Inheritance Taxes: What Does the U.S.A’s Richest Man Think of Them?

Bill Gates is currently the U.S.A.’s richest man with a net worth of about $80 billion dollars according to Forbes magazine.  Mr. Gates has been at the top of the wealth charts for decades.  As the wealthiest man he is the person most impacted by any kind of inheritance tax since his estate will pay the most when he dies. What does Bill Gates think about inheritance taxes? As I’ll show below, Mr. Gates thinks that inheritance taxes are a good idea. Inheritance taxes are conceptually very simple, but extremely complex in practice.  Conceptually, when a person dies the executor of their estate calculates their net worth and gives a fraction of the net worth to the government before distributing the rest to children, grandchildren and other heirs.  If you die today in the U.S.A., the government only imposes estate taxes if your net worth is more than $5.3 million, so most people don’t have to think about this issue.  For amounts above $5.3 million, the government takes about 40% (see table A here) of the estate’s value.

I have been fascinated by inheritance taxes since publishing a research paper that investigated how much money ordinary people save when given an inheritance (read a synopsis here or here; whole paper here).  My study found the average person only saved about half the money they received.  However, my study did not include any person who received exceptionally large amounts, like the billions of dollars Bill Gates’ children potentially will get.

Mr Gates described his feelings toward estate taxes a few days ago in his blog by writing “I’m also a big believer in the estate tax.”   Statements in favor of the inheritance tax are not any clearer than that.  His post also states “I believe we should maintain the estate tax and invest the proceeds in education and research—the best way to strengthen our country for the future.”

Isn’t Mr. Gates worried about his children and potential grandchildren?  Absolutely not.  He writes in the same piece “Melinda and I are strong believers that dynastic wealth is bad for both society and the children involved. We want our children to make their own way in the world. They’ll have all sorts of advantages, but it will be up to them to create their lives and careers.”   Mr. Gates is planning on giving most of his wealth to the Gates Foundation.

The richest man in the U.S.A. clearly states that he is in favor of the government taking some of his wealth after he dies.  If the richest man in the U.S.A. is not averse to inheritance taxes, why are so many politicians?

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