The Simple Dollar Weekly Roundup: The Super Money Secret That Will Make You Rich Edition

Are you ready? This truly is the financial secret “they” don’t want you to know about.

Ready? Here it is.

Spend. less. than. you. earn.

Of course, if it weren’t such a secret, no one would be drowning in debt and no one would be completely panicked if they lost their job.

How Do You Measure Delight? In other words, if you have the choice between a $5 version of an item and a $15 version of an item, what qualities does that $15 version have to have to get you to spend the extra $10 (aside from volume, naturally)? It really depends on what you value as a person – as well as how much you value $10. (@ jonathan fields)

More than You Think: The True Cost of a College Education in America This post covers a lot of the hidden costs of college, but I think it leaves out one big one: the lost income during the years spent getting an education. I have a friend who graduated roughly when I did and was making $45,000 a year as an electrician while I was in college. That’s certainly a cost. (@ five cent nickel)

Belief, Without Action, Is Dead I think the modern trick is figuring out what you genuinely believe. There’s such an abundance of information and misinformation out there that I think many people drown in it, directionless. That’s an article in itself, I think. (@ man vs. debt)

Relocating to Save Money on Housing This can certainly work, provided you can find work on the other side of the trip. (@ frugal dad)

Travel and Social Privilege If a person has the financial means to do something out of the ordinary, should they? Or should they be obligated to share those rewards with others? I don’t like any situation where one person tells someone else what they can do with the resources they’ve earned. That being said, I am in favor of a strong estate tax. (@ the art of non-conformity)

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  1. Colleen says:

    Same thing for dieting: Consume less calories than you burn. So simple, yet so difficult for people to follow (myself included). It’s all about getting into good habits.

  2. lurker carl says:

    Spend. CONSIDERABLY. Less. Than. You. Earn.

    It is the path less traveled yet it leads to financial independance.

  3. Tejas says:

    Saving is mindset. Just like to loose weight, you have to make lifestyle changes, to loose debt, you have to make lifestyle changes.
    When you pack your lunch/dinner, it is certainly lifestyle change than eating out everyday.
    I am so used to eat home made stuff that you have to pay me to eat out :)

  4. Johanna says:

    I thought that the travel article was going to be about something else entirely, but only because I’ve been thinking lately about another aspect of all this. My brother is preparing to go to Europe for the first time, and he was just asking me what to expect from customs and border control. I told him that I think people whose skin color, accent, and clothes all signal “upper-middle-class American tourist” (as his and mine both do) are more likely to be given the benefit of the doubt than some other people are.

    That’s not good, but there’s not much that he or I individually can do about it. Certainly feeling guilty isn’t going to accomplish anything, and neither is refusing to travel because of it. I think that just being aware of the privileges that you have goes a long way.

  5. jasony says:

    You had me until the estate tax. Serious question here-I’m not trying to be annoying or start a political debate), but why do you feel that it’s better to give the government a chunk of a deceased person’s estate when it could otherwise be passed on to their children, families, or causes that they choose? The heirs could use it to start businesses, create jobs, or buy stuff (which ultimately helps the economy). I think government has proven that it’s not necessarily the best spender of other peoples’ money.

    Is there something I’m missing here?

    Thanks,

    Jason

  6. KoryO says:

    Have to second what Jason said.

    Not everyone who may leave behind a sizable inheritance is leaving it to someone like Paris Hilton. My niece has special needs (Down Syndrome) and my baby girl needed heart surgery at 3 months old. I don’t know what needs they will have in the future, but I am certain that I could craft something that takes their needs into account cheaper and with much more flexibility than some bureaucrat in an office in the capitol. (I used to BE a government bureaucrat, so don’t accuse me of bashing them, ok?)

    I would rather they have some little bit of financial wherewithal under their own control, or under the control of a friend/family member who knows them personally, than to have them beg for scraps from a government program and be completely or partially dependent on political whims if I can avoid it.

    After all, a “strong” estate tax would never hit the likes of George Soros, Warren Buffett or Bill Gates. They can afford lawyers to ensure it never ever touches the majority of their fortunes.

  7. Katie says:

    My niece has special needs (Down Syndrome) and my baby girl needed heart surgery at 3 months old. I don’t know what needs they will have in the future, but I am certain that I could craft something that takes their needs into account cheaper and with much more flexibility than some bureaucrat in an office in the capitol.

    I believe these are the situations that trust arrangements are made for.

    George Soros, Warren Buffett and Bill Gates are not people who seem to have structured their financial lives and fortunes to avoid taxes. Good for them.

  8. Katie says:

    Incidentally, KoryO, what do you think should happen to people like your niece who don’t have relatives to leave them money? You can craft something better to help your own family, but should people who don’t have family with the resources to do that just end up on the streets because the government can’t help them as efficiently as a set of hypothetical rich relatives could have?

  9. Sarah says:

    You had me until the estate tax issue. I’d love to hear your thoughts on this issue. As the daughter of an extremely hard working farming family, estate taxes on our mind daily. My parents are in their 60s and are deep in the estate planning process. My dad started with nothing when he began farming and now has amassed over 1500 acres of farmland. He is the epitomore of a hard working success story. Why should the government take a 50-60% tax on the value of that land when he and my mother pass away? How will we as the heirs of that estate pay such an exorbitant tax without selling land (something that would cause my parents to roll over in their graves)?

  10. Johanna says:

    @Sarah: If your father started with nothing and amassed his 1500 acres through his lifetime of hard work, then surely you, who are starting with considerably more than nothing, can amass at least 50-60% of the value of that land through your own hard work? Or did you think your parents worked hard so that you wouldn’t have to?

  11. spaces says:

    Johanna sometimes ILU!

  12. J.O. says:

    @ Johanna

    Sometimes it’s not so simple. It’s possible that Sarah is working on the family farm to enable them to keep it going. It’s never been easy to be a farmer, but the last couple of decades it’s been harder than ever.

  13. Kevin says:

    “That being said, I am in favor of a strong estate tax.”

    I agree with the other commenters, in disagreeing with you here, Trent. If I earn a total of $1,000,000 over my lifetime, and I pay $300,000 to the government in taxes, and manage to carefully protect my remaining $700,000, then why should the government get to tax it AGAIN when I die? Why shouldn’t I be allowed to do what I want with the money I’m “permitted” to keep after being taxed my whole life? How can it possibly be considered fair to tax it again?

    Are we really so petty and jealous of those who inherit money that we’d advocate such a blatantly unfair tax scheme?

  14. Looby says:

    I’m with spaces (#9)!

  15. Kevin says:

    @Johanna:

    The problem is that for many small businesses, the value is entirely tied up in assets. Real estate, equipment, inventory, patents, etc. So when the founder dies, the “on paper” value of the company may be $3 million. So Uncle Sam comes along and shakes down the widow for $750,000. Of course, Mrs. Small Business doesn’t have that kind of scratch laying around in the company’s petty cash fund, so she’s forced to shut down the business, or sell it to a huge international conglomerate for pennies on the dollar. The family business is wiped out.

    It sucks and it’s unfair.

  16. Carol says:

    agree with #10 Kevin on estate tax

  17. Katie says:

    Kevin, maybe I’m wrong – and please point me to any sources you have that demonstrate that; I’m happy to learn – but I think that that’s part of why most people set up their businesses in some sort of corporate form or business entity beyond merely holding it as personal assets.

  18. Johanna says:

    @Kevin: So you’re saying that it *is* fair that people who are lucky enough to be born the children of successful business owners should be given their very own successful businesses, tax free, that they themselves did nothing to build and grow?

    I’d think that the “hard work, bootstraps, rah rah rah” crowd would just love the estate tax. Let everyone succeed, or not, on their own merits and own hard work, without any handouts based on who their parents are.

  19. Courtney20 says:

    @ Kevin – opinions about the tax aside, neither of your examples makes sense. My very limited research (aka Wikipedia) says “If an asset is left to a spouse or a charitable organization, the tax usually does not apply.” So no hypothetical widow shakedown. It also says that in 2011 the estate exemption will be $1M. So your hypothetical $700K is safe.

  20. valleycat1 says:

    The estate tax comment/aside by Trent came out of left field as far as I am concerned – did I miss something in the referenced article? I too would like him to explain his reasoning behind the position, since he’s thrown it out here.

    There are those who think proper financial planning means that when you die, your estate is close to zeroed out. Which in theory is accomplished during your lifetime, by carefully determining how much you will need & then gifting, selling off & gifting, signing over assets, and/or putting into trust any monies needed by dependents who cannot support themselves. Of course, if you die unexpectedly, you leave behind an estate.

  21. Courtney20 says:

    valleycat1 – I think the estate tax comment was a clarifying exception to his comment immediately preceding: “I don’t like any situation where one person tells someone else what they can do with the resources they’ve earned”

  22. AD says:

    You lost me at the estate tax.

    The question is what RIGHT does a gov’t have to tax money that you’ve *already paid* taxes on?

  23. Courtney20 says:

    @ AD – the same “right” they have to charge sales tax on items purchased with after tax dollars?

  24. Courtney says:

    Trent, isn’t it your mission to promote frugality and wise money management? Yet you are also advocating government seizure of the fruits of a lifetime of hard work – when we all know the government is anything but frugal and wise when it comes to managing money.

    I am curious about what logic you are using to reach the conclusion that the money should be in the hands of the government instead of the rightful heirs.

  25. Courtney20 says:

    @ Courtney (now people can tell our comments apart!) – I don’t think Trent is saying “money should be in the hands of the government instead of the rightful heirs” – I think he’s saying people should use/manage their money while they’re alive instead of amassing wealth to be handed to someone else after they’re dead, and a strong estate tax encourages this.

  26. Katie says:

    I am curious about what logic you are using to reach the conclusion that the money should be in the hands of the government instead of the rightful heirs.

    You’re assuming your conclusion – why are they the “rightful” heirs? Unless you’re arguing there’s some kind of natural rights principle for someone to pass down all their property without any kind of restraint whatsoever, which I guess is an argument though not one I find compelling, they’re the rightful heirs only to the extent the law allows them to be the rightful heirs, i.e. after the relevant taxes are taken out.

  27. Kevin says:

    @Johanna:

    My objection to the estate tax isn’t about the “luck” of the children, but rather about the freedom of the OWNER of the money to determine the fate of his own money, the fruits of a lifetime of his own labour. The estate tax strips away that freedom.

    @Courtney:

    Fair enough, I’m not a tax lawyer. So in my example, the widow would get to keep running the business. But then what about when SHE dies? The children want to keep running the family business, but Uncle Sam suddenly wants his pound of flesh, so the children are forced to sell.

  28. Courtney says:

    @Katie:Unless you’re arguing there’s some kind of natural rights principle for someone to pass down all their property without any kind of restraint whatsoever

    That is absolutely what I think.

  29. Johanna says:

    @Kevin: By the time the estate tax comes into play, the owner is, by definition, dead. So what does he or she care?

  30. AD says:

    @Courtney20–Sales tax is charged by state, not federal, government.

  31. Katie says:

    Sales tax is charged by state, not federal, government.

    States also charge income tax. So your objection to the idea of double taxation only happens when it’s the federal government doing it? Why?

    That is absolutely what I think.

    Okay, your views are consistent. I don’t think we should take them seriously, mind, as a way to run a functional society, but hey, people believe all kinds of premises.

  32. Katie says:

    The children want to keep running the family business, but Uncle Sam suddenly wants his pound of flesh, so the children are forced to sell.

    Again, I ask, why is our hypothetically super-successful family holding this company as personal assets anyway? Surely they’re sophisticated enough to have set up a separate business entity.

  33. AD says:

    @Courtney–Agreed. Why shouldn’t you be able to leave your children your money without our spend-happy gov’t taking another cut of your money??

  34. Courtney20 says:

    @ Kevin “But then what about when SHE dies?” – See Katie’s comment (#13) about corporate versus personal assets.

  35. AD says:

    @Katie–Okay, should I list ALL the cases of double taxation, then, and then clarify that I object to each one? We’re talking about estate tax, so let’s just stick to that and save every other kind of tax for another day.

    I suppose you think the gov’t will see to it that these taxes feed the hungry and house the homeless? After all, their track record for responsibly spending taxpayer money is stellar.

  36. lurker carl says:

    Anyone raised on a farm would know the ENTIRE FAMILY works to make it succeed. Not just the father – everyone. The same holds true with most first generation and labor intensive businesses.

  37. Brian says:

    Trent,

    Absolutely agree that spending less than you earn is the key (and so simple, yet so difficult for folks to do). By chance, I just posted an article on my blog about how to track your spending against your income in a simple-to-use graph that I think would really help folks do that. Please give it a look. Thanks!

    http://topofthebellcurve.typepad.com/living-at-the-top-of-the/2010/09/how-to-graphical-budgeting.html#tp

  38. Courtney20 says:

    @ AD – also in reference to double taxation (or lack thereof), large estates often have long-term capital gains that have never been taxed.

    And you could also donate your estate to charities that feed the hungry and house the homeless, thereby bypassing the inefficient government and its taxes altogether.

  39. Katie says:

    Okay, should I list ALL the cases of double taxation, then, and then clarify that I object to each one? We’re talking about estate tax, so let’s just stick to that and save every other kind of tax for another day.

    But you didn’t say you objected to all kinds of double taxation. You tried to draw some kind of state vs. federal distinction. Say what you mean..

    I’m not going to say the government is awesome. I think it often sucks. But having imperfect government agencies feeding the hungry and helping the homeless sure beats having nobody doing it (or piecemeal private charities), which has been the situation for much of human history. It’s no accident that there’s fewer people starving in the United States today than there is in societies with no social welfare system.

  40. David says:

    Jumping to the end here because I can’t believe anyone would actually be in favor of an estate tax.

    I work and earn 1,500,000 in my lifetime. I have ALREADY paid taxes on that money. IT’S M I N E. To do with as I please. It doesn’t matter if it’s in some corporate veil or not, *I* earned it!

    It is simply the spirit of envy that creates laws and taxes like the Estate Tax. If you’re in favor of it you’re saying, “I’ll never make that kind of money, so you shouldn’t have it passed down to you”. God Bless anyone who has worked hard in a family business and accumulated any kind of wealth, and shame on anyone who is in favor of taking it away at the owner’s death.

  41. Courtney says:

    @Katie: “Okay, your views are consistent. I don’t think we should take them seriously, mind, as a way to run a functional society, but hey, people believe all kinds of premises.”

    Strong property rights are one of the cornerstones of a functional society. Having decision rights over the fruits of your labor includes deciding who it goes to when you die. Arbitrary taking by the government is a huge disincentive to actual civilization-building activities such as building businesses or families.

    We have all seen the “stimulating” effects of massive government taking and spending the last 18 months. What society functions more efficiently, one with strong property rights and the rule of law where people have a strong incentive to work and push society forward or the take / destroy / redistribute message we have been hearing from Washington which teaches everyone to sit on their butts and wait for a handout?

  42. AD says:

    Good Lord. Someone brought up sales tax, so I pointed out that it wasn’t even a federal tax, which is *what we’re talking about in this thread*. I said exactly what I meant.

  43. Courtney20 says:

    @ Courtney “Arbitrary taking by the government is a huge disincentive to actual civilization-building activities such as building businesses or families.” – it’s not arbitrary; one knows more or less exactly if and how much their estate would be liable for. And I’d argue that the estate tax is a huge incentive to civilization-building activities. Spend money now to start a corporation, or pass it on to your heirs when you die? Pay for junior’s college tuition now, or drop $100K in his lap when you die? Donate to a charity now or when you die? The estate tax reinforces the now.

  44. Johanna says:

    @David: If *you* earned the money, then your heirs did *not* earn it. It belongs to you now, but after you die, it doesn’t belong to you, because dead people don’t own anything.

    Why do you (and Kevin, and Courtney, and AD) think that the children of rich parents should get a handout when their parents die? Why shouldn’t they earn their money like everyone else does? This is a serious question.

  45. Courtney20 says:

    @ AD – I brought up sales tax, as an example of one of the many rights the collective government has to tax us twice on the same income/property.

  46. J.O. says:

    Moderation issues again!!

  47. J.O. says:

    … and although that comment went through, another one I made earlier did not. Aargh.

  48. Courtney20 says:

    Haha J.O. – I had commented on the GRS post too. Mine seem to have been resolved though, finally. I think changing my posting name may have complicated the issue.

  49. Doug says:

    “George Soros, Warren Buffett and Bill Gates are not people who seem to have structured their financial lives and fortunes to avoid taxes. Good for them.”

    Katie, I can’t speak about Soros and Gates, but Warren Buffett most certainly is trying to avoid estate taxes. He has set up his “trusts” to avoid such taxes.

    “Estate taxes for thee but not for me.”

    And if I want to leave any property to my son, why shouldn’t I? Because some bureaucrat decided I was too successful during life? Or because someone who is a mediocre performer is jealous that I managed to create a successful business?
    No, how about you worry about your estate and I’ll worry about mine. Buffett and others who are in favor of the estate tax are doing everything they can to avoid having to pay it, while the people who are negatively impacted by such a tax (family farmers, family businesses) have no option but to sell out to the Soroses and Gates of the world to keep the KGB . . . er, the IRS out of their lives.

  50. AD says:

    Because it is up to the person who earned the money to decide where it should go after he/she dies, not the federal government. If dead people don’t own anything, why not seize it all, right down to the family heirlooms? I really hope you wouldn’t be agreeable to that. If so, we should just stop this debate right here.

    Why do you think the government should get to step in and decide how a person’s money should be spent?

  51. J.O. says:

    @ Johanna

    “Why do you (and Kevin, and Courtney, and AD) think that the children of rich parents should get a handout when their parents die?”

    It is up to the parents to decide whether their children should inherit the results of their hard work (it is not a handout), and if there is no will, the law decides in favour of the children. This is a separate issue from the taxing of the estate.

  52. Courtney20 says:

    @ AD, they do get to decide where it should go…within the current laws. Which, after this year, will almost certainly include an estate tax. It’s also illegal to transfer money to a Cuban government official – but what if I want to leave my estate to Raul Castro? The US Government is so unfair!

  53. AD says:

    @#47–The point, quite obviously, is that many of us disagree with the laws.

    And with the mention of leaving money to Cuban gov’t officials as some sort of argument (really?), I’d say it’s about time to abandon this thread.

  54. Courtney20 says:

    AD, you said “Because it is up to the person who earned the money to decide where it should go after he/she dies, not the federal government.” I’m trying to use an (obviously ludicrous) example to make the point that the government tells us what we can and can’t do with our money ALL THE TIME. I can’t legally buy cocaine, or pirated DVDs, or nuclear weapons either – all restrictions imposed on me by the government. You don’t seem to be opposed to the estate tax so much as you seem to be opposed to any form of government regulation whatsoever.

  55. Shannon says:

    I think it’s fair if parents are leaving large sums of money to their children, the government gets to levy a tax on it. This is just like progressive taxation – you earn more, you pay more tax – you are bequeathed more money, you pay a tax on it.

  56. Shannon says:

    And to those raising the issue of double taxation – you’re missing the point. Money that parents leave for their children has been taxed when in the parents’ hands but when it is bequeathed to their children, it is income to their children which has not been taxed in the hands of the children.

  57. AD says:

    Again, we’re talking about estate tax. Not drugs, nuclear weapons, or Cuba. You’re reading far too much into my opinion on one specific topic.

  58. alilz says:

    Where did Trent talk about estate tax?

  59. J.O. says:

    I’m with the other posters who are interested in hearing from Trent on why he supports a strong estate tax. Or maybe there’s a whole other post in that.

  60. J.O. says:

    @ alilz

    In his last sentence under “Travel & Social Privilege”.

  61. alilz says:

    I guess my eyes glazed over before I got to that part.

    I have to admit estate tax isn’t something I’m worried about, unless there’s some really wealthy relative I never knew who was going to leave something to me it’s not something that’s ever going to effect me directly.

  62. Courtney20 says:

    @ alilz – some might call that apathy, but I think you’re hitting a good point. The estate exemption for 2011 is supposed to be $1M. Even if you had 10 kids (!) you could still leave each of them the over a year’s salary (for some professions, multiples of a year’s salary), tax free, without a blink from the IRS.

  63. Trent says:

    All I’m going to say about the estate tax law is that a strong law doesn’t necessarily mean that you give some huge chunk of your estate to the government. It means that everyone is treated equally and fairly. A strong law is simple, with minimal loopholes, and equally enforceable. Our current estate tax laws and policies (along with the other end-of-life rules, like intestacy and so on) are not simple, are fraught with loopholes, and are far from equally enforced – weak laws, in other words.

    How much should an estate tax take? You can debate that until the end of time without full agreement on the issue. However, I think a lot of people would agree that a law with giant loopholes and exceptions for people with big money or a good lawyer while others get hammered in probate court isn’t good for anyone.

  64. J.O. says:

    @ Trent

    Thanks for posting! Good answer.

  65. Wes says:

    Trent certainly opened a can of worms with his death tax statement. He says “I don’t like any situation where one person tells someone else what they can do with the resources they’ve earned. That being said, I am in favor of a strong estate tax.” Trent usually puts his ideas into words pretty well, but this statement makes absolutely no sense. How can you not like “any” situation limiting what someone can do with their own money, and then support a law which keeps you from doing what you want with your own money? Trent, I hope you’re reading, because you owe your fans more of an explination regarding this issue than you provided above.

    That said, inherited wealth raises several interesting questions. For those, like Johanna, who say that children do not deserve to inherit wealth from their deceased parents: you’re right. No one has an absolute right to the wealth of their parents. However, it is not the receiver’s rights I am concerned with, but rather the producer’s. If I amass a fortune through a life of hard work (and pay taxes on it while I’m alive), I believe I have a right to do what I please with it upon my death. If I choose to give it to my children, then they have a right to my money not by their own worthiness of it, but rather as a derived right from my own.

    For those who are concerned about wealth inheritance leading to unfair conditions of inequality, I’d like for you to consider how estate taxes actually further entrench families into lower classes. Consider a hard worker who pulled herself up from poverty. She may not have amassed enough wealth to live in the country club, but she has a sizeable amount of money she would like to leave to her children, to ensure that her family continues their trend of upward mobility. The estate tax inhibits this mobility, and says to the poor: “No, your family can only climb so high.” The ultra-rich, however, do not have these concerns. Their assets are protected by accountants, lawyers, and trust funds. The death tax ultimately allows them to keep a generational hold on the elite class, but makes it hard for average families to climb to their status.

  66. Courtney20 says:

    @ Wes, I don’t understand your point about the estate tax entrenching families into lower classes. How much is a “sizable amount”? A million dollars? She can leave that to her children tax free based on the expected 2011 estate exemption. $2M? The government only assesses the estate tax on the second million – leaving approximately $1.5M to be distributed among the heirs. Sure, everyone gripes about taxes, but I think you’d be hard-pressed in real life to find someone complaining about the difference between $1.5M and $2M in *after tax money* that they may not have had to do *anything* to earn.

  67. Wes says:

    Courtney20, again, it’s not the griping of those receiving the money I’m concerned with. If I had $2M to give to my kids, but Uncle Sam said I had to give him $500k first (on money he had already taxed), I’d be the one griping.

    And I don’t think my illustration is that absurd, either. That $500k could have been the start-up costs for one of my kids to start a small business, continuing the cycle of upward mobility I began. Will the absence of that money stop or reverse the trend? Maybe not, but it will certainly slow it down.

  68. Courtney20 says:

    @ Wes – If it’s money from a life insurance policy or in a tax-advantaged retirement account, then Uncle Sam hasn’t taxed it (at least not all of it). $1M, or even $1.5M, isn’t enough to start a small business and continue the cycle of upward mobility? I really don’t see how the difference in taxes makes or breaks someone.

  69. Courtney20 says:

    Unless you have a $2M estate and four kids, and you say to the fourth “Sorry kiddo, Uncle Sam got your share.” Which probably would be contested anyways.

  70. Courtney20 says:

    I won’t tempt fate by posting a link, but there is an article entitled “Estate Tax Malarkey” on FactCheck. The two salient points are that less than 3% of estates were subject to any estate tax in 2002 (when the exemption was also $1M) and that estates greater than $10M had almost 60% of their assets made up by untaxed, long term capital gains.

  71. Wes says:

    We’re not talking about life insurance policies, we’re talking about money earned, taxed, and saved.

    1.5M may be enough to start a business, if I leave all of my money to only one of my children. But (let’s assume) I’m going to leave it to all 4 of my children. That brings their inheritance down to a level where the extra money might make a sizable differnce in the type of business they pursue. The extra $125k per child given to the govt. (like I just said) won’t keep them from moving forward, but the compound returns of that money over the course of their lifetimes would may have made their net worth (and their taxable income) substantially larger by the time they retire.

  72. Courtney20 says:

    Life insurance policies are part of one’s estate. Which one neither earned nor saved, and was never taxed other than the after-tax dollars used to pay the premiums. So we are talking about life insurance policies.

  73. Wes says:

    The life insurance policy thing is tangential to the broader topic of the death tax. Some people have them, some people don’t, it really doesn’t effect the morality of the situation.

    Do you have anything to say to the real point of my last post?

  74. KoryO says:

    Katie, you are right that I could spend lots of money to establish trust funds. However, I’d prefer that those assets go to someone who could use them to pay rent, not for some lawyer’s or accountant’s Mercedes or yacht payments.

    I also would prefer to have scarce resources that are subject to political whims available to people who come from families less fortunate than mine. That’s the whole point of my post. Let me put it this way….if 2 people with special needs out of 20 can be supported by their families, that means more money is available to other people without those resources. More money for them = better care with the same amount of tax dollars. Everybody wins, ESPECIALLY the ones without family resources.

    —————–

    Thanks for clarifying what you meant, Trent. Can’t argue with that. ;)

  75. Courtney20 says:

    Your real point being that your four children would ONLY receive, tax free, 7.5x the annual median US gross salary instead of 10x the annual median US gross salary because they outlived a parent who happened to be in the top 3% of all estates in the US when they died?

    Would you feel better if it was taxed to them as ordinary income instead of deducted from your estate?

  76. Courtney20 says:

    And I don’t think the life insurance is tangential to the question. You said “…money he had already taxed” but the fact of the matter is that 1/3 to 1/2 of the balance of estates has never been taxed.

  77. Trent says:

    “How can you not like “any” situation limiting what someone can do with their own money, and then support a law which keeps you from doing what you want with your own money?”

    I said, and I quote: “I don’t like any situation where one person tells someone else what they can do with the resources they’ve earned.”

    My first statement is a shot directly at probate court, where a probate judge often makes really arcane decisions based on weak laws to determine what happens to estates.

    The whole estate resolution system is just awful and if it were properly fixed with strong, clear laws, we wouldn’t have probate courts draining estates with needless fees and judges making life-altering decisions based on arcane statutes.

    I do not like any situation where a judge orders someone what to do with their money based on laws that are weak and vaguely written. Estate laws are definitely in that category.

    I am in favor of a strong, clear estate system that reduces the power of such situations and puts power back in the hands of people to decide where their estate goes with a clear understanding of exactly how it will be taxed and passed on. Things are so arcane and vague now that most people with wills just kind of hope their wishes will be followed and the real power sits in the hands of probate judges. That’s flat out wrong.

    I am similarly in favor of a strong estate tax, as I described earlier. It needs to be clear, equally enforceable, and simple enough for everyone to understand.

    When laws or taxes of any kind are not clear, not simple, and not equally enforceable, government is not serving the people. Those elements should always be a given.

  78. Wes says:

    Median income has nothing to do with it, MY income and MY thrift have everything to do with it.

    And about life insurance, in this scenario I don’t have any. I don’t know where you got your fractions, they may be accurate but I’m certain they’re averages. Those fractions are probably greater for the ultra rich and lower for first-generation entreprenuers, who likely have a higher percentage of already taxed income than third and fourth generation millionaires who die with millions in unrealized capitol gains.

    And regardless of what portion of the estate hasn’t been taxed, it doesn’t justify re-taxing the portion that has.

  79. Courtney20 says:

    You have four kids and no life insurance??? I think you have bigger things to worry about than estate taxes.

    I noticed you didn’t answer my question, but I’ll give you the answer anyways. For a $2M estate split among four kids, they would each get $375,000 after the estate tax is deducted. If they instead each got $500,000 as taxable income, they would owe at least $152,644 (assuming no other income to fill the lower brackets) and would be left with a maximum of $347,356.

  80. Wes says:

    If you didn’t realize it, we were tlaking about a hypothetical. To put your mind at ease, in this scenario I lived to old age on term life insurance which I didn’t renew after I retired. I then bought a cheap burial policy which doesn’t affect my net worth.

    Sorry I missed your question, but your still advocating double taxation. Once is enough, and that’s my point.

  81. prodgod says:

    Basically (with few exceptions), anytime money changes hands, it’s subject to taxation of one kind or another. Inheritances seem to be no different.

  82. Jessica says:

    Spending less than you earn is easy for some, but very difficult for others.

  83. Kevin says:

    @Courtney:

    “less than 3% of estates were subject to any estate tax in 2002″

    Ooooooh, well why didn’t you say so? As long as it’s only affecting those lucky, dirty, filthy, selfish rich scumbags, then I’m OK with that. I thought it actually affected GOOD people. [/sarcasm]

    Wes said it much more eloquently than I could have. I’m concerned about the rights of the GIVER, not the RECEIVER. The money has already been taxed – what possible justification could you have for taxing it AGAIN? Because we hate rich people? We’re jealous? There are no objective rationalizations that make any sense – it’s pure class envy.

  84. Kevin says:

    @Courtney:

    “Would you feel better if it was taxed to them as ordinary income instead of deducted from your estate?”

    No. It shouldn’t be taxed at all. It’s already been taxed. It’s what was left AFTER Mr. Dead Guy paid taxes on it. Taxing it again is simply punishing him for being a responsible saver instead of spending it like a good little consumer.

  85. Courtney says:

    @Trent: As far as I can tell, you haven’t answered the question that people asked. Why are you in favor of an estate tax – any estate tax, whether it’s strong or not? Why do you think it is a good and fair thing for the government to seize assets from an estate?

  86. Courtney20 says:

    @ Kevin – See my comment above about the fact that estates over $10M having, on average, nearly 60% of the balance made up by long term capital gains that have never been taxed. The average across *all* estates is about 1/3 LTCG. And that’s before you take into account any estate exemptions. If you can accumulate an estate that contains $1M of after tax dollars BEFORE you account for any growth, then yes, you may complain about double taxation (although we’ve already established that we are double taxed on many things in life – sales tax, property tax, etc).

    There are plenty of ways to manage estates to minimize the taxes due. Invest in a corporation (small business/LLC), and remove those dollars from your personal estate. Junior can be the CEO after you pass on. Take advantage of the annual and lifetime gift tax exemptions and get those dollars working today. Donate to charity. Those are the things the concept of the estate tax is trying to encourage. They’re not discouraging saving, they’re discouraging hoarding.

  87. Trent says:

    “Why are you in favor of an estate tax – any estate tax, whether it’s strong or not? Why do you think it is a good and fair thing for the government to seize assets from an estate?”

    My belief is that any money distributed from an estate should be treated as normal income by the recipient – because, frankly, it is income. The person receiving the income earned that income through whatever connection to the deceased caused that money to fall on their lap. Often, estates are given to children who have certainly carried a burden, particularly during the later years of an aging parent’s life. That’s work, and for that, they have earned income in the form of the portion of estate received. There should be no “estate tax” other than that.

    I consider that fair because it is income for the recipient and yet it also doesn’t penalize the person from whose estate it comes. They’re able to distribute every dime they have.

    I still don’t think this is perfect because I think the current income tax codes are draconian, but I think it’s far better than what exists.

  88. Courtney20 says:

    Also, mocking aside in your comment at #85, I provided the 3% number not to draw lines between classes, but to make the point that the estate tax is thrown around as a political boogeyman that’s going to kill small business and ruin the ‘little people’ when it really affects very, very few estates. None this year, even, and significantly fewer than 3% of estates from 2004-2009 since the exemption was higher than $1M in those years.

  89. Courtney20 says:

    (Correction to my previous post – “comment at #83″…)

    Trent, does it matter if it’s taxed before it gets to the recipient rather than after? I only ask because once you take into account the estate tax exemption the recipients are often coming out ahead for most distributions (even though the rate is higher). If they paid taxes on the distribution as income, they will be paying them at their highest income tax bracket.

  90. Tom S. says:

    I think Ronald Reagan summed up the attitude of many of the commenters here pretty well:

    “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”

  91. Ben says:

    Are you aware of the book, The Money Secret? (http://www.amazon.com/Money-Secret-Rob-Parsons/dp/0340862777/ref=sr_1_1?ie=UTF8&s=books&qid=1284615425&sr=8-1) Worth a read, and most importantly, the conclusion is the same as yours

  92. AJDS says:

    All I have to say is if a certain section of the country believes that all poor people need to do is pull them up by their own bootstraps- so should the children of this certain segment.

    I say exempt the first 5 million dollars which would protect the vast majority of family farms and “so called” small businesses. If your farm is bigger than that I don’t think it is a “family farm” unless your name is DeCoster.

  93. deRuiter says:

    Trent, it’s easy to be cavalier about high estate taxes when your family was not particularly successful financially. Frankly the families who have worked, saved, and accumulated a bit, and PAID INCOME TAXES ALONG THE WAY, deserve to keep the money earned and not have it double taxed by a greedy government.
    “people whose skin color, accent, and clothes all signal “upper-middle-class American tourist …. are more likely to be given the benefit of the doubt than some other people are.” Dear Heart, the person you describe is mostly NOT going to give the authorities trouble, is not likely to be a drug mule, is not likely to be a terrorist, and is not likely to stay in the country over the legal limit of time as an illegal alien demanding expensive services, refusing to work, producing anchor babies, plotting terrorist attacks against the local population, and outbreeding the local ethnic group and screaming about their “rights” to set up independent courts which contravene the law of the land in which they have landed. In America it’s not politically correct to profile, even though profiling works, ask the Israelis who interview folks who want to travel on El Al Airlines. The rest of the world is interested in results, not feel good politically correct behavior, so they act differently from Americans who are frightened of being called racists, homophobes, etc.

  94. deRuiter says:

    “George Soros, Warren Buffett and Bill Gates are not people who seem to have structured their financial lives and fortunes to avoid taxes.” Warren Buffett and Bill Gates have opened a foundation together which shelters them from taxes and gives them and their families the ability to spend all that lovely money in whatever manner they feel is “right.” Do not fool yourself about these peole, the Heintz family, the Kennedies, THEY ALL HAVE PLATOONS OF LAWYERS AND ACCOUNTANTS WORKING FULL TIME TO SHELTER THEIR WEALTH. These super rich liberals don’t shelter their income? WRONG!

  95. Johanna says:

    Wow, it looks like deRuiter’s going for the bigotry trifecta. Racist, sexist, *and* classist bile all in one post!

  96. Johanna says:

    The “but it’s already been taxed!” argument really makes no sense. When I earn money, I pay income taxes on it. When I spend that money (say, by hiring a plumber to come and fix my kitchen sink), it becomes income to someone else, so *they* pay income taxes on it. Calling that situation “double taxation” would be absurd: Since all the money in circulation is income for someone at some point, *all* taxation would therefore become double (or triple, or n-tuple) taxation.

    I’m not especially convinced by the argument that heirs “earn” their inheritance, but if they do, then they (or somebody) should pay taxes on it, just like all the other money they earn (although not necessarily with the same rate structure, since there is a difference between a lump-sum inheritance and an annual income). If they don’t earn it, then taxes should still be paid, since surely a person has more of a natural right to money he earns than to money he doesn’t earn.

    What I’m seeing here from a lot of people is a strong sentiment that the government is wrong to collect taxes on *anything*, since any taxation is taking money that “rightfully” belongs to someone else. If that’s how you feel (and note the “if”), then we’ve got a much bigger disagreement than has been expressed so far: If the government doesn’t have the right to any money, then it doesn’t have the right to exist.

  97. Courtney20 says:

    Fabulous point, Johanna. Another thing to consider is that if Grandpa, while lying on his deathbed, calls up his broker an hour before passing to liquidate his shares of Apple purchased during their IPO in the early 80s, his estate would owe taxes on the capital gains of those shares. If instead, he bequeaths those same shares to Junior, who receives them after Grandpa dies, why should those shares be treated any differently?

  98. Dottie says:

    Trent
    Maybe the government should tax your children’s allowance each week because “frankly it is income”. Under your beliefs that money fell into their laps because you earned it and they are connected to you… You better add a TAX category to their piggy banks along with the donate and save you are trying to teach them.
    I must say this post did it for me. I have absolutely no respect left for this blog or you.
    As one commenter touched on.. you obviously grew up poor and had a family that was not financially successful. I bet your beliefs would be different if you watched your father work is fingers to the bone fishing, farming or what ever you claim he did to save for your future and then at his passing you get to “donate” 30% of his hard earned money to the government.
    For what is it worth this is the last time I will ever read this blog. God Bless you and your strong taxation beliefs.

  99. Courtney20 says:

    @ Dottie – Given that there is a generous gift tax exemption each year you would have to be paying kids a mighty fine allowance before any eyebrows would be raised. Please see my comment immediately above – but to reiterate, if Trent’s father sold his business minutes before dying, he would have to “donate” to the government. Why should the same property be treated differently if instead, Trent receives the business minutes after his father’s death?

    The fact of life is that when money or property changes hands in a formal manner, it’s taxed. Dying is no different than living.

  100. Johanna says:

    @Dottie: If you have absolutely no respect for anyone who doesn’t believe taxation is inherently wrong, you’re going to have a pretty lonely existence, I’d think.

  101. 8sml says:

    @Dottie: I watch myself work my fingers to the bone all the time, then “donate” more than 30% of my hard-earned money to the government. And you know what? My belief is that it’s the right thing to do. I have minor quibbles with how the money is spent, but that’s why I try to make my voice heard in the political sphere.

  102. Tracy says:

    Dottie, so only people who grew up poor are okay with taxation? Because it’s just the people who grow up comfortably who work hard? Your attitude is lovely.

    Re: Taxes, generally – I consider them my pay-to-play fee for being part of a comfortable, normal society. I benefit from all the services, safety and stability that government provides, and I certainly don’t think that should come as no cost to me. I’m happy to pay taxes for that.

    Re: The estate tax, specifically – I don’t really have an opinion on this, but yeah, I think there should be some form of an estate tax – to cover those estates with substantial untaxed capital gains, and because I feel that it’s also a type of income/capital exchange to the benefit of the heirs that should be taxed accordingly.

  103. Tom S. says:

    What I don’t understand is, where in the world do people get this quasi-religious, unquestioned belief that income ought to be taxed?

    Many of our legislators are quite wealthy – perhaps they should fund their anti-social hobby themselves, to steal a line for RAH.

  104. Johanna says:

    Anti-social hobby? What on Earth are you talking about?

  105. 8sml says:

    Tom S.: Speaking only for myself, I think you’ve put the cart before the horse. I don’t have a quasi-religious belief that income ought to be taxed; I have a (possibly) quasi-religious belief that people in a society should help one another out, even if they aren’t related or don’t know one another, and even if the donor-recipient relationship could be seen as “uneven”. I suspect that government is the best organizational model to distribute that help, and that income taxes are a fairly good way to fund that help, but I don’t know for sure. If there is a better way to do it, great–I’ll be able to save up for that down payment a lot faster. But right now I don’t know what that better way is, and the people on this page saying “IT’S MINE” don’t make a very strong argument, in my opinion.

  106. Courtney20 says:

    @ Tom S – Well, there’s this crazy thing called the Constitution. And it has this one amendment, the 16th, that says “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived” (emphasis mine). No religion needed.

  107. Johanna says:

    You know, I wonder if we are doing more harm than good by engaging with these rabid anti-tax folks. By even having this discussion, we’re kind of saying that their point of view deserves to be taken seriously rather than being laughed out of the room.

    We need a government. The government needs money. Therefore, we need to pay taxes. End of story. If you think otherwise, you’re welcome to move to Somalia.

  108. Tom S. says:

    @ 8sml – I agree 100% that “…people in a society should help one another out, even if they aren’t related or don’t know one another…”

    That’s a concept sometimes known as Christian Charity, in the broadest sense: simple “Love of Neighbor,” which covers a lot of things.

    Where I disagree completely is the idea that “government is the best organizational model to distribute that help”. Government is made up of the same imperfect kind of human beings as, say, those mean evil megacorporations or those greedy rich people who won’t share. Actually, it is made up of exactly those people. As Milton Friedman said: “Where will you find the angels to run this whole thing for you?”

    Government does have its place: Things like national defence and providing equal protection under the law. But even the things it ought to do it will never do very well.

    The priciple of Subsidiarity states that things like charity ought to take place on the most local level, preferably on a personal level. How much waste and corruption is there when you see a hungry family and you cook them a meal?

    @ Courtney20 – I’m glad someone is paying attention to the Constitution! We need more people like you in Congress. Yes, they have the power. I just wish they were more careful with the way they used it.

  109. spidey says:

    What a bunch of socialist, wealth re-distribution crap! You people act like the money/assets in question belongs to the government in the first place. You would have every bit of my liberty taken if you had the chance.

  110. Kevin says:

    Johanna:

    That’s a strawman argument. Nobody is saying income shouldn’t be taxed. We’re saying that money shouldn’t be taxed TWICE.

    An inheritance is what’s left AFTER the owner has already paid taxes on it. What possible justification could there be for requiring that it be taxed AGAIN? It’s pure, ugly, class-envy.

  111. monica says:

    Johanna
    The government needs money, therefore we need to pay taxes….
    Yes our government needs money from taxes, however our government is incredibly corrupt and wasteful. Our government absolutely does not need more taxes or even the amount we are paying now. Our money is being wasted on useless programs and bureaucracy.
    Dottie
    I completely agree with you regarding the inheritance tax. Any one who has not experienced the tax first hand or is not in the position to inherit / or bequeath money will most likely lean toward higher taxes because it is something that doesn’t effect them.

  112. monica says:

    8sml
    Well after you donate your 30percent to the government while you are working I guess you believe it is ok for the government to take another 30 percent when you pass and wish for your children to receive your hard earned savings? I think that is crazy.
    As for your idea that giving the government THIRTY PERCENT in taxes is “the wright thing to do” I think that is nuts.
    Tracy
    Of course you don’t have an opinion on the Estate tax… because it won’t affect you. People who will have to face the estate tax monster have very strong opinions. They are literally the ones being taxed to death.

  113. Johanna says:

    @Kevin: I’m not saying that everyone who’s against the estate tax is against all taxes. But some of them (not you) pretty clearly are.

    And I’ve explained in my comment #96 why the “double taxation” argument doesn’t work: All money is taxed once when it’s income to one person, and again when it’s income to another person. Why should inheritances be treated any differently?

  114. Johanna says:

    Hey look, it’s the tea party!

    @monica: For the record, it’s quite likely that the estate tax will affect me. I don’t know exactly what my parents’ net worth is, but since they’re relatively well-off retirees, it’s probably more than $1 million. And if, when they pass away, some of their money goes to the government that otherwise would have gone to me, that’s perfectly fine with me. See, they earned that money. I didn’t. I don’t have any more right to it than anyone else does. They raised me to be an educated and independent adult capable of earning my own money, and that’s all I need from them.

  115. Money should be earned by hard work, not to wait for someone to come and give you money and help you out of this situation. May be you can reach yo the government for some help.

  116. Johanna & Courtney20 are crazy says:

    Johanna, get off your high horse. We get that you are a hard worker(allegedly) but don’t make the mistake of assuming someone who is on the recieving end of an estate is not.

    The arguement about sales tax blah blah blah is weak at best. You are basing your arguement for double taxation of someones estate on another taxation that is appalling as well. Two wrongs don’t make a right. You act like no one is pissed about that either.

    As for your little life insurance arguement, if it is purchased with pre-tax dollars, it should be taxed at death, when the money is paid. It should not be taxed a second time on top of that. If it is purchased with post tax dollars, it should never be taxed again. That is what you fail to see when people oppose your views. THEY ARE AGAINST DOUBLE TAXATION. It doens’t matter how it is earned, it should not be taxed again.

    The government does get money for all of it’s wasteful projects you so love and all of the stuff we actually need as well. Such things include military, roads, public hospitals/schools, and a long list of etc’s. It’s called income tax. They wouldn’t have to use a double tax if they did what the original post stated. Spend.Less.Than.You.Earn. But we all know how good they are at that, so let’s give them more.

    The bottom line is, it’s double taxation. Johanna, you said when your parents die, you have no more of a right to that money than anyone else. Incredible. The whole arguement was based on what the EARNER of that wealth wanted that money to go to. Even if they died without a will, you should still be entitled to that money unless stated otherwise. You are a family. Why should anyone else benefit from what your family has done in their lives unless the earners of the wealth stated so?

    Don’t try to drop the “gift the money while they are alive arguement to avoid the estate tax” arguement on me either. That is proposterous in and of itself. That assumes everyone is going to live to the ripe old age of 85 and they can trickle their money down to their heirs. No one ever dies young and unexpectedly do they?

    It’s wrong.

    FYI, i’m not in line to recieve a dime.

  117. Johanna says:

    I find it utterly amazing that commenter #116 can write so much without knowing how to read.

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