15

Inheritance and Inequality

NEW YORK – The buzz over Thomas Piketty’s book Capital in the Twenty-First Century may have subsided somewhat, but the analysis of its conclusions is far from complete. Consider its discussion of inheritance, which emphasizes its rising share in household wealth over time. This seems like a shocking revelation, implying ever-rising wealth inequality. But is it correct?

For many people, inherited wealth evokes moral repugnance. They associate it with the Rockefellers and Vanderbilts, whose great fortunes have supported generation after generation, and more generally with “trust-fund babies,” who inherit so much money that they never have to work.

Critics are right that inheritances and gifts – collectively known as “wealth transfers” – are distributed unevenly. Only about one-fifth of families in the United States in 2007 had ever received a wealth transfer. In general, recipients of any wealth transfer are likely to have larger incomes and to be in a higher wealth class. And the wealthiest young people tend to have wealthy parents and to have received larger wealth transfers than their poorer counterparts.

There is also significant inequality among those who receive wealth transfers. In 2007, only 7.4% of beneficiaries had received more than $1,000,000. The top 1% received 35% of all wealth transfers, and the top 20% received 84%. In other words, wealth transfers are about as unequal among recipients as their household net worth.