While American mythology lauds fair competition and self-made heroes, the reality is that our system of inheritance creates unfair competition and makes it particularly challenging to be a self-made hero. A key aspect of the inheritance problem is the disparity it has created between white and black Americans.
After the end of slavery black Americans owned about .5% of the total worth of the country. This is not surprising: most blacks had been property before this date. They did not have wealth because they were wealth. In 1990 things had had improved for black Americans—they now own about 1% of America’s wealth. This is not surprising—they started with little or nothing, whites received a bounty of governmental gifts, and blacks were systematically denied these gifts and restricted in their opportunities to earn their own way. While most of those in positions to address this matter must be fine with it, if you believe in fair competition and equality of opportunity, then consistency requires that you also believe that this problem needs to be addressed.
Condensing history, white people have enjoyed numerous advantages gifted to them by the state. The Homestead Act of 1862 provided gifts of land that went mostly to white people. This land was taken, in large part, by the 1830 Indian Removal Act. Compensation was also paid to white slave owners after the civil war, but the 40 acres and a mule remains an empty promise to this day. The 1935 Wagner Act gave unions the ability to engage in collective bargaining, and these unions were a great boon to white workers. But it permitted unions to exclude non-whites, which they generally did to the detriment of black Americans.
The Federal Housing Administration’s programs allowed millions of average white Americans to buy homes, while excluding black Americans. The national neighborhood appraisal system tied mortgage eligibility to race. Integrated communities were defined as being financial risk and ineligible for home loans—something now known as “redlining.” From 1934 to 1962, the government backed $120 billion in home loans with 98% going to whites. Lest one think that that things are significantly different now; black and Latino mortgage applicants are still 60% more likely than whites to be rejected—even controlling for factors other than race. One common response to such assertions is that while past racism was bad, the past is past. While this does have rhetorical appeal, it is fundamentally mistaken: the past influences and shapes the present. One obvious way this occurs is through inheritance: the wealth accrued from slavery and from state handouts to white people have been passed down through the generations. This is not to deny obvious truths: some white people blow their inheritance, many white people are mired in poverty, and there are rich black Americans. The problem is a general problem that is not disproved by individual exceptions.
Because of these policies and prejudices of the past, a representative white family today has, on average, about eight times the assets of a representative African American family. Even if families with the same current incomes are compared, white families have over double the wealth of Black families. A primary reason for this is inheritance.
Inheritance enables a family to pass down wealth that can be used to provide competitive advantages such as funding education and providing starting money for businesses. It also helps people endure difficult times, such as the current pandemic, better. As such, whites enjoy a significant competitive advantage relative to blacks that is unearned: they simply inherit this advantage. The advantage is also, as noted above, based on explicitly racist and discriminatory policies.
Some have called for reparations for these past injustices and I certainly agree with this notion. However, there are numerous obstacles to this approach. One stock objection is that reparations would take resources from living people to give them to other living people based on injustices committed by people who are now dead. While this objection can be countered, an easy way to get around this objection, and many others, is to adopt a plan focused on heavily taxing inheritance and using the revenue to directly counter these past (and present) economic injustices.
To win over consistent conservatives, the resources should be used to enhance the fair competition they claim to believe in. Examples of how the resources should be used include addressing funding inequities in education, addressing infrastructure inequities, and addressing disparities in mortgages. That is, providing people with a fair start so they compete in the free market beloved by conservatives. Obviously, once the historical racial disparities have been addressed and competition is truly fair, then the resources can be fully switched over to address general economic inequality that arose from other past economic injustices.
When marketing the idea to conservatives, the emphasis should be on how people are now benefiting from what conservatives claim to loath: unearned handouts from the state and unfair advantages provided based on race by the state. One can assume that people with such professed values will support this idea—otherwise one would suspect they are inconsistent or perhaps even racists. The proposed plan would help remove these unfair and unearned handouts to enable the competition to be reset. To use the obvious analogy, this would be like a sports official seeing people cheating in a track relay race by getting an unfair head start and using bikes. The official would be getting everyone to the same starting line, taking away the bikes and restarting the race for a fair competition.
This proposal has many virtues, but perhaps the greatest is that it allows for past economic injustices to be addressed in a painless manner: nothing will be taken away from any living person for what a dead person did. Rather, some people will receive significantly less of an unearned gift. As such, they are not losing anything—they are simply getting less of something they do not actually deserve. While some might profess pain at this, that would be an absurd response—like getting a free cake and whining because one did not get a thousand free cakes simply for being born.
As always, the devil is in the details. As noted in other essays, I am not proposing that inheritance be eliminated, nor am I arguing in favor of the state taking your grandma’s Hummel and assault rifle collection and giving it to a poor family. The general idea is that inheritance should be taxed, and the tax rate should be the result of careful consideration of all the relevant factors, such as the average inheritance in the United States. The plan could also involve increasing the tax rate gradually over time, to reduce the “pain” and thus the fervor of the opposition. In any case, a rational and fair proposal would take considerable effort to design—but would certainly be worth doing if we want to be serious when we speak of fairness and opportunity in the United States.