The Myth of the Great Wealth Transfer
Monday, I had tacos with two friends at a new spot (new to me at least) called Balcon X. It's my kind of place: a fusion of Mexican and Salvadoran—friendly service, good food, no frills. Our friends, like Hope and I, are a teaching couple and they, like Hope and I, find themselves in the midst of an elder care situation and battling various state and federal agencies to get the care their parent is owed. Their summer of 2023 mirrors our summer of 2022. They are awash in paperwork and figuring the best ways to multitask during long hold times with the VA. There’s no roadmap for navigating the VA, Medicare, social workers, and the galaxy of care providers. The whole system is a mess and feels like a plane being built while in-flight. Our conversation reminded me of a few things.
In personal finance circles there’s a concept called the Great Wealth Transfer. It’s the idea that as the Silent Generation (pre-WWII) and the Boomers (1945-mid 60s) transition they will pass on assets estimated at upwards of 84 trillion dollars. But it’s more complicated than that.
Due to stagnated wages, soaring housing, and healthcare costs, members of the millennial generation have on average less wealth than older people today and less wealth (inflation adjusted) than older people had when they were younger. Newsweek describes it this this way:
American boomers alone are estimated to hold more than $53 trillion out of the total $431 trillion of privately held assets worldwide, according to Boston Consulting Group (BSG) data as of 2020. And the collective riches of the boomer generation is expected to grow in the coming years, as the world's financial wealth is expected to surge by $65 trillion between 2020 and 2025, as reported by Forbes, surpassing a total of $500 trillion.
With the expected transfer of wealth from boomers to millennials (a much smaller cohort than the previous one), the wealth inequality gap between the two generations will finally be corrected—though wealth inequality in general is likely to be exacerbated (emphasis added).
Oh, buddy! That last part.
Given the state of affairs and the absence of universal health care in the US, much of the inheritances in middle class families are going to be hoovered up by medical bills, in home care agencies, and end of life care. It’s not abnormal for in-home care agencies to charge north of sixty dollars an hour (the caretaker nets less than a third of that). Residential care is worse. The median cost for a semi-private room in a residential care facility in the US is $260 per day, or $7,908 per month. This will grind down the savings of most US families.
The other reason the Great Wealth Transfer isn’t going to be what it’s cracked up to be is the obscene concentration of wealth in the US. The graph below from the Congressional Budget Office tells a helluva story—fifty percent of the population basically has no wealth to pass down.
Instead of benefiting Millennials and Gen Z, the real Great Wealth Transfer is really going to be a largely tax-free, once-in-a-lifetime transfer from the wealthiest people in America to their heirs.
Thanks to lobbying by conservatives, the threshold for the federal estate tax is now $12,920,000 dollars and rises each year. This year, the richest families in the country will be able to pass on up to $13,000,000 with zero tax penalty. Moreover, only a handful of states have an estate tax of their own. Conservatives have successfully waged a war on the estate tax for forty years, branding it “the Death Tax.” But eliminating or cutting estate taxes allows the children of the rich to create mountains of unearned wealth. I have seen the era we live in described as a Second Gilded Age. Musk, Gates, Bezos, and their ilk are wealthier than the robber barons like Carnegie and Rockefeller could have ever dreamed of. The Great Wealth Transfer is gasoline on the American inequality fire.
Bits and Recommendations for the Week
Speaking of inequality, I recently read a fascinating paper from the Rand Corporation: Trends in Income From 1975 to 2018. The tl;dr is that ongoing wage stagnation, constant tax cuts for the wealthy, and other neoliberal economic policies make the typical American adult fifty thousand dollars more poor than they would be otherwise. I reached out to the author of the paper, Carter Price, he’s going to come on the podcast in August.
In the last newsletter, I touched on the issues of accessibility in my mom’s neighborhood. In response reader D.G. said, “I appreciate you calling this out. This was a constant source of frustration/confusion for me going for runs with my kid in a stroller when I lived in Hilltop.” D.G.’s note reminded me of this image; I use it in my classroom when I teach about the Americans with Disabilities Act in our civil rights unit.
When we make life better for people with disabilities there’s a multiplier effect—it makes life better for everyone.
Another reader, J.M. said, “this actually inspired me to start working on trimming back our holly hedge from the street side. Didn't realize how far it had grown onto the sidewalk on one side.” This made me really happy. Like I said in that piece, tenants and property owners have a role to play in accessibility.
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