You know the Bank of Mum and Dad when you see it: it’s your friend who seems broke, but always has a safety net, or who suddenly (but discreetly) acquires the deposit for a home. It’s those who stayed with their parents while they saved for a flat, or stuck it out in a profession they were passionate about even though the wages are chronically low. It’s those who do not need to consider the financial costs of having children. It’s those whose grandparents are covering nursery or university fees, with the Bank of Grandma and Grandad already driving an economic wedge between different cohorts in generations Alpha (born between 2010 and 2024) and Z (born in the late 1990s and early 2000s).
This is the picture we know, but the Bank of Mum and Dad is not just a luxury confined to the 1% – it is also evident in families like mine. I grew up in a working-class household and was the first person in my family to get a degree, but it was the fact my parents had scrimped in the 1980s to purchase properties in London (and allowed me to crash in one throughout my 20s) that has arguably been the true source of opportunities in my life.
In recent years, we have rightly widened the conversation about privilege in society. And yet how honest are we about one of the most obvious forces shaping anyone under 45: the presence or absence of a parental safety net? The truth is that we live in an inheritocracy. If you’ve grown up in the 21st century, your opportunities are increasingly determined by your access to the Bank of Mum and Dad, rather than by what you earn or learn. The economic roots of this story go back to the 1980s, but it accelerated after the 2008 financial crisis, as private wealth soared and wage growth stalled. In the 2020s, rather than a meritocracy – where hard work pays off – we have evolved into an inheritocracy, based on family wealth.
“Abolish inheritance”
*sigh*
Inheritance isn’t the root problem. The problem is that the only people with any money are people who were able to save it decades ago. And that problem is because labor has been devalued, wages stagnated, and cost of living soared.
And all of that is because for the past 40 years or so, there has been more benefit to taking profits out of business than spending money within the business.
When you reach the top-tier income tax bracket, and the IRS starts taking 91% of your income beyond that level, $10,000 of business income is only worth $900 to you.
When your best employee wants a $10,000 raise, that money comes straight out of your “excess” earnings. It is $10,000 of your earnings that are not subject to taxation. Paying that $10,000 raise only costs you $900 once you reach that tax bracket.
But we don’t have a 91% top-tier income tax bracket anymore. We had a punitively high top tier rate for most of the 20th century, but it got cut down in the 70’s and slashed in the early 80’s. Now, the top tier income tax bracket is just 37%. When you reach that bracket, giving your best employee a $10,000 raise takes $6700 out of your pocket, instead of just $900.
Reagan’s views on the Laffer curve were correct: raising the tax rate beyond a certain point will actually reduce tax revenue. But tax revenue is not why we need the high rates. The benefit of high marginal tax rates comes from what business does to avoid them. We need to restore the business incentives that come with a punitively high top-tier income tax rate. We need businesses to increase their labor expenses to avoid that tier. Businesses should benefit the whole economy, not just the ownership class.
For similar reasons, we need taxes on registered securities, payable in shares of those securities. The shares collected as taxes will be liquidated in small lots over time, comprising no more than 1% of total traded volume, to limit their effect on the market. Exempt the first $10 million held by a natural person; tax everything above.
I mean, it’s not that clear-cut. There’s still people who have a nice job and save a lot of money, it’s just a somewhat smaller group than there used to be, and at the same time the gap with non-nice jobs is larger. Furthermore, $900 is still $900, I question if some random shareholder really cares about a stranger’s raise that much.
More redistribution would help the inequality problem, for obvious reasons, though. You’re right about that. I also don’t buy that nobody will do anything without a small chance of becoming a billionaire, or that billionaires are really hundreds of thousands of times smarter than the average person and we need them to be happy.
I’ll rephrase. The shareholder in question has the option of spending $10,000 on their business, or giving Uncle Sam $9,100 and pocketing $900.
The shareholder in question gets a lot more bang for their buck by figuring out how to spend it than paying the tax and trying to keep it.
They could be smart about it. No taxation on inheritance under 2 million (I’m pulling these #s from the sky). Anything over gets taxed progressively; if if these billionaires won’t pay up during life we can grab it on the way out.
That’s already a thing. The estate tax only kicks in over 5mil. It’s typically dodged by putting all assets in trusts so that ownership never legally transfers it’s the trust that owns them. Trusts being a legal vehicle don’t die, and can have beneficiaries added and removed.
So tax trusts…
That only accounts for a small portion of parental contribution and is easily avoidable by an early inheritance.
Nobody bats an eye when you say, “early inheritance,” but everyone gets sooo upset when I murder my parents