The gap between rich and poor in America is expanding explosively. Should the wealthy pay more?
Income inequality is widening in the United States, sparking a national debate over whether the ultra-rich should be subject to a wealth tax.
There has been a lot of talk about the “great wealth transfer,” in which an estimated $124 trillion is projected to be transferred from older generations to younger generations.
But a new report raises questions about how much of that money actually reaches young people.
The idea is as follows. Let’s say baby boomers alone hold $93 trillion in wealth. How much of that money will baby boomers use to fund their retirement? How much will it cost to pay off their debt? How much will it cost the IRS?
When all these and other costs are taken into account, $93 trillion is expected to shrink to about $36 trillion, which will be passed on to Gen X and Millennial heirs over the next 20 years. That’s the conclusion of Visa Business and Economic Insight’s July report.
“We’ve toyed with the idea of calling this a modest wealth transfer,” said Wayne Best, Visa’s chief economist. But $36 trillion is still a “very large amount,” he said.
This study explores sensitive themes that have already crept into reports on large wealth transfers. That is, not all of these assets will reach the intended heirs.
Estimates vary by size, but the wealth is certainly there. A widely circulated Cerulli Associates 2024 report puts the number at $124 trillion. Visa’s research focuses on the boomer generation, whose wealth is estimated at $93 trillion. For context, the report notes that the U.S. economy is approximately $32 trillion.
However, not all of that money is passed on to the next generation.
How $93 trillion in wealth shrinks to $36 trillion
Here are the factors that are chipping away at baby boomers’ wealth.
debt. Despite their wealth, boomers also carry more than $4 trillion in debt, including mortgage debt, credit card debt, and loans for personal investments. Boomers have more debt than previous generations.
Baby boomers “have more debt than most people realize,” Best said.
If you subtract debt from wealth, $93 trillion shrinks to $88 trillion.
Basics. Almost one-third of baby boomer wealth belongs to the top 1% of households. And the top 1% behave differently than the rest of the population, Best said. Much of that money will not end up in the hands of heirs, but instead will be placed in charitable foundations.
If you exclude the top 1%, the $88 trillion will shrink to $60 trillion.
Post-retirement expenses. Many baby boomers will still live a long time before dying. And they will have to spend some of their wealth to cover housing, medical care, food, and prescription drugs, not to mention potentially devastating long-term care costs.
Visa estimates that spending will reduce its spending from $60 trillion to $44 trillion.
tax. Much of the remaining wealth will be taxed. Visa predicts that the $44 trillion will shrink to $36 trillion when taxes, fees and philanthropy are included.
Most of the huge wealth transfers go to the wealthy.
And most of the remaining $36 trillion will go to already wealthy heirs, Visa reports.
The report predicts that about three-quarters of Great Wealth Transfer’s successor candidates already rank in the top 10% of Americans in terms of wealth.
“Wealth is generally concentrated in the wealthy,” Best said. “But what’s surprising is that most of it goes to wealthy heirs.”
Best said these heirs are unlikely to spend much of their inheritance because they already have so much wealth. Instead, they will direct their inherited wealth toward savings, real estate, and investments.
Therefore, a transfer of $36 trillion in assets would generate about $8 trillion in consumer spending. Much of that money goes toward cars, travel, housing, and eating out.
Visa’s report ends on a positive note. Generation X and Millennials are said to be doing better financially than their boomer peers.
After adjusting for inflation, both younger generations now have higher per capita net worth than their Boomer counterparts, with a typical Millennial at about $200,000 and a median Gen Xer at $600,000, according to the report.
Younger generations are doing better, in part because Gen X and Millennials had access to 401(k)-style retirement savings plans throughout their careers. 401(k)s became popular in the 1980s when most baby boomers were well into their working lives.
