Time to end handouts for heirs

Financial Times, By Simon Kuper

23.07.20

Simon Kuper JULY 23 2020 224 Print this page Be the first to know about every new Coronavirus story Get instant email alerts Blaming immigrants is so 2016. Now society’s favourite scapegoats are rich people. More in Common, an NGO that combats polarisation, has polled people in six European countries about the social impact of Covid-19. Which of 17 groups emerged from the pandemic deserving praise? “Medical staff” came first, “wealthy people” last. W

hich groups did governments care too much about? “Wealthy people” were first, then “big business owners”. Support for caps on executive pay ranged from 73 per cent in the Netherlands to 90 per cent in Italy. Even higher numbers wanted big business to forgo tax havens. Taxing the rich may now be the most consensual proposition in politics. It looks like the next political trend. Surveys for Rainer Zitelmann’s recent book The Rich in Public Opinion found much the same: large majorities in the US, UK, France and Germany backed “substantially” higher taxes for millionaires. Even most US Republicans support a wealth tax, if it’s not called that. In France, Emmanuel Macron’s presidency has never recovered from his early slashing of the same tax.

He’s since been known as “president of the rich”. The right traditionally derides such taxes as Soviet socialism. By page six of his preface, the conservative Zitelmann is on to the Bolshevik extermination of wealthy peasants, the “kulaks”. In fact, though, the rich should welcome higher taxation. It could save their children from opprobrium and Trumpian decadence. Various trends have created unprecedented wealth: the end of communism; 75 years of accumulation during the west’s “Long Peace”; the surge in inequality after 1980, and greater ease of tax dodging. The wealthy appear recession-proof: since 2007, the Dow Jones has approximately doubled, whereas US median incomes had risen about 9 per cent until the pandemic hit.

To borrow from rhetoric about the poor, let’s distinguish between the “deserving” and “undeserving” rich. The deserving are self-made types such as Jeff Bezos and Bill Gates. They should get large rewards, though $100bn seems unnecessarily high. The economist Thomas Piketty told me: “People who use this argument, ‘He’s great’ — therefore what? Therefore he should pay zero tax? Therefore we should subsidise him so that he’s even richer?” Piketty proposes taxes that cap individual wealth at $1bn. Thomas Piketty: why we need a radical new wealth tax I suspect most rich people would survive that. Famously, many just treat wealth as a way of keeping score. Joris Luyendijk, author of Swimming with Sharks, says the London bankers he observed would accept being paid bonuses in bananas, as long as they got the most bananas. But the burgeoning category today is the undeserving rich: heirs. Think of the Trumps. Donald Trump himself is widely supposed to be a first-generation heir masquerading as a self-made man. In fact, he’s a second-generation heir.

His grandfather Frederick, proprietor of hotels and brothels, died in the Great Flu of 1918, leaving a canny widow and son who invested his insurance in real estate.

Now Frederick’s great‑granddaughter Ivanka goes around lecturing the unemployed. In the US, inheritances “account for about 40 per cent of household wealth”, says the Center on Budget and Policy Priorities. Fewer than two in 1,000 estates paid the federal estate tax even before Trump cut it in 2018. Trusts and other tax havens abound. Trump’s own Treasury secretary, Steven Mnuchin, has placed assets worth at least $32.9m into his “Dynasty Trust I”. Taxing wealth is often derided as “the politics of envy”. But I don’t envy the heirs I’ve met. Many seem bored and aimless. While their working peers grow more accomplished and interesting with age, heirs become less so. Many suffer from both superiority and inferiority complexes: they have private planes yet feel undeserving, as Rachel Sherman recounts in Uneasy Street: The Anxieties of Affluence. They invest vast energy keeping their mitts on their tribe’s money-pot, which often means sucking up to the family patriarch or battling siblings — see Mary Trump’s new book. Recommended FT WealthRhymer Rigby We all have worries but those of the rich are somehow different Heirs are surrounded by people trying to fleece them.

They are mocked behind their backs as useless, their children as spoiled. They struggle to impress their patriarchs. One billionaire’s son told me he wrestled with the impossibility of emulating his dad. A self-made father who found his daughter a prize internship in New York was aghast when she got to the office late on her first Monday, stuck in traffic back from the Hamptons. Heirs have only one incontestable life advantage that I’ve seen: they end up better-looking because they have custom-made clothes, plastic surgery and time to exercise. Imagine that most of their fortunes got taxed away. They would still start off slightly richer than everyone else. Their door-opening advantages of accents and ancestral surnames would persist: high earners in Florence in 2011 included many of the same families as in 1427, according to economists Guglielmo Barone and Sauro Mocetti. There are no Bolsheviks at the security gate today. But there is a widespread desire to wean heirs off their handouts and restore their dignity by putting them to work. The alternative for rich families is decadent pariahdom.