Interesting NY Times article about wealth [and inheritance thereof]

I think you are misinterpreting or misunderstanding what I am saying. First, to avoid estate tax, you need flexibility (owning companies etc.) – normal salaried employees will not have the flexibility (that is the group that I said could not avail themselves of the tools needed to avoid federal estate tax. As a result, these folks (normal salaried employees) will not be able to avoid the estate tax. But, when the exemption is set at $12 MM, it won’t catch too many salaried employees. As the limit drops, more will pay estate tax. (Here we agree). Second, you need advance planning. If you wait until you’ve made all your money, you won’t be able to avoid estate tax easily.

As an example, I set up a dynasty trust for a young entrepreneur who then sold his founders’ shares very early on to the trust. From that point on, his assets will not be part of his estate (technically they are not his assets but are assets of the dynasty trust of which he and his progeny are beneficiaries). Should there be an exit, the bulk of his assets will be in the trust. He can then make investments in the trust and the trustee can distribute capital to buy a house or pay for children’s school. But, to do this requires starting early.

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I am years away from this @bluebayou, but my recollection was that you could set up an ILIT and fund it with a Crummey letter. If you did that, the death benefit of the policy would not be included in the estate. However, if the size of the annual gift to the ILIT that was used to pay the premiums exceeds the annual gift tax exemption, you would owe gift tax on the excess.

I’m sure brokers would love the commissions.

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That sounds about right! :slight_smile:

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In the article, I thought this chart was really interesting. I’ve always known there is majority of wealth at the top tiers. But the growing “top 1%” chunk and the “bottom half” sliver of navy are thought provoking.

screenshot

Any chart that represents a “compounding” effect would be more informative with a logarithmic Y-axes. Otherwise it will imply some sort of “run-away” effect that isn’t actually present in reality.

(e.g., a steady and unchanged 10% annual growth will look dramatic on a linear scale)

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I’m an engineer and understand logarithmic charts… but most people don’t. Per the Note, data was adjusted for inflation (though not sure of the methodology).

The thing that really jumps out on the chart to me is that the last decades the “top 10%” has proportionally a bit more wealth… I would have hoped the opposite.

It’s not about inflation - but at least that’s a good practice.

Assuming “wealth” is invested for returns, then earning whatever return every year will produce a compounding effect that distorts the linear chart.

Yes, I agree it would have been more helpful to show if/how the “share” of wealth had changed over time. Other than pixel-counting, it’s hard to impossible to derive that from this chart as well.

One factor could be that those with ANY truly disposable income might be able take increasingly more advantage of high-yield investments, even “safely” pursue aggressive investments for some percent of their wealth, vs. those whose incomes barely pay mortgages, rents, colleges and insurance, thus have much lesser share of their “wealth”, if anything, to invest.

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Good points.

Maybe more helpful here? The Fed - Distribution: Distribution of Household Wealth in the U.S. since 1989

screenshot from interactive charting web page

PS - I like the color-key at the bottom (since placement of chart labels a bit confusing). But I have not yetfigured out what the 2nd/grey line chart is showing.

I believe it to be the total wealth in dollars, but inflation-adjusted, while the top chart (when displayed as “$”) are raw figures.

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Rather than harping on inheritance as the authors of this article have done, why not discuss the stagnation of wages present in middle-class careers and jobs over the past thirty years? Leaving out that very important context is an obvious bias in this article that undermines their points. Had wages kept pace with inflation, at a minimum, it is reasonable to expect that the bottom 90% of households would have been able to make gains more proportionate to the top 10% of households.

Also, another missing context is the change in taxation payments by household income over time.

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Wages are primarily determined by the law of supply and demand (minimum-wage laws only affect a small portion of wage earners). Besides, other than in a handful of careers, individual wage-earner’s productivity can’t be easily measured in dollars-and-cents. Companies aren’t going to pay their employees more than they have to, especially in an environment where their own performances are measured by their stock prices (i.e. profitability). We’re seeing wage gains in a number of industries now, because of shortage of workers, not directly because of inflation (wage gains in those industries have contributed to inflation, of course, but not the other way around).

Was it 2008? Trillions were poured into Wall Street and stock holders. It has to show up somewhere.

@anon87843660 I am guessing the increased tax share of the wealthy has not kept up with their wealth, further making them wealthier relatively.

@shawbridge You mention the dynasty trust often. It’s a bit like telling general public they should put their IPO shares in Roth IRA like Romney did. General public don’t have IPO shares.

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Tax rates are lower now than they’ve ever been. The highest tax rate used to be 90%. We have some of the lowest tax rates in the developed world. The inaccurate, ahistorical claims about taxes are incredible.

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What you are missing in this claim is that far fewer people were impacted by this tax policy and there were so many exclusions from “taxable income” as to make this figure not their effective, absolute rate. It’s generally accepted by mainstream economists that this was a bad policy for economic growth in this country that FDR started and it prompted movement of assets for the few people who were impacted into offshore accounts at high rates. This is a practice that has been decreased (not eliminated) by the wealthy since the over 90% taxable income rate was reduced in 1994.

It is not generally accepted by mainstream economists and it is telling that this claim is being made while the 90% tax rate is the one in place when the country saw its largest, longest economic expansion.

People don’t like paying taxes. Doesn’t make paying taxes bad policy.

It has been said by some economists for decades that raising the minimum wage would contribute to a rise in unemployment. And yet, the actual data doesn’t show that at all. Even the biggest proponent (an economist!) for not increasing the minimum wage has just acknowledged that the data doesn’t support his claims.

Economists are people, not gods. They have their own interests and biases - they aren’t somehow impartial readers of ‘data’. Often they make claims (like the minimum wage to unemployment rate idea) with absolutely no evidence at all.

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What was the highest marginal tax rate 20 years ago?

The inaccurate, ahistorical claims about taxes are incredible.

This is misleading. The economy was stagnant when the rate was cut under Reagan administration. It may have been placed when the economy was going strong. But couldn’t stay there. The rate had to be cut to stimulate the economy.

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We pick winners and losers with our economic policies. Tax rates didn’t need to be cut under Reagan. That was a policy choice that has led to the largest income inequality in our country since the Robber Baron age. It made some people very rich and many many people poorer (inflation adjusted). Cutting tax rates is a ‘trickle down’ theory - one that has also been disproven.

However, I’m going to bow out as I think this conversation is going to lead too far down the politics path. To really discuss economic policy (imo) one needs to discuss political policy which is against TOS. Maybe this conversation should be moved to the Politics forums?

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Yea, it’s easy for this kind of discussion to fall too much into political arena. The following is just for info, not to spark debate over pros/cons of the various trends.

For those that are just curious about tax rates over time, here are some links. (Note - there is a whole other layer related changing tax codes, write offs available too. This is just the tax rate data.)

  1. simple list of the HIGHEST RATE since 1913
    Historical Highest Marginal Income Tax Rates | Tax Policy Center

  2. More detail of all brackets, a mind numbing amount of data going back to 1862
    Historical Income Tax Rates and Brackets, 1862-2021 | Tax Foundation

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Agreed, that this veers into political discussion.

But I will add one thing: effective tax rates aren’t the same thing as the tax rate.

Tax receipts as a percentage of GDP were much, much lower than the top rate would suggest.