The generational wealth gap is stark.
Multiple reports comparing millennials' wealth and earnings to that of boomers when they were millennials' age in the 1980s tell the story: Millennials hold four times less US wealth than boomers held, according to Fed data, while a MagnifyMoney study found a $600,000 gap between the generations' average net worths at the same age. And a report by think tank New America revealed that millennials earn 20% less than boomers did.
A new Deutsche Bank Research report is suggesting a tax on baby boomers to help narrow this millennial-boomer financial disparity. "Younger generations have been hit particularly hard while older folk have reaped the benefits," it reads, calling for a redistribution of wealth from the old to the young.
But the report argues against an age-related tax, acknowledging that many boomers worked hard to earn their wealth. Instead, it urges a focus on five key areas where boomers reaped financial gains through luck and external forces: low interest rates, urbanization, pollution, cohort size, and education.
Boomers, the report says, have benefited from an increased value in assets thanks to low-interest rates and from inflated housing prices. They didn't have to pay as much for education as millennials currently do, nor will they have to face the cost for environmental damage caused by the carbon emission-releasing companies in which they've invested. The generation is also larger in size, the report continues, meaning it typically wins elections.
With these five forces in mind, the report proposes several tax policies to help close the wealth divide:
Tax on primary residence via tax on the profit of the house sale (a capital gains tax) or tax on the property purchase (a stamp duty tax) to offset inflated housing prices
Additional taxes on financial assets such as stocks and bonds to offset growth from low-interest rates as boomers begin to sell these assets into retirement
A "super tax" on stocks to compensate for gains companies made on pollution, which could help fund investment in climate change
These taxes, the report states, are intended to avoid higher income taxes. "These can be an invasion on hard work and, should they rise, there is a risk that work will be disincentivised," it reads.
The report also calls for policies apart from taxation, such as lowering housing prices or centralizing control of city planning, which it recognized as a "dramatic step" to leveling the effects of urbanization. For the rising cost of education, the report suggests government subsidies for higher education or government grants to new graduates for the first few working years that will compensate for entry-level salaries less than tuition costs. More powerful youth advisory councils may also address the bigger challenge of imbalance in generational size, the report adds.
The report notes that some of these policies are more realistic, others more radical, and some may overlap, rendering others unnecessary. But the time for change is now, it says, before millennials take control.
"All indications are that they will enact policies that not only forcibly redistribute in blunt ways, but also upend the very foundations of capitalism," the report states.
Source: Business Insider