Divide and Conquer: Using an Accessions Tax to Combat Dynastic Wealth Transfers

INTRODUCTIONThe current estate tax is neither fish nor fowl. It raises little revenue, yet is ill designed to further the various social goals most often used to justify it: adding progressivity to the tax system, backstopping the income tax, reducing ex post inequality, increasing ex ante equality of opportunity, and minimizing dynastic wealth transfers.1 Each of these goals, however, has different implications for the design of a transfer tax system.2 This Article takes one frequently mentioned goal of the transfer tax system-minimizing dynastic wealth transfers-and explores what insights focusing on that goal yields for the design of the transfer tax system. It argues-perhaps counterintuitively-that the goal of minimizing dynastic wealth transfers suggests a progressive accessions tax with an extremely large per-recipient exemption and no generation-skipping penalty.This Article starts from the premise that what renders large transfers of wealth from one individual to another problematic is that such transfers bestow upon the recipient unearned power and influence over others. This premise differs from the usual justifications for minimizing dynastic wealth transfers.3 One such justification, for example, argues that large wealth concentrations in and of themselves-whether earned or inherited-are harmful to democratic ideals.4 Under this view, taxing wealth transfers helps prevent the build-up of wealth concentrations in the first instance.5 The argument that large wealth concentrations are intrinsically harmful and should be taxed as such, however, is contested.6 This Article sets that debate aside to focus on what it hopes is a less contested argument: the proposition that regardless of what one believes to be the effects of earned power on democracy, there is something antithetical to this country's democratic ideals about being able to transfer power and influence to one's heirs.This second common justification for minimizing dynastic wealth transfers is to prevent the creation of a hereditary plutocracy or aristocracy.7 Most often, this is expressed in equality-of-opportunity terms and reflects a notion that it is unfair for parents to pass along financial advantages to their children.8 These ideals hold that it is unfair for individuals to have differing abilities to develop fully their talents and pursue their definitions of a good life based on the chance circumstances of their birth.9 Wealth transfer taxation is therefore justified as a means of evening the playing field so that one's educational achievement, job prospects, and economic class are not determined by birth.10This Article focuses on a less discussed interpretation of what constitutes a hereditary plutocracy or aristocracy: the ability to pass power and influence on to one's heirs by transferring to them huge sums of wealth. Under this view, the transfer tax system should be unconcerned about wealth transmissions that are not large enough to bestow upon the recipient power and influence over others. At some point, however, transferring large wealth accumulations to one's heirs is tantamount to passing power and influence over others, which contravenes the American ideal that influence should be both earned and open to all.11 As President Franklin D. Roosevelt argued over eighty years ago, dynastic wealth accumulations "amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals over the employment and welfare of many, many others."12 Roosevelt believed that inherited economic power of that kind is as inconsistent to American ideals as inherited political power was to the founders of the country.13Although this overlaps somewhat with equality-of-opportunity ideals, it is a distinct concern and has different implications for the design of wealth transfer taxation. Families with wealth of only a few hundred thousand dollars (or less) can confer on their children the type of advantages that theorists believe inhibit equality of opportunity: private schools and tutors, college and graduate education, and perhaps a down payment on a house. …