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The "Hard-Working" Rich


By Suzi LeVeaux - Posted on 20 August 2011

For those who are so quick to loudly defend the wealthy, preferring to call them "the successful" while not even offering a whisper for the plight of the poor:

All wealth in America comes from two sources: Lifetime earnings and savings, and inheritance. Larry Summers and Laurence Kotlikoff analyzed these two sources of wealth and figured out the percentages that came from each.

Only 19 percent came from earnings and savings. The rest- 81 percent- comes from inheritance. Their conclusion: "The pure life-cycle component of aggregate U.S. savings is very small. American capital accumulation results primarily from intergenerational transfers."

In other words, the VAST majority of the wealthy in this country are wealthy because they INHERITED their wealth. The vast majority of the wealthy in America haven't "earned" their "success" by hard work. They've inherited it. That doesn't make them successful. It makes them LUCKY.


Sources:
-Journal of Political Economy: "The Role of Intergenerational Transfers in Aggregate Capital Formation" by Lawrence H. Summers and Laurence J. Kotlikoff
- "Inheritance in America" by Carole Shammas
- "Inheritance and the Inequality of Material Wealth" by John H. Brittain

The country is full of people who were born on third base and think they hit a triple.

I'm sympathetic to individuals and families who wish to make sure their children are provided for and who want to pass along all they've worked hard to achieve, but this must be balanced against the need to have a dynamic society that doesn't allow people to reap the benefits of having been born to the right circumstances.

The reason for having graduated income taxes and an inheritance tax is to make sure we increase competition and make sure we have a society in which people born to modest means will be able to work hard and succeed. If there's no money for education, transportation, healthcare, and other valuable public programs, we'll create a society where it's even harder to succeed.

I would like to see some links for this (although you did provide references).

I've always heard that most wealth in this country was built by those who worked for it, rather than those who inherited it. Have things changed so much in the past twenty years?

That is one reason why I oppose the inhertance tax -- not to mention that it should be a natural right to give whatever you have managed to accumulate over life to your descendants. The ONLY reason I supported the inheritance tax was so it could be temporary while we got our financial house in order.

I'm okay with having a progressive income tax. Not because the " reason for having graduated income taxes and an inheritance tax is to make sure we increase competition and make sure we have a society in which people born to modest means will be able to work hard and succeed." The reason for taxes should rarely be for a social purpose and should NEVER be to punish those who have been either diligent enough or lucky enough to have garnered a good position economically. The purpose should be to pay for those social needs which need paying for. No more, no less.

The reason for having a progressive income tax isn't because the rich can afford more, but rather because the poor cannot afford as much.

I looked around for current information about how much of the wealth in the USA was inherited and didn't find anything recent that was well sourced, just contradictory information. Looking at the Forbes list, the Walton and Koch families take up six of the top 10 positions.  Looking further, it seems the most effective way to end up on the list is to get other people's money by being in the financial sector or inheriting it, not inventing something or simply working hard.

 

The last Forbes 400 can be found here:

http://www.forbes.com/wealth/forbes-400

I'm not a fan of crystalized wealth at all. You're right-- far too many people get their fortunes handed to them. However, we're still fairly good at producing self-made millionaires and billionares, just probably not as good as we should be.

I'd be even more ok with our top-heavy wealth distribution if we could keep that money here-- if billionaires invested their money in American factories instead of Chinese factories. In just the past few decades the rich have become much more likely to take their money elsewhere, especially when they're able to get higher returns for their investments.

So that I am clear on this, am I being told that inheriting money is wrong, that everything one's ancestors built up for them is counterproductive to a dynamic (good?) society?  And if one uses the labor of their ancestors to create further wealth for their descendants is also wrong?  Who is the ultimate decider of how much of the money one's family earns they get to keep?  I think that those that want to take from some and give to others is still theft, especially if the others are Solyndra.  Just sayin'.

Nope...that's not what I'm saying at all.  Nice spin though. ;-)

To put it in very simple terms....Inheriting money is never wrong, and is only counterproductive if the only purpose it serves is further greed.   Income is income, and capital gains (the 'preferred' income of inherited wealth) should be taxed at the same rate as any other income. (With a one time exception for the sale of a home)  Loopholes that only benefit the wealthy need to be eliminated.  We would all benefit from a level playing field.  That takes nothing "from some to give to others".  Meanwhile, stop the talking points about such programs taking money out of the pockets of "hard working Americans". 

As for Solyndra....that's a red herring at this point.  We can talk about it later when we have the actual facts of the situation.

What is your definition of greed and who is it that will determine that in NY city you are greedy at $X and in Iowa you are greedy at $Y?  I imagine that person will be one of the elite that will take care of us as well as tell us how much we are allowed to work before punishing us.

Red Hearing: Solyndra?  Are you kidding?! This is exactly the point.  The facts are in.  Solyndra was a big bundler for Obama; their loan application was analyzed and determined to be a bad loan ("not ready for prime time").  Solyndra execs then met with whitehouse folks only days before being approved $500,000,000 gov't backed loan.  It was determined prior to the loan that Solyndra would run out of money in 9-2011 and they did.  The Government (the people) is now on the hook for this loan.  The gov't took money out of the private sector via taxation of the successful, picked a loser and gave the money to them and they promptly wasted it. 

All this was most likely done because Obama the Stuttering Clusterf*ck Of A Miserable Failure wanted to showcase his green jobs initiative.

Okay, it's one thing to disagree with us and hold a rational debate.  It's a whole other thing to refer to the POTUS as you just did.

That deragatory term just negated your "sophisticated" handle.

We're open to all points of view and rational discussion of issues.  BUT.....We insist on civility.  Name calling and venomous rhetoric will NOT be tolerated.  

Suzi, Moderator

Big surprise. GOP lawmakers were for Green Energy loans before they were against them. http://www.tampabay.com/incoming/gop-lawmakers-once-sought-energy-loans-that-they-now-criticize/1192634 WASHINGTON — Sen. David Vitter, R-La., and other Republicans have criticized the Obama administration for awarding billions of dollars in taxpayer subsidies for renewable energy projects, including a $528 million loan to now-bankrupt California solar panel maker Solyndra Inc. But the GOP lawmakers haven't always been so critical of the program. Documents obtained by the Associated Press show Vitter wrote to the Energy Department at least seven times since 2009, urging approval of a loan for Red River Environmental Products, saying the Coushatta, La., company could help meet a growing demand for products that help power plants comply with stricter federal regulation of mercury emissions. One of the projects backed by Vitter — for a company that makes activated carbon to reduce pollution at coal-fired power plants — has received preliminary approval for a $245 million loan guarantee. Many GOP senators, including Senate Minority Leader Mitch McConnell of Kentucky, have sent letters to the Department of Energy seeking assistance for projects in their home states. In 2009, McConnell wrote two letters to Energy Secretary Steven Chu asking for federal loans for a ZAP Motor Manufacturing plant that would build electric cars in Franklin, Ky. McConnell said the loans said could help create 4,000 jobs. The plant did not receive DOE money. Rep. Cliff Stearns, a Republican from Ocala, who chairs a subcommittee that is investigating the Solyndra deal, also has supported projects that promote green jobs.

Oh, and also, I just re-read the original post.  "All wealth in America comes from two sources: Lifetime earnings and savings, and inheritance."

This is fundamentally wrong.  If this were the case then wealth is created when someone dies.  We know that wealth was already there though.  It was only transferred.  Wealth is created when human ingenuity or labor is applied.  The act of inheritance is NOT a source of wealth it is merely a transfer of wealth.

This is an important distinction to understanding economics.

Umm,  where do you get that? You're missing half of it.

Wealth comes from lifetime earnings and savings.

Wealth comes from inheritance.

That is NOT fundamentally wrong, it is fundamentally true.

I mean, I guess that wealth can also come from winning the lottery, but that would fall under "lifetime earnings and savings" in my book. Where else does wealth come from?

There is nothing in that statement which implies that wealth is only created when someone dies.

If you had said that all wealth comes from lifetime earnings and savings, that would be true too, since inhertance just transfers that wealth from one group to another, as you said.

This does seem to fly in the face of most that I have read.  To be honest I haven't read the article but can't believe that much has changed.


Is this from a pure $ perspective rather than the # of people with wealth. What is the definition of "wealthy?"  The Mililonaire Next Door which your articles contradict uses NET WORTH of $1 million.

capital gains is also a favorite income source for many retirees.

I am so tired of this need to pit people against each other in terms of incomes.  If "the wealthy" were using that wealth to deny others a chance or opportunity to gain wealth then that is an issue.  But what one family has doesn't prevent me from achieving the lifestyle I want.  It  is not a zero sum game.

Not too mention that taxing more of the wealthy won't make a dent in our fiscal problems.  There's not enough of their money or of them.  So why do we continually think this is a panacea for our fiscal problems??

Mary Moo:

I agree - esp. with your last two paragraphs.

Here, though, are some big picture considerations about estate taxes:

  1. Wealthy families have various ways to avoid payment of estate taxes - testamentary trusts, lifetime transfers, and / or buying life insurance to cover the taxes.  One huge benefit of trusts - especially those that name a corporate trustee - is that the beneficiaries can't spend all of that wealth once inherited. 
  2. One of the most effective ways to avoid paying estate taxes is giving some of the wealth to charities.  I believe that a huge burden on government support is AVOIDED by charitable gifting - much of it done because wealthy people don't want their estates to pay taxes.

I agree with your rationale: there aren't enough wealthy people to help make a dent.  However, I don't pity them either, esp. when it comes to estate taxes.  They have many options to avoid payment of those taxes.  The middle class has virtually NO options available to them.  They either earn income or they don't - not a choice I'd like to be forced with.

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