Hacker News Reader

Comment by czbond | Hacker News Reader

Chaps my hide with broke journalist mentality: "This means that 40 percent of why some Americans are extraordinarily well off has nothing to do with smarts, hard work, frugality, lucky gambles or entrepreneurial ingenuity. It is simply because they were born to rich parents."

In the US at least, it isn't hard if in lower middle class or above to invest small sums over long periods to get large amounts. It is simply that they are not doing it, or do not know why one should. To blame that one's own parents or grandparents did not do it, yet anothers did is victim blaming another's actions when they should look at their own descendants action.

View on HN

Furthermore, why is an inheritance tax needed? The income was taxed upon earning, and any growth in that sum was taxed via capital gains. To then take even more via 'inheritance tax' is just government thievery.

This "multiple taxation" nonsense is nonsense. Everything is taxed multiple times: I pay income tax on my salary. I spend my salary buying apples, and I pay sales tax on this. From the money I paid for apples, the store pays the cashier's salary, and part of this goes to income tax. The cashier spends their salary on software from my employer, and part of this goes to the state as sales tax. My employer uses the cashier's money to pay my salary, and I pay income tax again to close the circle.

Money flows in circles, and every single transaction in the chain is subject to taxation. Picking out one particular tax on one particular kind of transaction -- surprisingly, one that only affects rich people -- and claiming that it is somehow extraordinary is intellectually dishonest. Abolishing the inheritance tax is what would create an exception from the general rule.

As for:

> why is an inheritance tax needed?

As a method of redistribution from the very rich to the very poor, to create a more level playing field for everyone. (I'm not claiming that there is a particularly level playing field anywhere, especially not in the US. But abolishing inheritance taxes would certainly not make it more level.)

>As a method of redistribution from the very rich to the very poor, to create a more level playing field for everyone.

That's a nice theory, but the absolute top don't pay inheritance taxes as their wealth is tied up in huge complex financial instruments that they can transfer avoiding taxation. The goal is to make sure that doctor making $300k/year never breaks out of the middle/upper-middle class cage. The super-wealthy have many schemes to prevent the lowers from ascending to their level, this is just one of them.

It will surprise you that I very firmly believe that this kind of loophole should be abolished.

It's only considered "unfair double taxation" if it hurts wealthy people [1]

1. https://www.thepatriotaxe.com/wp-content/uploads/dividends.g...

That is not true. The capital gains have not been taxed and won't be taxed on death. It is a giant tax free gift upon death.

If your parent dies and they had bought a house for $100,00 and now it is worth $1,100,000. So a capital gain of $1,000,000. If they had sold the house they would have had to pay capital gains on the house, minus an exemption amount ($250,000 for single and $500,000 for married).

But you as the beneficiary get to take that house and immediately sell and pay $0 in capital gains on it. So that tax is actually forgiven on death.

They have been taxed. Real estate each year is taxed on assessed value; stock market gains unless left in a single security indefinitely are taxed on the gain and placed into another security.

To then suggest the money that has been taxed at fair and accepted rates along the way, should now be taxed a large amount bc another family member has it at 20-60% seems out of bound.

The reason this thinking feels ok, is because it applies to a minority of those in society who have accumulated (which is not me - but I'm arguing the counter-point). Imagine if your house was taxed 60-80% upon purchase or sale (same concept).

Earn a living is taxed. Groceries and clothing are taxed (in my state at least). Homes are taxed. Investing your hard earned savings back into our economy is taxed.

Getting a large sum of money from your extremely wealthy parents is also taxed.

Why is the last of these things less deserving of being taxed than the ones before it? If anything, it should be the other way around.

Taxes occur on business transactions (eg: groceries, clothing) which have a high tax (say 8%) since the transactions are smaller and monetary value of the tax is low.

Taxes on assets (real estate, stock capital gains) tend to be lower percentage value bc the asset price is high, thus the monetary value of the tax is high.

Inheritance tax seems to be a high tax on large assets, when no transaction occurs - just a transfer of ownership. If we did use that transfer to parallel a real estate transfer - then the value of tax should be a small percentage.

You call 8% sales tax a high tax rate, but 15-20% capital gains low. Explain?

Agreed - lapse in thinking.

To follow up with the approach:

As engineers, this is actually a very easy problem to solve multi-generationally individually for us. It is a resource constraint algorithm.

I believe the "habit" should be modified. Educate to begin saving small sums from ages 15-23. More from 24-30. Lot more as career progresses. Savings over 50 years for individuals, then pass a part on to their kids so it can compound another 70 years. Do that a few generations, and the compounding IS big.

My take away is any family, from anywhere, can become wealthy in their future lineage. Which is an amazing thought. If you are reading this, your family can! THAT is amazing - mainly bc this game has been around for thousands of years, and only a subsection act on it.

The purpose of the inheritance tax is to prevent any competition for the truly elite. Wouldn't want the middle/upper-middle classes from actually achieving financial independence over 3-4 generations and checking out of the system would you?

Because power is money and unearned money is unearned power.

And how many steps is your reasoning removed from "Taxation is thievery"?

I lean libertarian, so probably more so than others. But a formal, functioning, supporting government is clearly needed.

Inheritance is a transfer of wealth, also known as income. Why should the people receiving that income get it tax free just because it came from a family member or close friend?

> Inheritance is a transfer of wealth, also known as income. Why should the people receiving that income get it tax free just because it came from a family member or close friend?

Good point. The government also taxes the monetary value of any goods transferred. After all, if I were to grant my car to my children upon my passing, that is income and ought to be taxed.

But let's continue even more. Whenever my mother-in-law provides childcare, the government should tax me for the money I would have spent on daycare. After all, that's giving me something with clear monetary value. Or when I visit my friend for a free dinner, I should have to pay tax on that too.

Why not... it's all transfers of wealth.

>Good point. The government also taxes the monetary value of any goods transferred. After all, if I were to grant my car to my children upon my passing, that is income and ought to be taxed.

If you win a car on a game show, you are taxed on that just like you would be if you won money.

>But let's continue even more. Whenever my mother-in-law provides childcare, the government should tax me for the money I would have spent on daycare. After all, that's giving me something with clear monetary value. Or when I visit my friend for a free dinner, I should have to pay tax on that too.

They are providing a service and not wealth or income. We don't directly tax the reception of services. However you can make an argument that this is the equivalent of providing a service at a pay of $0. I'm not sure if it applies nationally, but I know many states make exceptions for the minimum wage when working with direct family members. We don't tax people on money they were saved from spending or the excess value they receive by underpaying their employees.

> Whenever my mother-in-law provides childcare, the government should tax me for the money I would have spent on daycare.

Rich people tend to have mothers-in-law who are well off and don't need to work for money, so have time for unpaid childcare and other care work. Poor people tend to have mothers-in-law who are less well off, need to work for money, and don't have as much time for unpaid care work. Poor people might therefore have to spend money on childcare that richer people get for free. This is one of the ways in which wealth begets wealth, and an example for how expensive it can be to be poor. This is an important societal issue, and it is good of you to call attention to it.

Child care should be free (as in, financed by progressive taxes) everywhere, for everyone. The government should absolutely tax those who have more disposable income more than those who have less. It's simpler and more economically efficient (you are in favor of economic efficiency, I can tell) to do this based on general income and wealth levels than by sending inspectors everywhere to determine whether they "would" have spent money on daycare.

Nah... seeing my own poor family having my grandparents watch us, I think poor people are as or more likely to use family as childcare than the rich. And I think it would be immoral to tax them on these 'wealth transfers'.

Anyway, according to https://www.nytimes.com/2015/12/18/upshot/rich-children-and-..., my hunch is indeed correct -- poor people are more likely to depend on family.

Because you can't work to leave money for your children, if you want to do that you are basically Hitler.

I hope everyone is able to get the sarcasm

The government doesn't want it's citizens to horde money. A ton of money sitting in the bank or in assets doesn't really do anyone any good. An inheritance tax pushes the rich into using their money - instead of leaving your kids cash and assets, you leave your kids a company or something similar. They can either continue to own the company and get paid for it or sell it and get taxed on it. Regardless, a company that provides jobs is a much more interesting prospect to the gov't than just rich people with assets.

A metric ton of money sitting in a bank is invested when the bank makes loans.

> In the US at least, it isn't hard if in lower middle class or above to invest small sums over long periods to get large amounts.

Roughly 3/4 of the country lives paycheck-to-paycheck.

I don't disagree, but one cannot say "i want gobs of money in the future - but I'm not willing to sacrifice my lifestyle down a notch or two today to get it".

Can you show that American households are, for some reason, spending outside of their ability for non life-sustaining reasons? When we look at increasing rents, stagnant wages, and rising healthcare costs, then I don't know why what you're saying is even relevant.

I could use charts of new car loans and prices over previous 15 years, new home starts, home mortgages values, and for some, high education loans, subscription to cable, restaurant dining.

If wealth preservation were a priority - it would be: inexpensive cars, inexpensive houses, inexpensive schooling until a goal is reached.

Paycheck to paycheck is not a function of 'too little money' - but materialism and consumerism and sometimes ego (eg: I want to appear successful, I want to keep up with the Joneses)

I'll give you auto loans.

> mortgages values

Delinquency rates are lower than they were at 2000: https://fred.stlouisfed.org/series/DRSFRMACBS

This means that for those increasingly few home owners out there, they actually are living within their means.

> home mortgages values

How are you going to wield the personal responsibility battering ram against people then blame them for grasping one of the one levers available that yield actual material wealth. Rising home values + lower delinquency rates = good for them for growing their wealth

You're wrong on this one.

> subscription to cable

You're really reaching for threads if you're going to bust someone's balls for wanting Netflix.

> Paycheck to paycheck is not a function of 'too little money' - but materialism and consumerism and ego.

Be kind, friend. There's no reason to hate the poor just because they're poor.

> Be kind....

I should have qualified (the materialism statement as pertaining to 'middle class'). 100% those below poverty are fighting and need as much help as they can get. I may sound harsh, but I'm really just trying to address that materialism and consumerism ARE a huge contributor to wealth inequality. My words tends to be more matter of fact than I really feel.

Cable reference was really to infer a way to save $50-100/mo for many.

In this case "sacrifice my lifestyle down a notch or two" means not paying rent and living on the street, or skipping dinner a few times a week.

That says nothing because the US has forced investment schemes (401k, HSA, etc). You may be saving substantial amounts of capital and yet still live paycheck to paycheck.

> You may be saving substantial amounts of capital and yet still live paycheck to paycheck.

I agree.

> That says nothing

I disagree.

It says a ton. We can look at stagnant wages, we can look at rising rent costs, we can look at increasing student debt, we can look at increasing consumer debt, we can look at low money velocity, we can look at rising healthcare costs, and we can look at a 20% unemployment rate.

All those things plus the 3/4 number I gave paints a grim picture.

That mentality seems to mostly come from people who were born into wealth and had parents who gave them everything. They project that perspective onto the world. That was their reality after all, and probably their surrounding community.

They're too far removed from how that wealth was achieved and don't understand it. See also: clogs to clogs in three generations.

Ah yes, the old "poor people just aren't as smart" myth. It's definitely their fault for not investing smartly and not the fact that they live paycheck to paycheck. Increasing inequality has nothing to do with the fact that wealth compounds on itself, it's just a coincidence.

The reality that you and other "bootstraps" people ignore is that there is a basic cost-of-living. People need to make rent, they need to pay medical expenses, etc. If your income doesn't rise above this cost-of-living (which is true for literally half of the US population) you don't have any small amounts of money to invest. A lot of long-term investment vehicles have costs for taking out money early, which is a significant risk if you might need that money for an emergency.

The wealthier you are, the more ways there are to increase your wealth and there is absolutely a floor under which you have no opportunities besides luck

I made no reference to intelligence, it was inferred.

Many first generation wealthy live paycheck to paycheck, grind it out, figure the rules of the current game (which take persistent observation but not smarts).

My take away is any family, from anywhere, can become wealthy in their future lineage. Which is an amazing thought.

Lower middle class people are not going to become extraordinarily well off by investing small sums over long periods. $1K set aside every month at 6% annually will reach about $1M after doing it for 30 years. $1M in savings is very, very nice but not "extraordinarily well off" as described by the article.

I agree - which is why I believe the "habit" should be modified. Educate to beging saving small sums from ages 15-23. More from 24-30. Lot more as career progresses. Savings over 50 years for individuals, then pass a part on to their kids so it can compound another 70 years. Do that a few generations, and the compounding IS big.

As engineers, this is actually a very easy problem to solve multi-generationally. It is a resource constraint algorithm.

Engineers? In your original post, you were talking about "lower middle class" people. People whose careers stocking shelves and waiting tables do not progress in a way that affords them the opportunity to save $1K per month at any point in their lives, let alone consistently through their lives and across generations.

Totally agree - I jumped thoughts - and addressed engineers directly in an abrupt topic change.

My family trees actions included such egregious sins as being immigrants (fight a generation to survive), and then the next generation fighting to send their kids to college, that generation fighting to learn what tf this world even is, and then me and my brothers learning from mistakes / growing up in the environment where you’d have exposure to know. So you basically have a system that takes 4 generations to get into “just do the right thing” and I think that’s not altogether uncommon.

Meanwhile, Donald Trump is born to great inherited wealth and manages to, on basis, generate terrible returns on it, and is still labeled “a success” and is still wealthy. In fact we installed extra safety nets to make sure that someone that rich couldn’t hit the pavement, and even built in a back-up job as president for them. That same person ends a family tree in generation 2 or 3.

Absolutely - the first few generations grinding and boostrapping are hard. Doesn't it make you feel great thought that 3-4 generations after you, with the proper planning and effort, they could be centimillionaires?

Honestly not really, because I’m so disconnected from the first generation that I could project that out to 3-4 generations after me and realize — who am I building this for, who even _is_ that person? Maybe they’re awesome and they use it for good, maybe they don’t. It’s capricious, almost like how taking all of that money in taxes would be capricious.

It’s a fun thought exercise I guess but I wouldn’t greenfields a system like that.

It's possible to invest small sums over long periods to get a large payback IF you're aware that such avenues exist. Having an understanding of personal finance and how money works is a privilege many people take for granted.

For most folks in the socioeconomic band you're mentioning, this is not something everyone knows and understands. Many times, they are already living paycheck to paycheck. It's hard to think about anything long term when you're in that cycle whether it's investing or even having the time (and energy) to educate themselves further on personal finance.

Reply on news.ycombinator.com