Is an Inheritance Tax Useless After All? Re-Cap for the Launch of Our Wealth Simulator

What would really change the wealth situation in Germany? A higher tax on wealth or inheritances? Or a start-up capital for everyone? When we started developing the wealth simulator with Timm Bönke and Charlotte Bartels, which we presented last week, we had a slight suspicion that making wealth accessible for the many could change more. The fact that the percentage shares of the richest ten per cent would hardly change at all if more inheritance tax were collected nevertheless came as a surprise. On closer inspection, however, this is not such a big wonder.

It is true that the simulation could not take into account what it would mean to remove many of the exemptions that large corporate assets currently receive. But even this would not fundamentally change the core message, as some counter tests show. According to Charlotte Bartels, the fact that a wealth or inheritance tax would do so little to change the situation also has to do with the extent of wealth concentration in Germany today. Only 30 per cent of Germans inherit anything at all in their lifetime. And in most cases, the sums are well below the usual tax-free amounts. A quick arithmetic example: If ten per cent of the generally estimated 300 to 400 billion inheritances and gifts were taxed each year, this would amount to 30 to 40 billion euros – with total assets of several trillion euros, this is too little to make much of a difference to the percentages.

This is not to say that there is no point in taxing inheritances more consistently, for example to finance a start-up capital for young people. It’s just that this would do little to change the distribution. Which, in contrast, according to the wealth simulator’s analysis,  the introduction of a start-up capital would certainly accomplish.

The details are debatable. And what exactly a good combination of instruments would look like cannot be deduced from the simulator’s initial results at this stage. This will be explored in the next phase of the project. Nevertheless, the piecemeal testing of the measures has revealed one important insight: that taxing the rich a little would make much less of a difference than is commonly assumed – while giving the masses a start-up capital would.

Recognising this is already a big step forward in the always highly emotional debates about rich and poor, which until recently often lacked good data. The development of the wealth simulator was worthwhile for this reason alone.