Saturday, October 28, 2023

Why Should I Have To Pay Taxes? - Conversation With A Millionaire.

No one ever wants to pay taxes, or if they do, they'd rather pay less.

I guess it was nearly 25 years ago, I was riding in a car with a friend of mine who had inherited many millions of dollars as part of a "Trust Fund" - enough money never to have to work again a day in their life, while still living quite well.  Quite well.  Oddly enough, she still worked, which says a lot about her character.  Also, as she put it, she didn't have to tap that trust fund as much.  Smart lady!

Anyway, she pulled out onto the Mt. Vernon Parkway and immediately got in the left lane.  It is a four-land road with no divider for much of its length and the left lane is the "suicide" lane as if an oncoming car crosses the center line, even by a few inches, a 100MPH impact is all but assured.  And it did happen with regularity on that road while we lived there.

"Why are you in the left lane?" I asked.  "Well, I want to go fast!" she replied.  "Yea, but there is no one in the right lane, so there is no need to ride the left!" I shot back.  I explained to her the danger of riding in the left lane on this particular road, and also that in general, it is disrespectful to "park" in the left lane, which is generally considered the passing lane and if you aren't passing, why ride in it?

She put on her turn signal and pulled into the right lane.  Smart Lady.

Somehow the discussion changed to taxes.  She was parroting her father's ruminations here, arguing that she saw no reason to pay any taxes, as all that money went to "foreign aid" and "people on welfare" the latter being a code-word for you-know-what.

"Well, what about this road?" I asked, "You drive on it, it costs a lot of money to build and maintain, shouldn't you pay for your fair share of it?"   

"Well, OK," she said, "I'd pay for the roads, but not those people who refuse to work!"  Again, code words.

A lot of this, she later revealed was from her father, who she revered and also feared a little, I think.  Her Dad was a "self-made man" in that he made the wise choice to marry an heiress and thus instantly become a multi-millionaire himself.  Smart man, but I am not sure marrying a rich girl is really a sign of sound business acumen so much as it is a sign of cleverness.

But of course, once he married money, he was horrified to find out that they had to pay taxes on it, and what's more, the inheritance tax on tens of millions of dollars, back in the day, was quite steep - although paid by the estate, not him.  As a result, much of the money was in a "generation-skipping trust" designed to cheat the tax-man and transfer wealth between the generations.  Hence my friend had a trust, set up by her Grandma, or at least her lawyers.  Yes, the money came from the matriarchal side of the family, for several generations.

Smart women!

Anyway, getting back to our discussion, I went down the list of government services she utilized and she agreed, that yes, she should pay for her share of defense spending (at least 1/3 of our budget!) and for schools and roads and maybe the library and a few other things.  She was still uncertain about Social Security and Medicare, until I pointed out that these things are self-funded by a separate payroll tax (or would be self-funded if a certain political party stopped defunding the program by cutting the payroll tax in a cheap stunt to buy votes!).  It was the "people on welfare" that stuck in her craw and again, this was agitprop from her Dad.

Of course, since the Clinton administration, there is a lifetime cap on the number of years you can collect "welfare" (four in Georgia) - so the myth of the multi-generational "welfare queens" is just that - a myth.  Similarly, she was convinced that "Foreign Aid" made up a huge chunk of our budget, when in reality, it makes up less than one percent of Federal spending.

Maybe I gave her something to think about. Maybe not.  Once she went back to the echo-chamber of the country club and the upscale parties in exclusive neighborhoods and of course, Fox News, she might disregard our conversation entirely.

But it illustrates how people think - how we all think.  Her Dad, who married into money, considers himself a "self-made man" and a "businessman and investor" when in fact, he fell ass-backward into a swimming pool of money.  No one ever wants to examine hard truths, particularly about themselves.  It is hard to do.

And I am not attacking her - she is a nice person.  And if you knew her and were in trouble, she would give you the shirt off her back.  Up to a point, of course.  Politically, we are not aligned and over the years, we have drifted apart.  She moved to a deep blue State and told me, "I hope you don't mind, but we're voting for Trump!"  I told her I didn't mind, but I didn't have the heart to tell her that her vote was largely meaningless - her State went overwhelmingly for Hillary (and later, Biden) and due to the electoral college, her vote meant nothing.

Does she pay a lot of taxes?  Well, you bet.  But in terms of tax rates, she is paying less as a percentage, as most of her income is in capital gains.  Once that inheritance tax (gifts and estates tax, we call it) was paid by the estate, the remainder went to her, tax-free.  She only owes taxes on capital gains and dividends and interest from the inherited money she invested.  She could really screw the tax man by putting it all in a zero-interest account and just living off the principal.  But that would be silly.  When you stand to make money, it doesn't really matter that you have to pay a small portion of it in taxes - despite what the GOP tries to tell us.

(I digress, but it is an old trope that if you cut a businessman's personal income tax, he will then hire more employees.  It makes no sense mathematically or financially.  If I run a law firm and can hire a young associate for $100K a year and he bills $300K (which is typical) and after overhead, I pocket $100K in profits, I am incentivized to hire him, regardless of whether my take-home pay is taxed at 25% or 35%.  But try explaining that to some Joe Paycheck who has never run a business!  He thinks the boss hires people as a favor to them using his "leftover money."  You hire people to make money, period.  What your tax bill is, or your cable bill, or any other personal expense is irrelevant).

It was an interesting conversation, but it made me realize that all of us self-justify our stations in life. Luck, we think, had nothing to do with it, unless of course, we had "bad luck."  It was all hard work on our part and "if only" we didn't have to pay those onerous taxes, the world would be a Shangri-La.

But of course, the tax code is slanted to favor the rich.  I found out, once I started making good money, that I could avoid a lot of taxes by purchasing investment properties and renting them out and taking the depreciation deduction - which would defer the taxes owed for many years or even forever, if I kept rolling over my "equity" in a Starker-type deferred exchange.  The rich get richer, the working class pays taxes.  Then again, the biggest chunk of taxes they pay is the payroll tax, which funds their retirement and medical care.

Hard work?  Yea, sure.  I also was lucky to have several opportunities thrown into my lap and was smart enough to take advantage of them.  Many other opportunities, I squandered.  But lady luck plays a big part in who gets ahead and who falls behind.

And inheriting millions of dollars is all 100% luck, period, despite what we may want to think.