Kamala Harris’s father, Donald Harris, an eminent economics professor at prestigious Stanford University in California, was described by the Stanford Daily in 1976 as “a Marxist scholar . . . too charismatic, a pied piper leading students astray from neoclassical economics”. Dr Harris was critical of mainstream economic thinking, which for decades had argued that free markets would solve everything. Instead, he focused on the importance of income and wealth distribution, long before inequality became a hot topic.
Barack Obama and Kamala Harris come from remarkably similar intellectual lineage. Both fathers were postcolonial thinkers, the first generation of professional economists in newly independent colonies; Kenya in Obama’s case and Jamaica in Harris’s. Interestingly, both children of these postcolonial radicals have tacked to the centre, a move we observe in many families where the children find their own way, sometimes in opposition to their parents. Liberal families spawn conservatives and vice versa.
This oft-seen ambivalence towards intellectual inheritance contrasts profoundly with the far more common entitlement towards material inheritance. How many families have we seen torn apart by rows over financial succession? Inter-sibling rivalries, dormant for years, can erupt over heirlooms as brothers and sisters fall out over cash. Why do you think succession makes such great fictional material from Cain and Abel to Logan Roy?
[ Kamala Harris is a descendant of an Irish slave owner in JamaicaOpens in new window ]
Inheritance is not just a family affair – it’s also a critical societal issue. Should we tax inheritance to make society more equal, levelling the playing field, or is inheritance tax a malevolent posthumous penalty for an individual’s effort? After all, everyone wants to leave something behind. For many, this is the main reason for their striving, saving, planning, working constantly when they could be dossing. Many people are doing it all for their children. On the other hand, inherited wealth is not earned by the recipients and gives them an unfair and, in many cases, insurmountable advantage.
Such a leg-up creates an “inheritocracy” – a caste system that favours those who inherit. For example, the median price of a home in Ireland was €280,000 in 2021. Central Statistics Office figures (2021) show that 45 per cent of first-time buyers aged 25-34 received financial assistance from their family. A survey conducted by Bank of Ireland found that around 32 per cent of first-time buyers received financial help from their parents in 2022. In a society that strives to give every citizen a fair crack of the whip, inheritance drives a massive wedge between those who get a dig-out and those who don’t.
Philosophically, the dilemmas thrown up by inheritance tax go to the root of one of the central conundrums in macroeconomics called the paradox of aggregation, which means what is good for the individual is not always good for the collective. Inheritance is great for those who receive it but, as it confers an unfair advantage on one person, it damages the chances of the rest of society. Inheritance creates a concentration of wealth at the top and perpetuates economic inequality, which can also dampen economic dynamism because those who start with nothing conclude the game is rigged so what’s the point in even trying to get on? The 20th-century data bears this out as periods of relatively high inheritance tax rates coincided with periods of reduced inequality.
Democracy is built on the principles of equality, fairness and social justice. Inheritance can undermine these values by reinforcing disparities in wealth and power. When a significant portion of society’s resources is passed down through inheritance rather than distributed based on need or merit, it can erode trust in democratic institutions and fuel perceptions of injustice and unfairness. But how do we disentangle the natural human desire to leave something behind for the children and these more philosophical questions? And because of this “inheritocracy versus meritocracy” debate, few other taxes animate the population more than inheritance tax. This why the Government, ahead of the budget, is walking a tightrope on whether to cut inheritance tax rates.
The main thing to appreciate, and this sometime confuses the dogmatic, is that societies are complicated ecosystems in which three or four apparently conflicting things can be true at the same time. In fact, a dynamic economy requires there to be a number of stories playing out at once. So, a society can have a marked degree of wealth inequality but also a significant degree of upward mobility. We can have people who are quite rich on paper but poor in their back pockets, and we can have a few very rich people at the very top, but lots and lots of people moving upwards in the middle. Someone else’s inheritance can also be a spur to those who didn’t receive an heirloom to work hard to create one for their own kids, creating a positive economic dynamo. The economy, like life itself, is complex.
The crux of this centrist Government’s dilemma is that because of the increase in house prices – up 63 per cent from the 2013 trough – we have got to the rather bizarre place whereby the wealthier you are, the less able you are to pay inheritance tax. This is because wealth inherited is often property, which is illiquid, but the inheritance tax on it must be paid in cash.
Right now, children can receive up to €335,000 tax-free over their lifetime from their parents, but anything in excess of that amount is subject to a tax of 33 per cent. If a person is lucky enough to inherit a big house, the 33 per cent tax is calculated on the value of the house over this tax-free allowance of €335,000. That person might have a modest income and little in savings but wants to live in the house they inherited, which means they will have to come up with a large amount of cash to pay the inheritance tax on it.
You might think this conundrum applies to very few people. But due to the upswing in houses prices, it has become a real issue for the present – albeit, very middle class – Government.
A national discussion prompted by the extremely wealthy “on paper” complaining they aren’t rich enough to pay tax might sharpen the focus on wealth inequality in Ireland. Taking the latest figures from the CSO, median net wealth stood at €193,000 in 2020, while the mean was almost double this at €354,000. The gap between the median and the mean, for the statisticians among us, indicates that the very rich are skewing the figures. In Ireland, wealth has become increasingly concentrated in the hands of those at the very top. The top 1 per cent of households in the income distribution own about 15 per cent of the nation’s wealth, while the top 10 per cent of households hold over half of the wealth in Ireland. The top 30 per cent owning close to 80 per cent of the nation’s wealth.
These are French Revolution-style figures and point to severe wealth imbalances. At the very top, or out-of-sight strata, an Oxfam report indicates that with a combined €15 billion, Ireland’s two richest people have more wealth than the 50 per cent of the population at the other end of spectrum, who have a combined €10.3 billion.
With numbers like this, almost colonial in their scale, it might not be too long before the economics of Kamala Harris’s father come back into vogue here. And yet, when it comes to meritocracy and social uplift, the past few decades in Ireland have been truly remarkable. For example, Kamala Harris‘s dad was an elite Ivy League university professor, while Taoiseach Simon Harris’s dad was a barman in McDonagh’s, Dalkey. That’s Irish social mobility in action – and it’s great to see.