Inheritance tax has long been regarded as an institutional instrument imbued with a sense of justice. It has been endowed with ethical legitimacy as a means to correct intergenerational inequality and prevent the entrenchment of wealth. On this issue, ANBOUND has conducted research and arrived at a more balanced set of conclusions. As emphasized by ANBOUND’s founder Mr. Kung Chan, the policy implications of inheritance tax must be examined dialectically. In particular, as the primary constraints on economic performance gradually shift from “unequal distribution” to “insufficient demand, sluggish growth, and declining social vitality”, the sense of justice of inheritance tax needs to be reexamined.
Inheritance tax is levied on the transfer of wealth across generations upon an individual’s death. The tax base is the inheritance itself, rather than the heirs as individuals. This design gives inheritance tax an appearance of being “indirect and moderate”, making it easier to understand as an institutional arrangement targeting wealth structures rather than personal behavior. For this reason, inheritance tax is often viewed in public discourse as an important tool for adjusting wealth distribution. Its legitimacy is primarily grounded in two dimensions, i.e., social ethics and economic-fiscal values.
At the level of social ethics, the primary objective of inheritance tax is to regulate the intergenerational transfer of wealth, thereby preventing its unlimited accumulation within families and mitigating the structural tendency for “the rich getting richer and the poor getting poorer”. Underlying this logic is an emphasis on equality of opportunity and social mobility. If large fortunes can be transferred across generations at no cost, social stratification will inevitably become entrenched, and an individual’s family background will exert an ever-greater influence on social outcomes. In this sense, inheritance tax is an institutional design that carries explicit value judgments, aiming to weaken the decisive role of familial lineage in the allocation of resources.
However, it should be noted that the preservation and expansion of family wealth, while related to inheritance, are not driven by inheritance itself but are more fundamentally based on professional investment and managerial capability. In other words, the policy’s value target is, in practice, misdirected. Possessing wealth may be a prerequisite, but generating additional wealth does not depend solely on capital. Instead, it also depends on competence. In contemporary China, for instance, there is no shortage of well-known second-generation wealthy, yet not many truly achieve lasting success. This pattern holds true in the United States as well, where the number of wealthy heirs and the scale of their assets are disproportionate to their capabilities. The intergenerational transfer of assets ultimately hinges on ability rather than sheer financial volume. Consequently, at a foundational level, this institutional design lacks a sufficiently precise and reliable target.
Whether inheritance tax truly and significantly improves intergenerational disparities is itself a matter of debate. Multiple studies in the U.S. suggest that the impact of inheritance tax on reducing wealth inequality may be limited. Joseph Stiglitz’s (2003) theoretical model shows that, when the long-term effects of capital accumulation are taken into account, inheritance tax suppresses saving among the wealthy while stimulating consumption, thereby amplifying consumption inequality. In addition, Daniel Miller’s (2005) research on the U.S. indicates that inherited wealth accounts for only about 2% of income inequality, while the behavioral distortions induced by inheritance tax may outweigh its benefits.
In practical implementation, affluent groups in the U.S. often possess stronger institutional capacity to respond to taxation. Through structural arrangements such as family trusts and foundations, they are able to reduce their tax burden, significantly diluting the effective impact of inheritance tax. Moreover, the tax-avoidance costs generated in the process further erode the net welfare effects of the tax. According to estimates by Kopczuk (2007, 2013), tax-avoidance behavior related to the U.S. estate tax imposes social costs of approximately USD 0.5 to USD 1 for every dollar of tax revenue collected. These costs include legal and accounting fees, expenses associated with the establishment and maintenance of trusts, and the time devoted to financial planning. Taken together, this evidence suggests that the real-world impact of inheritance tax on overall wealth structures may fall well short of its normative narrative.
In addition to its social-ethical policy significance, inheritance tax also provides the government with additional fiscal revenue. Theoretically, this revenue could be used for public services, social security, or public investment, thereby improving social welfare and the quality of economic operation on a broader scale. However, an often-overlooked premise is that the government does not inherently possess higher allocation efficiency when using tax revenues. Public fiscal expenditures frequently face challenges such as long decision-making chains, diverse objectives, and strong political constraints. As a result, there is often a significant time lag between the collection of taxes and the formation of effective demand. At the same time, the structure of government spending tends to favor basic public services and rigid programs. The government's capacity to stimulate high-risk investments, frontier innovations, or non-standardized demands especially in areas such as cultural and artistic consumption, is relatively limited. On the other hand, the wealth accumulated by the affluent is often channeled through market mechanisms into cultural consumption, artistic endeavors, and high-risk investments, which can foster innovation and entrepreneurship.
If inheritance were not taxed or subject to low taxation, it could, to a considerable extent, be redirected toward high-end consumption and investments. These are the activities favored by the wealthy, and indeed, typically accessible only to them. The resulting expansion in demand and increase in investment could create a greater marginal space for sustained economic growth.
In this regard, conventional textbooks often point out that the marginal propensity to consume of high-income groups is typically low. However, what is often overlooked is that this does not necessarily mean their contribution to overall societal demand is equally limited. In reality, it is often the second-generation or third-generation wealthy individuals who can contribute to consumption areas that ordinary people cannot reach.
According to Moody's 2025 analysis, the consumption expenditure of the top 10% of high-income households in the U.S. accounts for approximately 49.7% of total national consumption, marking a historic high, significantly surpassing the 36% figure from 30 years ago. At the same time, this group contributes nearly one-third of GDP, making them a crucial component of the U.S. economy. The consumption driven by high-net-worth individuals is often concentrated in high-value, long-cycle, or uncertain sectors, while their investment behavior spans venture capital, private equity, and emerging industries that have not yet stabilized in terms of returns. Such demand plays a significant role in driving structural upgrades and innovation.
In terms of long-term societal development, as well as the critical cultural and artistic consumption that accompanies the upgrading of social consumption, these sectors are largely supported and sustained by the contributions of high-net-worth individuals. The operation of large-scale art auctions and the survival and development of artist communities depend heavily on the support of this high-net-worth group. Looking at the art market structure, the leadership role of high-net-worth individuals is particularly evident. According to the Art Basel and UBS Global Art Market Reports for 2024 and 2025, the primary buyers in the global art market are highly concentrated among high-net-worth and ultra-high-net-worth individuals. Specifically, high-net-worth individuals with investable assets exceeding USD 1 million typically allocate 15% to 20% of their total assets to art, with annual spending on art ranging between USD 50,000 and USD 500,000. This group forms the most stable and sustainable source of demand for galleries and mid-tier markets. The rise of figures like Picasso, as well as the emergence of Impressionist art and Western artists, further attests to this.
High-net-worth individuals are often willing to make sustained investments in areas that have not yet been fully recognized by the market or the government, effectively taking on the role of "social venture capitalists". When inheritance tax weakens their long-term investment capacity and expected stability, these investments that are based on private judgment and value preferences may contract, which could put pressure on economic growth, social innovation, and cultural diversity.
From these perspectives, although inheritance taxes may reduce the disposable wealth of a very small number of heirs, the more unfortunate consequence is the reduction in societal demand. Once wealth is expected to decrease, inheritance taxes will alter the attitudes of wealth holders towards long-term consumption and investment, making them more inclined toward defensive asset allocations or hasty short-term decisions. These changes could, on a macro level, weaken one of the most dynamic sources of demand within the economic system.
It is against this backdrop that foundations and family trusts are widely present in some countries. These wealth management models are not merely designed to avoid inheritance taxes, but in practice, they serve as a sort of substitute resource allocation mechanism. Through foundations and trusts, private wealth is able to be continuously invested in areas such as education, scientific research, culture, and public issues, under conditions of higher decision-making efficiency and stronger goal orientation. This evolution of the system reflects society's lack of trust in the government's sole ability to allocate resources and acknowledges the unique role of private capital in driving social development.
In theory, inheritance tax carries an ethical objective at the normative level, aiming to mitigate intergenerational inequality and prevent the entrenchment of wealth. However, in practice, its effects on economic growth, effective demand, and social vitality are more complex and often negative. Due to the structural constraints of government resource allocation in terms of efficiency and time delays, inheritance tax shifts resources from the private sector to the public sector, but it may not be able to fully replace the leading role that high-net-worth individuals play in consumption, investment, and in shaping cultural and public issues. Especially during stages when demand insufficiency becomes a primary constraint, this system could reduce the flow of funds from the most risk-tolerant and innovation-driven sources. According to ANBOUND's policy research on inheritance tax, the justification is largely symbolic in terms of social ethics, and its economic and practical effects need to be reassessed and reconsidered under current conditions.
Final analysis conclusion:
Inheritance tax undoubtedly carries significant social and ethical value, but its economic worth and practical effects may fall short of expectations. Especially when the economy is facing insufficient demand and growth pressures, the potential suppressive effects of inheritance tax on consumption, investment, and social vitality could marginally outweigh its redistributive benefits.
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Chen Li is an Economic Research Fellow at ANBOUND, an independent think tank.
