“So we will be focusing on how to help get our DDs into home ownership as soon as is feasible.” - That is very generous! We benefited greatly from $10k from MIL toward our first house. In retrospect, it was a little less than DH’s college loans… but the cash in hand allowed us to buy before the market spike the next year. However, I’ll warn that it could get stressful if you get overly involved in the home selection. Did not happen much in my example, but I’ve heard other stories.
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@Colorado_mom I believe our single DD2 realizes that the cost of the market, she will need to get into a fixer-upper. She is wanting to get into a home as soon as feasible now that she is in the right city and the right job. She will take all the input and make the right choice for her when the time is right. We can just help her get there sooner - and perhaps time things out for the right interest rate with the price of the property. Property prices have just gotten so out of hand. Then she can start having things ‘fixed up’ as time goes on. She works really well with DH and ‘projects’. DH has a full workshop and lots of knowledge – also the knowledge of what to hire out.
DD1 is not at final place yet, and actually where they are has reasonable rent for very nice accommodations. We have time to figure this all out.
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I think much of @bennty’s observations are spot-on. While some in the younger generation are doing well, I suspect the income distribution has been bimodal, with a smaller percentage of this generation doing well.
I also think opinions are much like a pendulum. In the US, they have swung pretty heavily to the individual rights/me-focused/non-communitarian end of the spectrum and I suspect they will swing back towards the we-focused/more communitarian end of the spectrum. And, the younger generations definitely have shifted more to the communitarian end already – lots of social justice warriors among my kids’ generations. I don’t know if this will manifest itself in the form of a wealth tax per se, but I suspect that there will be a move to lower the gift tax exemption and there may well be means testing including assets for various government benefits as suggested by @bennty.
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Oh, yeah, I forgot about the gift tax exemption. Actually I’d expect a lot of gimmes tucked away in the tax code to get a good looking over – I was surprised to see the RMA provision for inherited IRAs change so that you can no longer protect wealth by leaving an IRA to a young heir, effectively resetting RMA. A reversal of how things had been moving. There’s hundreds of these things, so if you and your advisor are planning on using tax code provisions that are basically gifts for wealthy people, but not (like, say, Roth IRAs) the sort of thing that’s available to an average median-income type, I’d have a backup plan ready to go.
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@bennty, there are lots of things the very wealthy can do to avoid taxes. One can set up a dynasty trust. So far the only thing that has been suggested regarding trusts is that there would be a step up in basis every X years (30, I think). But a dynasty trust is just scratching the surface in terms of things the wealthy can do to avoid taxes legally. And, unless the IRS gets funding, there is going to be a lot of not so legal tax avoidance That will change only if there is money allocated to enforcement.
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Well, a dynasty trust exists only if the code supporting it exists. And if, say, a collection of well-informed 35-year-old reps gets on that case, with support from some old previously radical gents in the Senate, out go dynasty trusts.
This is the thing people just aren’t used to: it’s only ink on paper, you know.
All laws/regs could change, but the changes in tax law and regulation usually affect things going forward. Previous arrangements are usually grandfathered in. The tax rates can change. Look at what the Biden administration hopes to do with respect to capital gains. They proposed that the change only apply to transactions done after the date the bill was introduced (but if the change actually occurs, it likely won’t start until 2022). Governments lose credibility when they retroactively change the rules that induced people to enter into certain kinds of transactions. So, I would guess that there would be some kind of grandfathering.
I just looked up a summary of proposed changes. I had not realized that administration’s proposed tax law changes already propose to change how grantor trusts are taxed, but tellingly, these changes are for new trusts but don’t apply to pre-existing trusts. The proposed rules also reduce the gift tax exemption from $11.7 MM to $3.5 MM (my earlier prediction). [This isn’t, but should be indexed to inflation. The other thing that should be done is to a) eliminate the step-up in basis on capital gains and b) index capital gains to inflation. The fact that capital gains are not indexed is part of the reason for a lower cap gains tax rate. Otherwise, we create an incentive not to make longer term investments.]
Nonetheless, there is nothing that prevents a wholesale rewriting of the tax code. An easy target would be Roth IRAs. I’m guessing a lot of the changes proposed now will not pass in the current environment but might later when the pendulum swings back.
People with nothing to lose are much more likely to be in favor of blowing things up. That isn’t something new. And tax provisions to help reduce tax liability tend to be available to all. But using some of them only makes sense for people with certain income levels.
If we end up with wealth taxes, I am confident there will be much marketing involved (much like higher taxes on income–talk about executives with 2 and 3 homes, flying in private jets but increase taxes on income levels where none of that is true). And doubt we will ever see a definition of “fair share” outside of “more.”
There are societal changes that put pressure on income inequality. Increase in single parent households which will tend to have lower income than 2 parent households. People are marrying later making them more likely to marry someone with similar earning potential. When I started 25 years ago, it was somewhat common to see senior partners married to secretaries. Now that would be harrasment. Few in my cohort married people who didn’t have college degrees though few were attorneys and most stayed home when they had kids. Today, more associates are married to other attorneys than are not. Same is true with physicians I know. Few my age married other doctors. Many are doing that now. People marrying high earners
And fewer young professionals today are staying home with kids. At least in part because they didn’t have stay at home parents when they were young. When we moved to our neighborhood 2 decades ago, about half the moms stayed home with kids. Now there aren’t any as another generation of young parents have moved in as many of the houses have turned over. And its not a matter of being able to afford it but one of preference.
All of those put pressure on income inequality. Not sure what can be done to change that. And that is just what I see/hear. Probably different in different parts of the country but I don’t think its unique.
Tax laws will no doubt change. But the game will remain the same: reduce tax liability. Incentives to tax plan increase as incomes increase. Increasing tax rates and creating new taxes will have the same effect.
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Gift tax exemption has been mentioned a couple of times, but to me that in itself is meaningless, since the Gift Tax is only a downpayment on the Estate tax. In other words, it’s the Estate Tax limits that matter.
Agreed; I could see any Roth distributions being added back for IRMAA calcs, for example.
It will be interesting to watch that ‘preference’ as income taxes continue to increase in VHOL areas. My son just had a baby in NYC and they’ve just realized that childcare will eat up ~100% of the after-tax income of the lower earner. If taxes increase further, hmmmm, what’s the economic point of the second income?
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I’m not sure how you know that these moms are in the paid workforce out of pure choice unless they have shared that information with you. It’s also very possible that if those women are highly educated their income may equal/exceed that of their male spouse/partner.
It’s also possible these young women had mothers who took time out from a career and were never able to get back on the career track or get back on but not considered for promotion opportunities/decent pay. Or moms who gave up careers and ended up divorced or widowed and struggled financially.
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I know because they told me. Maybe you don’t talk with your neighbors. We do talk with ours. And I have found that young people in general are more likely to share a lot of info (at least in part I suspect because they spent pretty much all their adult lives sharing a lot on various social media).
Strikes me as your response is defensive. I offer no judgment on their decisions. Just saying that when you look at income levels, households with spouses out of the work force for any period of time will have less incomes than households with spouses who do not (all other things being equal).
Not defensive, just naming some reasons why the women in the younger generation might want to keep their careers.
And don’t worry…I talk with my neighbors all of the time. Just never discussed why they work outside of the home or not.
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Relocation packages are definitely not what they used to be (unless you are a C level exec). I expect that with this “remote work” and “hybrid work” relo packages would go the way of the dodo bird.
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@FallGirl my DD1 had a ‘dream’ of being a SAHM; but her DH has not had any kind of real start on his professional career, while her s/k/a have had her climb nicely with pay and responsibilities on first rung of hospital/nursing management (M - F job and handsome pay raises based on performance). Her last salary hike was a nice 5 figure sum; that sort of ‘shut the door’ on any thoughts of giving up her very superior earnings; his pay could not even pay for apt and groceries. He has a few chances of pursuing what he has been over the next 6 months – otherwise he is going to have to go to plan B on his career. Her job not only has superior pay and benefits, she has 20 year retirement (gov’t pension). She wants their children (expecting #3 early Sept) to be raised like her sister and she was raised – and just maybe she will burst out of the ‘dream’ to realize to save up to eventually purchase a home.
In certain areas of the country, a young single person may be able to purchase a home before age 30, but not so much the norm. Even a young married couple may not be purchasing a place before age 30. Our nephew purchased a home similar to his parents; he is CS and was a good saver - and he will have it paid off in a short time. He has a nice GF (also CS, works in same company as does her brother).
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I disagree with so much that has been said I don’t even know where to begin. So I won’t.
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that’s usually a good place to start
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@bluebayou, not sure if we are saying the same thing or not. Right now, the estate tax only kicks in after the gift tax exemption. If it is set at $11.7 M per person or $23.4 M per couple, very few people would pay the estate tax. Only couples with estates over $23.4 M who haven’t done any estate planningAnd among folks whose estate is larger than $23.4M, I’m guessing they can find legal or arguably legal ways to avoid the estate tax.
If the exemption drops to $3.5 M per person and $7 M per couple, it will likely hit a significantly larger group of people. Not all of these people have the capability to or have done the work to avoid estate taxes, so I presume this would result in real tax payments by folks with estates between $6 M and $23.4 M. Without sweeping changes and real funding for the IRS, the government probably won’t be pulling in big payments from folks with estates larger than $23.4 M.
With respect to SAHMs, except at the upper tier of the income distribution, I would guess that many mothers have to work because their income is needed. Shortages of labor may drive up the costs of child care, which will make it yet harder for people.
The pairing of couples with similar income/prestige profiles that @saillakeerie mentioned has the effect of increasing income inequality (prestige can include some lower-paying jobs like NGO leadership). While I chose a mate whose income potential was lower than mine, we were very complementary in ways that could enable us to support each other. As a fine artist, she was able to cut back her hours when our kids were little and we built a studio next to our house so she wouldn’t have to commute to a downtown loft building to work. Not sure that happens as much now (although arguably, maybe she fit into the appropriate prestige profile even without the income).
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The family farm lobby is really against the loss of the stepped up basis. It would prevent family farms from being inherited. If you are land rich but cash poor and have to pay 45 or 50% of a non stepped up value over the exemption , then the family farm gets sold to big ag. Same for many small family businesses.
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BTW the ‘retirement’ section of Sept Kiplinger’s Personal Finance discusses ‘plan now for long term care’. Cover story is ‘How to Profit From ETFs’.
Social, family, political changes all affect how we retire and what happens while we are retired. I care about my kids and grandkids, and will try my best to use my assets to give them as full a life as possible. And full in more sense of including faith, morality, etc.
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True, but the Gift Tax Exclusion is only $15k per person per year. (MFJ could give away $30k per year.) Someone in the “wealthy” category – which Bentty suggests could fund a bunch of other stuff – can’t give much away to family and heirs at that rate. However, Gifts are connected to Estate taxes. Any Gifts above that $15/$30k is reduces the Estate tax exemption.
For example, ShawDad (filing single for simplicity) gives $1,015,000 to ShawJr today. The first $15k is tax free. That next $1m just reduced your $11.7 estate tax exemption to $10.7M. In essence, you are giving Jr his/her piece of your estate early. And that’s why I believe the Estate Exemption is the more important. As the Estate Exemption goes down, the Gift limits go with it; the Estate Exemption law is the driving force.
btw: as you probably are aware, the current Estate Exemption law sunsets on Dec 31, 2025, and automatically snaps back to the 2018 levels of $5.6M pp. (And the Gift Tax goes with it.) Of course, Congress could always lower it further or change it other ways.
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