Article: Beyond Rignano: The Benchmark Question in Generational Inheritance Taxation

Jefferson’s desire to avoid an aristocracy of wealth is why inheritance taxes have long been favored. Proposals descending from Rignano (1901, 1919) address dynastic wealth by increasing the tax on transfers as generations increase from the founders; recent design work by Halliday (2018) and Fleischer (2020, 2024) has refined the implementation, with Fleischer proposing an imputed risk-free rate of return as the relevant baseline for distinguishing inherited from created wealth. This paper argues that the entire Rignano tradition has been working in the wrong frame. Once compounding at the systemic real return—what Buffett calls the American Tailwind—is taken as the central variable, the design problem is not how to refine generation-counting or how to set rates within Rignano’s framework; it is how to choose a benchmark that absorbs the tailwind. We show that under Fleischer’s specified design, applied to a passively indexed dynasty at replacement fertility, per-capita wealth grows by approximately a factor of 2.7 per generation; across three generations the per-capita growth factor approaches 19. We introduce a biological dilution test as the operational form of Jefferson’s structural objective and prove a threshold result: any benchmark close to the systemic return on the productive economy passes the test, and any benchmark at or near the risk-free rate fails. When the benchmark line is drawn exempting the equity premium as “first-generation wealth,” it hands heirs the return that comes from being born into a productive economy. The class of tailwind-aware regimes that pass the test is in principle broader than a single design, but alternatives to a direct market-return benchmark add estimation choices and administrative complexity that the simpler design avoids. The Generational Benchmark Inheritance Regime developed in companion work, which sets its benchmark at the total market return itself, is the obvious tailwind-aware regime and the only design currently in the inheritance-tax literature whose benchmark sits in the range that satisfies the structural objective. What is needed is not a modified Rignano. What is needed is a tailwind-aware regime.