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Say there was a rise of a social democratic group inside the US Democratic party in 1990' that would in a matter of 5 years convince over 70 % of Americans that we should cancel inheritance, so that everyone has the same opportunity. They would pass a law that restricted you to sell a house or a car if you're over 50 so some companies would have emerged that would promise you to take care of your property until you die and than pass it on to whoever you want but still, it would cost something and wouldn't be risk-free so it would be generally harder to pass on the money to the next generation. The same thing would eventually come to all of the developed states but still something over half of the Americans would somehow get around those laws.

What would the economic effect be?

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closed as too broad by Aify, Mołot, sphennings, Secespitus, dot_Sp0T Nov 25 '17 at 15:49

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    $\begingroup$ So, if not to heirs, where would all the assets go? If I die and have (say) 10 houses that I rent out to support my retirement, are you saying that the Govt gets the houses or that they're sold and distributed across the entire population? Who can afford to 'buy' these houses in such a situation? More importantly, I own a business that's worth Billions; how can it be sold to distribute the assets if no-one can afford it any more? I'd like to know more about how the assets get disbursed after death before I answer. $\endgroup$ – Tim B II Nov 25 '17 at 11:04
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    $\begingroup$ Questions asking "What would be the economic effect of x? are often closed as too broad. Since there is no agreement amongst economists about the effect of such a decision I'm unsure how you expect a bunch of amateurs on a Q&A site to be able to provide meaningful answers. $\endgroup$ – sphennings Nov 25 '17 at 14:17
  • $\begingroup$ @sphennings There is consensus, I think : "It would depend on implementation." Everyone just has different ideas and assumptions on the implementation... often derived from their personal political ideology. $\endgroup$ – Ville Niemi Nov 25 '17 at 14:22
  • $\begingroup$ @VilleNiemi If the answer is it depends on the implementation the question is too broad until they flesh out the details of a particular implementation. $\endgroup$ – sphennings Nov 25 '17 at 14:25
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    $\begingroup$ A direct consequence of removing the right of people to leave their property to their heirs is that in a very sort time the state will own everything of value. By making all people poor you have achieved equality! Welcome to the Workers' Paradise, comrade! $\endgroup$ – AlexP Nov 25 '17 at 14:33
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People find a way.

Unless you are very precise with your legal juju, there will always be ways around it. For example: lets say I create a small business with very little gross income, but very little costs either. just trade a few self-baked cakes per year. I make my home the property of the company.

When I'm 70, I sell the company to my hei, with the condition that I can live on the premise as long as I am alive (such conditions are legal in germany, not sure about the U.S.).

What you have achieved is making inheritance more complicated.

the consequence is that rich people - who have most of their assets in companies eitherways - can pay the lawyers they need to ensure their assets end up in the hands of the person they desire, while poor people would not have the same opportunities. You'd make it more difficult for already poor people to give what little they have to their heirs, but don't really make it more difficult for rich people.

So, the effect would probably be the exact opposite of what you intend. You make the poor even poorer and the rich aren't affected all that much. Its probably the middle-class that has most trouble getting the inheritance to the people they want, so you weaken the middle-class.

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Problem is "what happens of property not inherited?".

You own a house, you die, what happens to the house? Goes to the State? What about your spouse/husband?

The only way to make it stick is to completely remove private property rights, which is probably more than you asked for.

Even if you buy and go for a "everything is rented" model you move the "inheritance problem" to income (and, presumably, job) with rampaging nepotism where everyone with a bit of decision power would fight to put their "heirs" in the best available positions.

This is a fundamental push of all humans (and most of other animals as well) and all real attempts to thwart it have failed. Fictional works dealing with the problem exist and some are very intriguing (outstanding is The World of Null-A by A. E. van Vogt).

In practice stratification of society cannot be completely stopped and drastic methods tend to make problem worse, instead of solving it.

Some "less drastic" methods might give better results:

  • Have taxes to what you leave to your heirs, steeply increasing with the amount left to each one (incentivizes fractionation).
  • Have a serious Welfare plan (reduces need of family support).
  • Have a long Retirement plan incentivating people to travel and generally spend their money instead of "saving for future needs" (is a function of "how much safe" people feels).
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It would be a disaster.

Why? Well, you say that something like half of Americans still get around the system some way. That implies that the system is not working properly at all. Inefficient, bureaucratic, corrupt... probably all of them at once. And half of the people would be part of the rot. Sounds pretty much like how Greece got into economic trouble to me.

Arguably even worse as "no inheritance" strongly implies that the property "goes back" to the state, which only makes sense if the state also provided the initial investment for the properties in question. And entire economies have collapsed because banks providing loans had faulty incentive structures. If the loans came from a public organization that is so inefficient and corrupt as the question implies, the economy would not really work at all.

If instead the system worked properly, the effects would be fairly small. The economy no longer relies on "family fortunes" for investment and growth, so increased equality of opportunities might make up for the loss of family funding and inherited businesses.

But it probably goes without saying that the "if" at the previous paragraph is a big one. You'd need at least free education and health care. Probably good support structures for unemployment and start ups as well. I mean, there is no point to the whole system unless the state actually does provide everyone with opportunity and protects from loss of opportunity as well.

The Nordic countries probably come fairly close to achieving this, but even there going full "no inheritance" would be a huge step politically. In the US where a mere suggestion that a proposal is "socialism" is an effective political weapon, it is simply not believable IMHO.

That said, that distrust towards "socialism" does provide a decent explanation why the end result would be inefficient enough that half the people got around it. So, yes, the result of implementing this system in the US would be a disaster. Realistically only a handful of European countries could do something like this and get away with it. And even then it would probably cause a political disaster that would prevent the system from working.

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  • $\begingroup$ "Realistically only a handful of European countries could do something like this and get away with it." => Not really. We (french) have huge inheritance and also wealth tax. The very rich don't pay it of course, because they can either afford the complex financial voodoo to dodge it, or emigrate somewhere else taking their business with them. Thus it only affects upper middle class. $\endgroup$ – peufeu Nov 25 '17 at 14:07
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    $\begingroup$ @peufeu The tax system is not really working properly at any of the Western democracies at the moment. (Probably nowhere else either.) But an outright "no inheritance" system would not work the same as a tax. Could not work the same, really. Which I guess means that in most cases it would the same, that is, it would not actually work. The question even seems to assume that. $\endgroup$ – Ville Niemi Nov 25 '17 at 14:17
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As happened in Britain in the 70s, the. People with significant property will leave the country, taking all of the economy they impact (jobs) with them. The country's economy will tank, and after s couple of decades people will find loopholes as they rebuild their lives. Instead of a will, they may hold all properties in LLC's, and the heirs will be designated as officers of the LLC. That fulfills the letter of the ban on inheritance, while allowing the practice to continue. Of course only the very wealthy and connected would have a chance at using those loopholes.

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Firstly, I do not think a law blocking property sales because of your age would be constitutional or even legal - it would be discriminatory. I do not see any such law as surviving the first round of legal challenges, much less passing the supreme court "hurdle".

Say there was a rise of a social democratic group inside the US Democratic party in 1990' that would in a matter of 5 years convince over 70 % of Americans that we should cancel inheritance

Canceling inheritance tax would not be a social democratic idea. It is, however, a Republican party wet dream.

Less than 70% of Americans own their own home (even with a mortgage) and less than half of those own it clear of a mortgage (and most of those would be older people).

, so that everyone has the same opportunity. They would pass a law that restricted you to sell a house or a car if you're over 50

This in no way has a connection with inheritance tax. Inheritance tax is supposed to affect the person inheriting, not the person who owned the property before they died. This idea doesn't make a lick of sense.

"Everyone" ? Everyone does not have the option of selling their property at all as about one third of Americans do not own a home. And of those that have property to sell, many people find themselves trapped in properties that they would loose money on if they had to sell.

This issue really only affects the upper middle class and the wealthy.

As most people still owe money on their properties ( in the form of mortgages ) when they're fifty years old, I'd anticipate a great deal of property being rented out. As anyone nearing 50 would have an incentive to sell up and shift their money into other investments, this would artificially alter the amount of money directly invested in stocks and/or the growth of REITs ( Real Estate Investment Trusts ).

However it's not desirable to force a huge section of the population to become renters. Renting is a very bad idea as you get no capital return for your money. The effect of increasing the number of older people who have to rent would be drastic as they would be reliant on less stable investments (stocks, etc.) for income to pay their rent. Experience has shown that this is not a good idea. In addition it makes people who are older even more vulnerable to becoming homeless.

It would be a social disaster, in fact.

People whose health would, as a matter of natural fact, be declining are now obliged to depend on the vagaries of the investment market to finance their old age. If they become ill, or unemployed before natural retirement age then they will suffer even more.

Of course they could try not selling before 50, but this is very risky. If they have a downturn in their lives after 50 they can't sell up their one asset.

It's also very unfair on couples who have different ages. So I'm Bob and I'm 53 and I'm married to Mary who is 49. I can't sell my "part" of the mutually mortgaged house we have, but Mary can ???

And what about the bank who holds the mortgage ? Does the bank's "age" matter ? Maybe my bank manager's age or the bank president's age ? If businesses can hold property regardless of age, then why can't we all set up companies to own our properties and rent them directly (REITs) ?

Let's say Mary dies in a car crash one day. I'm now stuck with a property I may not be able to afford to pay for on my own, but can't sell. I also can't move (e.g. because it depresses me to be in the house we used to share or to be closer to our kids in another State). I'm trapped by a stupid law that will inevitably mean I end up loosing the property to the bank when they foreclose because I can't pay the mortgage on my own. But it's OK - I can become a pauper and a financial burden to my kids when I have to move in with them - if they'll let me or can do it at all.

So it's a dumb idea. It's probably not legally doable and it's going to cause misery for practically everyone.

Can I take it the Republican's are to blame as usual for a law that only benefits the rich ? :-)

As for getting around this law. Which half of the population will "get around it" ? Well I think it's a safe bet the ones who are better off. They'll be able to access the lawyers and accountants and investment groups who avoid these laws. Poorer people typically will not be able to access these "services".

So the poorer people will get totally screwed by this law and the well off will be inconvenienced.

Yes, that sounds like America to me. :-)

So net result : lots of emigration to Canada. :-)

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  • $\begingroup$ OP asked about canceling inheritance, not inheritance tax. $\endgroup$ – pojo-guy Nov 25 '17 at 15:25

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