ERICOPOLY

I suppose a hippie "commune" is communism. You all supposedly live equally and share everything. In theory (or myth). Relative communism is a spectrum between where you keep all of your assets & earnings, and you keep X% (and pay the rest in taxes to be shared with the rest of the inhabitants). So a state like California is relatively more communistic than a state where the taxes are less. Just thought I'd point out that the more taxes you pay, the more it looks like communism.

Yes, the zero bound is a very different picture. Today's 30 yr amortization schedule mortgages on the books will run-off at an accelerated rate due to the fact that a low-interest loan has a very high principle component. Take a loan at 4% with a 100,000 initial balance. It's first monthly payment has a $144 principle component and a $333 interest payment. Compared to a loan at 8% with a 100,000 initial balance. It's first monthly payment has a principle component of only $67 and an interest component of $666. So the debt runs off at twice the pace in the beginning days of a mortgage. So the household expenditures to service the debt today are night and day apart compared to those historical periods when the household debt to GDP was lower. Most of the household debt out there is mortgage debt. Not only are the household debt service ratios are historically healthy/normal levels today, but the absolute amount of the debt (which is historically high) is running off at a historically high rate. It's not anywhere near as simple as looking at a chart. The charts don't tell us how fast the debt is running off vs other periods in history. I'm in the industry and know that our group has seen a higher percentage of new originations being 15 or 20 year compared to the more traditional 30 year. Again, the 30 year amortization schedule is still the norm, but 15's are gaining popularity in our shop. Project that over the industry and the run-off rate to which Eric refers is amplified. -Crip P. S. Seeking to see what I can get for a more holistic view of this. I find the 15 to 20 yr mortgages to be risky for the borrower and for the economy. Just a like a business, cash flow is very important for a household. Suppose you lose your job -- at that very time you don't want a high monthly payment. It's like analyzing a business -- you want more positive cash flow. Paying a bit more interest to get a lower payment is sort of like buying yourself insurance against the "what if I lose my job" scenario. It also takes away their spending power and puts their savings into a low-return instrument (investing in their own low-interest mortgage). I just think a risk-averse household should go interest-only if possible rather than commit to such a high payment.

Today's environment in the US is one of: A: Normal household debt service ratios B: Existing debt running off at an accelerated pace C: Reasonable lending standards that suggest the economy is not being supported by a credit-driven boom Oh well. I know it won't convince anyone looking for grey clouds in the household debt to GDP numbers. Recap: 1) Rapid legacy household debt growth created a boom that already busted. 2) Unwinding the remaining debt is sustainable (normal debt service levels) 3) There isn't currently a boom in new credit (reasonable current lending standards)

Yes, the zero bound is a very different picture. Today's 30 yr amortization schedule mortgages on the books will run-off at an accelerated rate due to the fact that a low-interest loan has a very high principle component. Take a loan at 4% with a 100,000 initial balance. It's first monthly payment has a $144 principle component and a $333 interest payment. Compared to a loan at 8% with a 100,000 initial balance. It's first monthly payment has a principle component of only $67 and an interest component of $666. So the debt runs off at twice the pace in the beginning days of a mortgage. So the household expenditures to service the debt today are night and day apart compared to those historical periods when the household debt to GDP was lower. Most of the household debt out there is mortgage debt. Not only are the household debt service ratios at historically healthy/normal levels today, but the absolute amount of the debt (which is historically high) is running off at a historically high rate. It's not anywhere near as simple as looking at a chart. The charts don't tell us how fast the debt is running off vs other periods in history.

The last time I got a loan, they asked about my household debt outstanding but nobody put my government's debt outstanding into the underwriting equation. You can stop working at 65 without worrying about whether you've paid off your government's debt. Household debt is extremely different as compared to government debt. IMO.

People only post about Gary Shilling when he is saying something negative. So nobody talks about him when he is less depressing -- why is that? He started talking about a coming decade of deflation in 2003. Too early -- then we almost got some deflation. People posted his negative commentary and now that he's changed his tune, nobody posts about him anymore. Here are his latest comments: Is the U.S. economy stuck in an endless loop of sluggish growth and high unemployment? Many distinguished economists think so, and there is some evidence to support them. But looking at much the same data, I come to the opposite conclusion: The U.S. could soon experience a period of strong economic growth once deleveraging is over. http://garyshilling.blogspot.com/

If you really desire efficient markets, then allow equity investors to sell and buy other equities, or sell equities to buy real estate, or sell real estate to buy equities, or any other asset. All without triggering capital gains tax so long as all equity is reinvested. Don't disincentivize capital flow from overvalued to undervalued corners of the market. Tax only the equity that is not reinvested -- AKA the actual income that the investor chooses to spend and not reinvest. Just create a new form of account similar to how IRAs are taxed except with no contribution limits and no withdrawal restrictions. Pres Bush proposed this very thing.

Absolutely I would trade more frequently. And to the economy's benefit. Similarly, Buffett refused to sell KO during the 2000 bubble -- he had a low cost basis and with 35% cap gains he has to think about reinvesting the after tax proceeds at superior values. Difficult for him to find better values with absolute certainty. So that mentality leads to a less efficient market because it disincentivizes selling. Just look to real estate where you can trade properties without triggering capital gains taxes. Would having capital gains improve anything?

It would be very item specific. You aren't going to wait to buy food even if you think prices will be down 50% next year. Computers -- it will cost you in other ways if you try to go without one. So I don't know how good that example is. I'm not sure if anything I buy is driven by the expectation that the price will be higher or lower -- unless it's an investment item. However if my income was suffering and I was budgeting I would be thinking different. So perhaps during times like that (The Great Depression) people are closely watching prices. So maybe it's a combination of weak buying power as well as oversupply that is necessary to drive deflation that leads to people putting off purchases. Somebody flush with excess income isn't in the mindset to pay close attention.

The country keeps it's resources to itself (there is a wide disparity of incomes throughout the world). The nation does not willingly let other nations come and take things away. You have very poor nations that look nothing like the US. The nation is never going to willingly cough up it's resources to spread around the rest of the world under the argument that it's unfair to be born in the US and automatically dealt such a great advantage. I just find it somewhat ironic that the citizens of this nation think it's unfair for some people to be born with huge advantages over others and that the situation must be equalized. Just imagine the rude shock if that really happened (if the assets of America were equalized with the rest of the world population).

Tombrt, Lottery winners or NFL players should have no trouble remaining wealthy unless it really is family culture/education/etc... that plays the strongest role.

Let's suppose you start with a very poor family in the first generation. With each passing generation, the number of branches of the family explodes. The further along we go down the generations, the more likely it will become that you will find a wealthy family. By the 5th generation or the 10th generation or the 15th... etc... etc... , it becomes ever more likely that there will be a rich family. So is that rich family a result of what happened in the first generation? And of course if you start with an educated poor family in the first generation, I would bet that you would need to wait fewer generations before finding a wealthy family. All that study did is look at wealthy family today and ask if that particular branch was wealthy five generations ago. It did not say that every branch remained wealthy over the generations, or even that an above-average number of branches remained wealthy.

One of the first hits on google: http://www.theguardian.com/society/2015/jan/31/inheritance-britain-wealthy-study-surnames-social-mobility Or doesn't that count as lasting? Imo it does... Social mobility is still nowhere. So nope, plenty of people do inherit their wealth. I'm not pro a heavier inheritance tax (Eric made a good point with the problem of wealthy and f*cked up kids) but pro a yearly wealth tax above a certain threshold (of many hundreds of millions or even billions). Make it 12-month LIBOR rate with a maximum, idk... Decent wealth management can keep up with this and you can view it as an annuity to society. That way when the rich get richer, they are at least paying more YoY as well... It's a better investment for society to let those people keep compounding their wealth and letting them give a certain percentage/year than trying to tax them big just once (which fails anyway). Here is the major logical flaws in that article that mentioned wealth 5 generations apart. 1st generation: it is wealthy and has 5 children 2nd generation: Out of those 5 children 4 are wiped out 1 of them is wealthy and has 2 children 3rd generation: 1 child loses 1/2 of his fortune (enough to remain in the upper middle class) and the other is wiped out. The one in the upper-middle-class has 4 children 4th generation: 1 of those children marries the daughter of a successful businessman and they have 3 children 5th generation: the children benefit from their mother who inherits the business from her father. It can now be concluded that the family wealth has survived 5 generations? There is a lot that goes on. A family over 5 generations has a lot of branches. If JUST ONE of those branches is very wealthy after five generations, it is concluded that there is no social mobility???

Eric, I deliberately avoided getting in a discussion on the actual topic. My comment was made to YOU specifically, as you have gotten overly agitated on this topic in the past. I wanted to speak up as someone who has been around here for a while. I haven't said anything about what I believe or not, but I am not responding to just one specific message. Your opponents are not blameless, no. Let's do better. I am passionate about this topic. But it's not the topic per se that agitates me. On any topic, I am agitated by disingenuous debaters. Somebody says they want the estate tax because of the top 40 families and their potential for powerful dynasties. I point out that it applies to me and I'm not in the top 40 or anywhere near it. Then they claim that even the 5m could sway an election, and I point out that if there are multiple heirs then there is no such worry. It goes on and on and on. I would rather the person just start out from the very beginning saying that no amount of inheritance is fair without a tax, no matter how small. Don't make up a bunch of false reasons for the point of view that sound better before the crowd -- I can't help it, I will debate them on those points. They then just iteratively walk down their argument until we finally hear that even a tiny inheritance should be taxed. Okay, if that's the point of view then why wasn't that put forth in the very beginning instead of the very egalitarian sounding commentary on how the top 40 families are a big problem and that's why we need the tax?

One of the first hits on google: http://www.theguardian.com/society/2015/jan/31/inheritance-britain-wealthy-study-surnames-social-mobility Or doesn't that count as lasting? Imo it does... Social mobility is still nowhere. So nope, plenty of people do inherit their wealth. I'm not pro a heavier inheritance tax (Eric made a good point with the problem of wealthy and f*cked up kids) but pro a yearly wealth tax above a certain threshold (of many hundreds of millions or even billions). Make it 12-month LIBOR rate with a maximum, idk... Decent wealth management can keep up with this and you can view it as an annuity to society. That way when the rich get richer, they are at least paying more YoY as well... It's a better investment for society to let those people keep compounding their wealth and letting them give a certain percentage/year than trying to tax them big just once (which fails anyway). Hard to say though if it's the money or the education. There are families where education is crucially important -- the grandparents were physicians, the parents were engineers, the children were PhDs. Those families tend to earn higher than average with each generation. That describes my family. I earned higher than average but it wasn't due to any inheritance. It was my education. My father earned higher than average but it wasn't due to any inheritance. It was his education. My grandparents earned higher than average but it wasn't due to any inheritance. It's hard to come up with a destitute generation when each successive son in the line is an engineer, a physician, etc... Family culture is responsible for this (in my family). In modern times it applies to the daughter (not just the son). Typically wealthy families favor education and so the data can show you whatever it is you want to find. If you want to find that the money created the higher incomes, you can find that in the data. OR if you want to find that the education created the higher incomes, you can find that in the data. In my familiy the incomes came before the inheritance. It cost my grandparents little to send my father to engineering school at the University of Sydney. He didn't inherit any money until in his 60s/70s. But the data will tell you that he had above-average income and that he inherited money -- take that data with a grain of salt. The US tax code encourages giving money to kids while they are still infants -- so you might find in the data for the US that higher incomes came after inheritance. Beware of drawing conclusions from that.

I'm curious. Why is adesigar not getting the same comment? Because Eric is being a jerk and adesigar isn't. You might not have read the entire thread, but if you follow the plot he argued that people with $5m are swaying elections. When I pointed out to him that $5m divided amongst many heirs in not enough to sway an election, he said I was a whiner. So a person who has his argument knocked down and then resorts to calling you a whiner as a last resort, is not a jerk? I don't really get why anyone missed that. After that point, he argued that he was poor and that his grandfather was poor and that if I had 7m I should basically just shut up because he was poor and his grandfather was poor. My property rights mean nothing because there are people out there with 1.4 trillion dollars and it's a big problem and I have 7m and I should stop whining because he is poor and so is his grandfather. I'm supposed to put up with all of this and I just couldn't -- so I lost my temper and became a jerk too.

One thing that was argued is that the richest 40 families control more than a trillion in assets and will influence our politics with that money. Well... a little bit of common sense I'll share with ye'... they got that way DESPITE the estate tax. The majority of those people didn't inherit their wealth. So if the thing you want to get rid of is the richest handful of people having more than a trillion put together, then you need to think of another solution. Obviously, the estate tax AIN'T doing it for ye! Arrr.... matey! That's a brain stumper for ya there. You'll just have to pass a law that nobody can have more than X amount of money -- because that's your stated problem (that too few people have too much and that they'll therefore influence politics). You have that problem based on what people are accumulating on their own -- it's not coming from gifts/inheritance. Gates and Buffett, Soros, Munger... did they inherit it? The Google guys, the Facebook guys, the Oracle guys, the Koch Brothers. You just need to confiscate their wealth to solve this "problem". Estate taxes obviously ain't doing it for you. This discussion sort of reminds me of the drug discussion. I think all the drugs should just be legalized because we've tried to throw everyone in jail already and here we are several decades later with as big a drug problem as ever. Criminalizing it just creates criminals (very rich ones and violent too). At least you could get rid of the criminals by legalizing it.

Well... actually the estate tax laws in Australia did cause one problem... Early on when my father was younger, Australia had an estate tax. My grandparents set up a family partnership in response and named my father, his sister, and his two brothers as partners. The goal of the partnership was to ensure that future appreciation of the investments occurred outside of my grandparents' estate. It was tacitly understood that while in the kids' names, they were not to touch the money and it was just an arrangement to reduce estate taxes. Australia eventually abolished the estate tax and so this entire episode was unnecessary. Before that happened my strong-willed aunt married a catholic and my grandmother was horrified and resisted the marriage. Out of protest, my aunt demanded her inheritance which was legally in her name at this point. She was in her early twenties. She then proceeded to donate her entire inheritance to the Catholic church in order to spite my grandmother. Rather than selling her shares, my grandparents cashed her out by mortgaging their real estate property. There was a huge fight when my grandmother died because my aunt believed that she was being cheated when she was left a relatively paltry amount compared to what my father and his siblings were left. This is because the mortgaged land was a large property that today is known as the Avondale Golf Club in Sydney -- my grandfather purchased the land as a green belt and never thought it would be unlocked for development potential as soon as it did. My aunt was cashed out when it was still a green belt and thus never shared in the astronomical appreciation that followed. She wants that money today and regrets her decisions made when she was still relatively a child. None of this would have happened and there would be more harmony within the family today if the tax code had not sucked my grandparents into a scheme of assigning the assets over to immature people without the proper life experiences to realize what they had. We can return to the discussion about how people who oppose the estate taxes are just whiners -- that was a real discussion compared to my contributions.

I will not rip on adesigar any further. I've had a fairly unusual life experience that let's me see what's wrong with the estate tax system that others haven't contributed to the discussion. 1) I grew up in a rich neighborhood and went to a private school. Now that I'm 42 I can see how the kids with the trust funds were changed. It altered their lives and generally in a negative way. 2) My wife's family was rich once (wife's grandfather was in US congress when Eisenhower was president). But it was dwindled away and my two brother-in-laws have been impaired by the money that was gifted to them every year under a scheme to reduce their estate taxes. My father-in-law was an estate attorney and favored this kind of thing. My mother-in-law's brother inherited businesses and was an alcoholic that wasted it all away. 3) In my own family the only wealthy person in my lifetime was my grandmother in Australia who didn't have to worry about estate taxes, so she just held onto all the money and nobody was spoiled by it. The thing that is frustrating for me is that I could avoid most of my eventual US estate taxes if I just gave the money away to my children today. That way it grows in their estate and not mine. And that's what the estate tax code does -- it encourages families to do exactly that. They'd rather roll the dice that it won't ruin their kids rather than risk the estate tax wiping out what they hope to leave to their families. This is what an attempt to make things "FAIR" has done -- it has directed huge sums of capital into the hands children. Yet, IMO, people don't see this because they are too busy with their jealousy and sense of fairness to see the second-order effects of their beloved estate tax. What is more fair? An America where children get their inheritance very young or one where they get it later in life after they've found their way in the world? We have different ideas of what's fair apparently. My strategy of letting my kids find their way will be taxed more heavily versus if I just gave them the money today. Is that what the estate tax proponents want to incentivize?

Yes, she had a frugal streak. She really did have a horse hair mattress. Lifestyles of the rich and famous in my "family dynasty". I've pointed out that she was frugal. She had money to spend but didn't waste anything and it grew to a huge sum over 94 years. She could have remodeled her kitchen 50 years ago or bought a larger house, fancy cars, and wound up with nothing to tax. You countered that your grandfather was dirt poor. And by doing that... you... You put me in my place? wtf? Buffett points out that he lives relatively frugally -- he says he lives like most other people aside from how he flies. Why don't you go put him in his place! So everywhere you go it must be really frustrating for you -- you come across a very wealthy person who lives frugally despite conspicuous consumption all around them... somebody heralds them as an example of thrift, and you put them in their place by saying your grandfather was poor. Does this actually make sense to you, and do you think you should really be making that comparison? How is your grandfather and 5 billion people an example of thrift if poverty leaves them with no choice? you: "Oh, that person had extreme self control? Well that's nothing, in my family we were dirt poor and slept on horse hair mattresses too". See? it makes no bit of sense whatsoever for you to say that. Your grandfather didn't live that way as an extremely rich person. He had no choice in the matter. You were just bragging that he was poorer than my grandmother after I pointed out that she was just loaded with money when she died -- why would you do that? I've got no damn clue -- it just makes no sense to me to have a penis judging contest over how your grandfather was poor after I pointed out that my grandmother had $17m and lived frugally despite the fact. What logical point are you trying to make?

The current estate tax laws allow a family to make gifts (tax-free) up to their lifetime gift-tax exemption. That exemption is the exact same size as the total estate tax exemption. My wife and I can each give about $5.3m to our kids, who are currently aged 7 and 9. That's $10.6 million total. Our optimal tax decision is to go ahead and do that now. So now a 7 year old boy has $5.3m and a 9 year old girl has $5.3 million. Now, I can give it to a trust in their name instead, but they will (by law) learn about that trust and it's value when they turn 18, even if they are not allowed to take distributions until a later time. So let's just assume they now both find out that they each have at least $10m by the time they are 18. Bravo! I just love your idiotic view of social justice. THANK YOU FOR MAKING AMERICA LIKE THIS!!!! Instead, in my view of the world I keep it in my own name until they're in their 40s or 50s before I let them know that they are getting anything. And that's the lesson you were supposed to learn from my grandmother anecdote -- under Australian law there is no estate tax and thus no incentive to give a huge sum of money to extremely young children who will then discover their fortune when they turn 18. America will penalize my family for what I have done for my children. We are not gifting them anything early, and thus the money will grow under my name and the future gains will be subject to estate tax. So my family is voluntarily paying a ton more tax because we don't want to ruin our kids. Other families are ruining their kids and you support this system. You could ruin a great many less families by abolishing the tax for all but the very large dynasties which is ostensibly what you care about anyhow. Does taking 45% of a $20 billion fortune keep inherited wealth from interfering with mayoral elections? Does it break up a family dynasty. Just apply a little bit of common sense to your logic and see if it does. A family with $20 billion holds pretty much the same amount of power as a family with $11 billion, no? It's families that break down the fortunes, not this estate tax. $17 million of my grandmother's money was inherited by 22 different people. I'll point out that it's less than a million dollars per person. Divided equally, each person has to grow it 22x in real terms just to restablish the power the family "dynasty" had before. Bloody likely!!! And yet you scoff at it. What is not perfectly obvious about the math to you?

But if they had a gift/estate tax she would have been motivated to gift it to us earlier to whittle away her estate and that would have screwed us up perhaps. The gift/estate tax laws create the very kind of entitled/spoiled children that you hate -- gettting the annual gift exclusion from their parents when they are 18 because the parents don't want to pay the estate tax. Not having an estate tax lets us rich evil people keep it from our children for longer until we make sure they turn out right. But I'm sure you know much better than we do. Do I want my kids to find out they have this big amount of money socked away in a trust when they turn 18? No, I want to keep it a mystery and pretend they're not getting any of it. But that's going to cost my family a lot of money, because I can't make use of the annual gift exclusion if I try to bring them up that way.

Jealousy looks a lot like that. People with assets that don't want to be seized are just whiners. Call the cops because you are being robbed. Ah, whiner... there are people who don't have televisions. You provided a list of reasons why they need to be seized, and those reasons are wrongheaded. A person inheriting $1.2m is not getting a dynasty and is not tipping elections. Exasperated and defeated, you instead switch to name calling... "whiner". Don't you have a logical argument you can present in lieu of character assassination? Let's say it was $6m divided 14 ways... what is the social goal of limiting someone from inheriting $428k? Does it "unfairly" get his children admitted to private school? There must be something left you can argue after that pathetic mayoral race comment. Can't you just live with the fact that life isn't fair and if your family wasn't frugal/lucky/etc... you may not have the same as everyone else? Or is it absolutely necessary to take from other families what they may have amassed from 94 years of frugality and compounding (my grandmother is that person... died three months short of 94 with paint peeling from the ceilings because she couldn't justify the cost of repainting). I mean, you should have seen the stuff we had to go through -- horse hair mattresses brought over from England after WWII. They even had an old brown upholstered couch that was inherited from my great-grandmother... and no, not the valuable type of antique, but rather the falling apart kind. The kids playhouse in the yard was built from the packing crates that were used to bring their goods over from England when they moved. Nothing but thrift and holding onto shares, reinvesting the proceeds. Oh, and it's "too much" you say. Okay, well it wouldn't have been "too much" if she had given it away to us all 30 years ago before it ballooned in size. But.... She.... Didn't... Want.... To.... Ruin.... Us.... So she let us wait until we were graduated from college, married, 35+, etc... And then left each grandchild $100,000 Australian, with the rest going to her children who had to wait until 65+.

Whining about being estate taxed at 5 million forgets that though 5M might be just a house in Los Altos or a condo in NYC, it is enough to retire and not work for the rest of your life in the rest of the country. I somewhat agree that this could be adjusted a bit depending on the number of people inheriting. I have 13 other cousins. Had my grandmother left us each an equal amount, that would be $17 million divided by 14. That would be $1.2m each. Damn, I can't even appoint myself as mayor with that much money. This is being driven by jealousy more than logic. "It's not fair that he got something without working for it -- jeez, it must be nice to have a rich grandmother!" With a bunch of specious logic to call it something other than envy: "No, the very fabric of democracy is at stake here! The mayors race can be swayed!" Which is completely ridiculous. I don't even remember if I'm registered for a political party, and don't really give a crap who the mayor of my town is. Therefore, I should be taxed because "What if I did care and was a total crook!". That's like punishing somebody for a crime that they might be tempted to commit.

So you are concerned that $5m will influence a mayoral election. Hmmm... Are you going to propose that nobody is allowed to grow their wealth beyond $5m? Your argument has little to do with inherited wealth if you believe we have no democracy at the $5m level. I have much more than that -- do you believe I have the power to appoint a puppet mayor? Is Obama the puppet of the ultra wealthy you claim hold the power? Which of his tax hikes did they pay for? I think you have a comic book version of reality where the wealthy are villains and the poor are virtuous.