, for various reasons, but I found this debate interesting nonetheless.
Speculative but interesting…
The post Should we keep the rich non-diverse? (from my email) appeared first on Marginal REVOLUTION.
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