Passing Down Wealth
November 17, 2003
One of the fundamental justifications for the estate tax is that bequests often have negative effects on recipients. Receiving large wealth without working for it can be ruinous. For this reason, estimates of the amount of wealth that will be transferred to future generations are a matter of macroeconomic importance, says Bruce Bartlett.
If the numbers are as large as some calculations suggest -- between $41 trillion and $136 trillion by 2052 -- we could be looking forward to a generation that will do little more than sit on its collective butt.
As large as these numbers are, however, they need to be viewed in context. A study by the Federal Reserve Bank of Cleveland concluded that, as a practical matter, they don't mean much:
- First, it noted, the population has grown a great deal, so the pie must be divided up into smaller slices.
- Moreover, bequests are highly skewed, with the vast majority of people receiving little or nothing.
- According to the study, 92 percent of the population receive nothing at present, and most of those that do receive very little, a trend that is unlikely to change.
The Cleveland Fed study also noted that today's elderly are spending down their assets at a faster rate than previous generations, and have converted their wealth into annuities in greater numbers, leaving less of an estate to pass on.
A 2002 National Bureau of Economic Research study estimates that 70-to-74 year olds will bequeath just 39 percent of their wealth. Furthermore, today's elderly are living longer and have less desire to leave an estate. According to a study by Phoenix Wealth Management last year, only 4 percent of seniors say that leaving an estate to their heirs is a high priority.
Source: Bruce Bartlett, "Passing Down Wealth," National Center for Policy Analysis, November 17, 2003.
For NBER study
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