The Grim Truth About Getting Rich...

Just because I may disagree with *some* of your points doesn’t mean I don’t like or at least respect you. The entire point of forums like these is to have an enlightening discussion on these topics. I express my opinion, and you express your opinion.

As my dad would no doubt tell me: “opinions are like sphincters, everybody has one and they always stink.†What he is really trying to say is that we’re a lot more alike than not.

The issue I have with taxation in general – and yes it’s necessary for our society to function – is that the money that we had to work and sweat for is siphoned off and quickly disconnected from our ability to see where it really goes.

I don’t think it’s any shocking secret that around 2/3 of taxpayer revenue is wasted, simply “lost†in the bureaucratic shuffle. If this is news to anybody, better sit down, have a cup of joe, and join the real world.

Just by eliminating ½ of this waste, imagine how much more could be put into things like mass transit, energy research, better roads, better aircraft, superconducting power lines, etc etc.

As far as insurance – whether automotive, homeowners, health, whatever - it’s a consummate Ponzi Scheme. Insurance companies double-dip with little fear of repercussion. If they make a “bad†investment decision (Rarely the result of any real natural disaster but rather just dumb investing of the money) then they get bailed out and the rates get jacked.

A classic example is Lloyds of London, which played the Ponzi Scheme to the hilt by re-insurance among a small group of core companies. Around and around and around …

Of course, at a very basic level the insurance companies exploit our fear of the unknown. Just like how a funeral home takes advantage of a grieving family to add more extras to a funeral. More than likely, you’ll never collect a penny of insurance in your life. If something bad does happen, then you *may* be covered.

You’d be surprised how often in a genuine loss, the insurance companies try to weasel out of paying. A friend of mine experienced a house fire in 1997 and lost the home. He’s still bitter.

My parents – as a little exercise to depress them – once added up all the homeowners and car insurance they’d paid into their many years. Then they added up the very few times they actually had damage or an out right loss.

They concluded they paid around 20x more into insurance premiums over the years than what they claimed. They would have been much better off just putting the money into a safe interest bearing account. They would have had that money for their own use, to do with as they pleased. Not as a sunk cost to a mysterious corporation with poor financial oversight.

But we “need†insurance, so we have to take it like a man.

A lot of older folks here in Canada feel the same way, as they were of the last generation taught to save for a rainy day. They even invested into RRSP’s, sort of like an IRA. Once they turned 65, the RRSP had to be rolled over into a RIF, and suddenly that “income†was counted against their CPP and they had “clawbacks.â€

So these older folks are telling us younger folks *not* to save as the government will take it from you and use the money to encourage the Welfare State. Ironic, isn’t it?

 

Thanks for you kind words. When I mentioned that I knew you would disagree, I did not mean that in a perjorative way.

I also think there is a lot of waste in government, but I think dealing with that waste by simply lowering taxes is dangerous. One may expect that with less money, the politicians will be more efficient and responsible, but that is not what happens. It has never happened that way and it never will happen that way. We can wish all we want. What does happen is that the politically connected continue to feed at the trough, and those that need it the most get screwed.

And every bureacracy has waste whether it be GM, Halliburton or the US Government. Its the nature of bureacracies. I just feel that sometimes some solutions simply make the problems worse.

As for means testing for SS, which is the term for "clawbacking" the nest eggs of retirees when their income goes up. I'm actually in favor of this "clawbacking". However, I do think that the cut off for when the "clawbacking" starts should be set in the upper middle class range -- or even in the lower rick range. I leave the definition of that to the experts, but I would guess that there should be no lowering of your SS, or of your Canadien equivalent, until your income gets into the $75 grand range. And if you still have dependents, that range should be higher.

Again, I'm in favor a progressive rates. I think tax burdens should be more equal than they are. I think taxes should not hurt one class of people too too much more than any other class.

As an example. The amount of taxes a family of 5 that makes $75K pays has a very real affect on what size house they can afford, and where their kids might go to college. The amount of taxes that a family of 5 that makes $500K pays has MUCH less affect on what house they can afford and where their kids go to college. In other words, the more you make, the less taxes hurt your lifestyle.

Now, in order for taxes to "HURT" equally, someone like Bill Gates should be paying 90% in income taxes. Even then he could afford 25 houses and 80 cars and have his kids personally tutored by Harvard Professors. But I think a 90% tax rate is simply absurd. But as things stand now, his tax bracket is only slightly higher than the guy who makes $50G.

I don't think this is fair. When JFK was President, the top tax rate for the super rich was indeed 90%. He lowered it to 70%. Reagan lowered it into the 40%. He tried to lower it further.

70% might be a little too high, but in the 40% range is just wrong. The super rich can pay their taxes out of petty change.

Yes, the rich may pay a lot in dollar amounts, but in terms of the adversity it causes them it's nothing.

And as for the guy making 50K, the adversity taxes cause is truly REAL.

And Republicans have never been tax cutters. Republicans are tax shifters. They lower taxes on the super rich and because of how that ripples through the economy, it results in significant increaed burden on the middle class.

Sorry if this is disjointed. I'm in a hurray and have to go to a meeting. Lunch is over.

 

It seems as if I give you the wrong impression there jayman. I wasn't trying to say that the things I mentioned were excuses by any means. I'll admit to trying to take shortcuts on this and just using some quick quotation to insinuate they are things that people "have to have" that they really don't.

I agree with your post, there is a ton of personal responsbility in there. I wanted to just throw some different scenarious out there for thought. I consider myself a pretty thrifty person, but I can feel the temptation of the world and other people to be like the people you described.

After going to school and being relatively poor for nigh on 7 years now, with a couple of years of school left, I can see why those who go on for professional degrees get tired of just scraping by and when they get that first big job they go hog wild. Once you start down that road, it is hard to stop, so we are trying our best to take out as little loans as possible and pay off as much as we can while we go. So people dont' have to fall into this trap.

While I am younger than many, I have learned the lesson that if someone can't take care of a little money, they probably won't be able to take care of a lot of money (hence the huge house, fancy cars, bling-bling). It seems there are spenders and there are savers, regardless of how much money they make.

 

Michael:

See that's a huge part of the problem right there. It's just way too easy to get credit now, so folks are enticed into the Caviar lifestyle on a Beer budget.

It must have to do with the circle of friends my parents associate with, but they just don't think that way. Only one person is a "professional" (Dentist) the rest were hard working Joes with - at most - a grade 11 education.

We're talking about folks who ran plumbing businesses, logging, heavy equipment, road grading, that sort of back-breaking work. Yeah, they were also all raised in the gloom of the Great Depression.

For the most part, they never got fancy with homes or cars or lifestyle, even after they retired. One nice old couple, now in their early 70's, recently treated themselves to a "new" car, a 2003 lease return Lincoln Town Car.

Compared to the clunky used up rusted out s*** box they were driving before, the Lincoln with less than 40,000km on it is a dream.

These oldsters, including my folks, also head down to places like Yuma, AZ, St George, UT, or Mesquite, NV for the winters. Or they take nice pampered cruises in the Caribbean. And why not? They worked for it all their lives, now they can enjoy it. Why shiver when it's -40?

A very sad thing to see are those who plunge right off the cliff into deep debt and, when they are in their late 60's, are door greeters at Wally World to make ends meet.

The whole point is to work your a** off when you are young and able to, so when you get into your 50's or 60's you can disappear to a nice sunny climate and enjoy things. Not fret over how you foolishly spent money when you were 25 and should have known better.

Jay

BTW your fiscal prudence will pay off many times over. Trust me on this.

 

Actually, if you're not careful about seeing a good tax attorney or accountant to plan things properly, around $50,000 Cdn is the magic number.

A lot of older folks assumed they could plan for their retirement the "old fashioned" way and not have to worry about picky accountant details. WRONG. They got nailed, since they counted their "potential" CPP/OAS as part of their nest egg.

I rather doubt that SS or CPP was ever designed to replace a persons income upon retirement. CPP and OAS in Canada will at most cover 40% of your income, and depending on clawbacks about the only way you will achieve your pre-retirement income is to have socked away a lot into real estate or safer investments.

That's why it's so important to save and not have debt. If a person is still in debt by the time they reach their late 50's, "retirement" becomes a dream, not a reality.

Let's not forget that your hypothetical family will also pay far more income tax than Exxon Mobil, Microsoft, and Boeing combined. Technically, those companies "pay" taxes but get it right back from Uncle Sam.

Same thing here in Canada: a company like Bell Canada or Bombardier will happily line up at the trough and snork down a lot of taxpayer money. Yet the average Canadian can't even claim their mortgage interest.

So when we're discussing the taxation rates of the mega-corps and super-rich, we appear to be in agreement.

 

Tony:

The book that convinced my parents (Yes, despite only Grade 6 education they know how to read) they were doing the right thing was "The Credit Trap," from '73 or '74.

I read that book a couple of years ago and, sadly, the many warnings are still very relevant today. Even sadder how nobody really paid attention to that little "insider" book.

Jay

 

I read that book decades ago. I also read one of Donald Trumps first books. Trump is a billionaire because he borrowed money. For the first dozen years of his business career, the banks actually owned everything. House rich and cash poor.

Then inflation came along and made him a billionaire. Luck is the key to his career. That and he always used his equity to buy more real estate. Nowadays, people are using their equity to splurge on "things". And although that equity and splurging has helped GW's meager economy look better than it really is, it's a dangerous way to live.

So credit is not always bad if you are willing to gamble, and lucky, and don't splurge your equity.

 

$50,000 is the cut off? That's awfully low. Is it 50% on the dollar or what?

 

well i never had any illusions about what Social Security was. it is a tax... and they didnt name it Personal Security for a good reason

 

Yeah but, at this point, it's going to be repealed only for decedents dying in 2010. So for the folks at the very high end, it still makes a little sense (albeit very little).

Anyway, I'd be willing to bet the estate tax never does get repealed entirely, even for the year 2010. Congress will probably do something in 2009 (after the next Prez takes office), repeal the current structure, and institute some sort of permanent exemption (i.e. increase it and index it to the CPI or whatever).

 

I agree with virtually everything you've written, Jay, except for the 50's and 60's retirement bit. Frankly, I know way too many people who have retired early and spent an ungodly amount of time doing nothing even remotely productive (or next to nothing).

Had my father-in-law or father retired in that age bracket, for example, they would have spent the next 20-30 years of their lives watching TV, hoarding magazines, and picking up other peoples' thrown-out junk off the curb on garbage day.

I also know people who retired wayyyy too early (early 50's) and were bored so stiff they not only went back to work, they now work even more than they ever did when they were younger. Nothing whatsoever to do with money since they had plenty........just the need to feel involved.

Personally, I plan to work until I drop (die with my wing-tips on).

 

I really can't stand The Donald, he's a boob and a bore and he has a serious attitude problem.

Sure, as long as you structure your equity in such a way that somebody else pays for your mistakes, then it's a nice way to get through life. You have to be able to sleep at night, and I know I couldn't if I pulled stunts like that.

I'll stick to doing things the "honest" way.

 

According to the Yahoo Currency Converter, this morning $50,000 Cdn is worth $40,633 USD.

Yeah a lot of seniors up here who "carefully" planned for their Golden Years got quite the shock.

I guess the Liberal Government of Canada needs the money to fund their many scandals.

 

Oh geez, they didn't just stop everything and wait to die. One thing I forgot to mention is that all of these folks had their own business. Nothing elaborate, but still their own business.

So by the time they got into their late 50's or early 60's they could disappear for a month or so, leaving the day-to-day to other family members or staff.

And one thing about that "old fashioned" work ethic, they never really stopped working. They have plenty of hobbies, do a lot of volunteer work, and never really left their business.

Many of them "help out" at their former business, which is a good thing too. The younger generation, since they were handed the business turn-key by their parents, have no clue how to manage money. So the parents are always forced to go over the books and berate the many fubar's.

The retired dentist, now 78, regularly "helps out" at a large local practice, and also at the local university. So these oldsters definitely aren't sitting around waiting to croak.

 

Right now, the estate tax only applies to people who are rather rich. If you have an estate less that I think 10 million, you are already exempt.

(It might be 5 million.)

GW's proposal to get rid of it is to get rid of it for those with an estate over that amount.

So I suspect this doesn't apply to anyone here, so Tag, don't buy something this weekend to save taxes, unless you are quite rich.

 

Jayman,

I too do not like the Donald and I read that one book just for fun many years ago.

I just wanted to point out that credit is not automatically bad. In fact, "credit" is another name for "capital" and that is where capitalism comes from.

But people who use credit to "splurge" are living dangerously. People who use credit to build themselves something out of nothing, this can be very worthwhile both for the person, and for society.

So it's not credit per se, but what you do with the credit. Way too many people use credit to coast thru life. And way too many people now are getting that credit by using up their equity. VERY DANGEROUS!!

 

Yeap, your are definitely right, the ease of which to get loans and credit cards is scary. When I set back and think about how much trouble we could get into if we maxed out our credit cards instead of paying off the balance each month, I just shudder ($10K easily, when we only make $30K a year). Who knows how long it would take to pay that off!

Sadly, educational institutions are making things worse, not better. For instance, this summer, I was offered $6K in loans, yet my tuition bill was only around $1K. For the fall, I was offered $16K in loans with a bill of about $2K. There used to be a way to just accept a portion of a loan (just enough to pay your bill or whatever), but they no longer let you do that, it is all or nothing. Granted you could just take the extra and pay off most of the loan, but you still lose money on the origination fees and have to face the temptation of seeing all that money in your account. I honestly do not see why it is necessary to offer a person anywhere from 5x to 8x times what there bill is.

I sure hope so! We did short term splurge on our Prius, but we felt it was better in the long term to have a reliable car that we wouldn't have to replace for 10-15 years. It is saving us some money on gas for sure (about $500 so far in 9 months).