One of the main sources of wealth at the top of the wealth distribution concern inheritances and gifts: the share of inherited wealth as part of total wealth ranges from 40% to 60%. Moreover, it is expected that the next decades will see a huge wave of bequests being made. The economic and moral reasons to tax inheritance and gifts higher than other tax bases is strong. Inheritance taxation is much less distortive than other forms of taxation (for example, in how it affects labour supply). The moral arguments in favour of heavily taxing inheritance and gifts (or even abolishing inheritance completely) are strong, as the current inheritance pattern undermines equal opportunities, is an undeserved form of wealth accumulation, and, in case the gifts and bequest are seizable, also comes with the harms of wealth concentration. The only sound reason against inheritance taxation are the relational values that come with giving, which is often especially important to kin.
Balancing these different considerations yields two policy approaches. The first is a cap on lifetime inheritances and gifts, which, in order to minimise wealth concentration, represents the ideal policy. The second is progressive inheritance and gifts taxation designed to maximise or near-maximise tax revenues: given behavioral responses to absolute caps, progressive taxation may prove more effective in practice and could better safeguard democratic institutions. Revenues from progressive taxation could be used in multiple ways, including funding a universal inheritance for all young people to promote equal opportunity at the start of adult life. Advancing either approach requires building political support through intermediate measures: establishing comprehensive registers of wealth, inheritances, and gifts; strengthening enforcement against tax fraud; closing inheritance tax loopholes; reinstating inheritance taxation in countries where it has been abolished; and fostering wider economic literacy around taxation and wealth distribution. These steps are essential both to prepare the ground for more ambitious reform and to ensure effective implementation once political will is secured. A different fiscal treatment of personal wealth could generate a massive increase in tax revenues, which could in many different ways be used to fund poverty alleviation strategies as well as other strategies that will protect the most vulnerable, for example from the consequences of climate change.
