The Boomerang Wealth Transfer

For the past several decades, wealth distribution has shifted dramatically from the hands of younger generations to the hands of older generations. Those who earn $1 million or more from investments via capital gains pay significantly lower taxes than salaried individuals.

Over the past 30 years, top-quintile households gained nearly $500,000 in liquid net worth on average (after excluding the top 1%), while households in the middle quintile saw their debt rise faster than their financial assets. The top 10% of households in the US hold about 52.6% of the country's wealth, while the bottom 50% hold about 5.8%. However, the top 0.1% own 16.8%. This extreme disparity has spiraled upwards over the past 3 decades, mostly fueled by tax policies that favor a very small group of people....not the rich, but the REALLY rich (there is a difference!). In 2009 it took 380 billionaires' wealth to equal the wealth of the bottom GLOBAL 50%.....today it takes just 26!

But as we have witnessed the GREAT REBALANCING of the planet in the past 3 years, it's very likely we will see this extreme wealth imbalance rebalance too. Why? Nature! Yup, you cannot take your money with you and no-one lives forever. Forced - or government-enforced wealth redistribution - is highly unlikely. It's also usually inefficient and corrupt. But wealthier families are compelled - by nature - to redistribute their wealth. While it's unlikely Jeff Bezos will be paying more taxes soon, he just donated $100 million to Hawaii's recovery. His ex-wife has donated over $14 billion to date. Warren Buffet and Bill Gates - and other crazy-rich peeps - are donating BILLIONS for all sorts of things that could have been funded otherwise, although probably less efficiently. Elon Musk's Tesla employs almost 130,000 tax-paying, consuming people. Give a corrupt government a billion dollars and its usually bankers in 'tax havens' that reap most of the benefits. (PS: In first-world US its estimated around $400 billion was wasted or stolen from Covid stimulus alone!)

State and local governments collected a combined $5.3 billion in revenue from estate and inheritance taxes in 2020. Remember estates are only taxed federally above $12,92 million. States that charge an estate tax have exclusions ranging from $1 million to almost $13 million. (Maybe fewer big spending older people would stay in their states - and spend lots - if they eliminated this? Not 'fair' but practical perhaps?)

While we can argue whether the government or individuals are better at doing this redistribution (who gets to choose?), there is one certainty: No single individual on this earth can take their money with them. In this lies the hope of a better future. $70 TRILLION of older generational wealth will be redistributed over the coming 2 decades. Some of it will be willed to heirs and a big chunk will be recirculated into the general economy. Lots of it will be in the hands of younger generations boosting their spending power on things like....homes. And hopefully one day we will see renewed urgency to fuel the middle class, the most critical group to the wellbeing of societies in my humble opinion. Maybe we need as much focus on the middle class as we give to the extremely rich and the extremely poor?

Yes, $2,000 spent on a Louis Vuitton bag could appear wasteful. But that purchase alone is automatically 're-distributed' to a degree: at least $130 goes to sales taxes....then the employees working in the store - and making/shipping that bag - pay income taxes, the LVMH corporation pays taxes and/or dividends to governments, individuals and retirement funds.....

Nature is still the ultimate equalizer.