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Posts Tagged ‘wealth’

Senator Warren’s wealth tax won’t fly

Posted by Richard on February 6, 2019

Fauxcahontas wants to tax wealth, not just income. If your net worth is north of $50 million, she wants to take 2% of it annually. (If your net worth is north of $50 million, can we talk?) Being rich is evil, don’t you know, because if you’re rich you must have stolen it from all the poor people. Or at least that’s how leftists think. And if she got her way, you can be sure that the $50 million floor would be lowered rapidly and relentlessly, bccause there aren’t enough people that rich to bring in the amount of loot that the leftists want to get their hands on.

But don’t worry, it’s not going to happen. Not without a radical change in the Supreme Court. As Professor Erik M. Jensen noted at City Journal, a wealth tax would at best be “constitutionally problematic.” That’s because a wealth tax would be a direct tax, and the Constitution makes levying direct taxes difficult:

… The Founders worried that Congress might use the relatively dangerous direct taxes as everyday revenue-raisers. To prevent abuse, the Constitution requires apportioning a direct tax among the states based on population: regardless of how the tax base is distributed across the country, taxpayers in each state in the aggregate must pay tax in proportion to their state’s share of the national population. The apportionment rule makes imposition of a direct tax often technically—and politically—impossible. That’s not a glitch, as some suggest; that was the point.

Suppose Warren’s wealth tax had to be apportioned. Imagine two states—one rich, one poor—each having a population of, say, 2 million. Despite the disparity in wealth, the tax collected from the two states must be the same. To make the numbers work, either tax rates would have to be higher in the poorer state than in the richer one, or some other absurd mechanism would have to be used. The result would obviously not satisfy Senator Warren’s goals. If apportionment is required, the proposed tax is dead in the water.

“But what about the income tax,” you say, “isn’t that a direct tax?” Well, our stinkin’ Progressive forebears amended the Constitution to make that possible, but they didn’t go as far as Warren and her ilk would have liked:

The Sixteenth Amendment, ratified in 1913, exempted “taxes on incomes” from apportionment. That made the modern income tax possible, but the amendment doesn’t allow an unapportioned wealth tax. The income tax targeted the wealthy, but late nineteenth-century and early twentieth-century debates specifically distinguished taxes on income from taxes on wealth. Senator Norris Brown of Nebraska, who in 1909 introduced the resolution that ultimately became the amendment, refused to extend the amendment’s scope beyond taxes on incomes. Many members of Congress wanted to do away with apportionment altogether—to make the meaning of “direct tax” irrelevant—but Brown said no, and he prevailed. As a result, a direct tax that is not a tax on incomes remains subject to apportionment. Like it or not, that’s the law.

I like it. It’s about the only thing I like about the Sixteenth Amendment.

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How to retire as a millionaire

Posted by Richard on February 16, 2012

Denver’s 7NEWS wants to encourage you to save with what might seem to be an ambitious goal in mind: to retire as a millionaire. But if you start young enough, it’s not difficult at all:

It might help if you knew when you could be a millionaire. 7NEWS found a “Millionaire Calculator” that can predict that golden age.

We took the millionaire calculator to Rooster & Moon Coffee Pub in Denver to run the calculation, using current investments, monthly contributions, and a conservative 6 percent expected rate of return. The result revealed when $1 million would be saved.

Some patrons told 7NEWS reporter Amanda Kost that they were surprised by the results.

“This is how much you can put away, and this is where it can get you,” Laura Mulvey mused.

When Mulvey calculated her millionaire age of 88, she made some adjustments and found what saving more money could buy for her future. Her projected millionaire age went from 88 to 58.

“I love it. I love it. It definitely surprises me,” Mulvey said.

Check out the “millionaire calculator” links they’ve posted. But the real secret, and the reason this message is directed especially to the young, is the “miracle of compounding.” Richard Russell, author of Rich Man, Poor Man, explained it with this example decades ago:

In order to emphasize the power of compounding, I am including this extraordinary study, courtesy of Market Logic, of Ft. Lauderdale, FL 33306. In this study we assume that investor (B) opens an IRA at age 19. For seven consecutive periods he puts $2,000 in his IRA at an average growth rate of 10% (7% interest plus growth). After seven years this fellow makes NO MORE contributions — he’s finished.

A second investor (A) makes no contributions until age 26 (this is the age when investor B was finished with his contributions). Then A continues faithfully to contribute $2,000 every year until he’s 65 (at the same theoretical 10% rate).

Now study the incredible results. B, who made his contributions earlier and who made only seven contributions, ends up with MORE money than A, who made 40 contributions but at a LATER TIME. The difference in the two is that B had seven more early years of compounding than A. Those seven early years were worth more than all of A’s 33 additional contributions.

Specifically, investor B, who invests $2,000 a year for seven years and then stops after age 26 has about $945,000 at age 65. Investor A, who starts saving seven years later and continues to invest $2,000 a year until age 65 has about $974,000. But investor A has put in $80,000 versus investor B’s $14,000, and his investment has grown 11-fold while investor B’s investment has grown 66-fold.

Take it from someone who didn’t know this or heed it, who only started seriously saving after age 40, and who’s been saving 30-40% of his income to try to make up for lost time: start saving early. Max out your 401k and/or IRA starting with your first job. Keep it up for at least a decade, preferably two or more. You’ll be a millionaire or maybe a multimillionaire by the time you retire. If you don’t spend it all before you die, your kids will thank you. 😉

To put this in simple terms, how early in your life you start saving/investing is much more important than what you save/invest in. Time is what will make you rich.

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Defending the rich

Posted by Richard on July 3, 2010

On the way home Thursday, I caught the tail end of Hugh Hewitt's interview of Ziad K. Abdelnour, President and CEO of Blackhawk Partners, a venture capital firm. I was impressed and made a note to look up the post by Abdelnour that they were discussing. Tonight, I finally got around to it. If you're only going to read one thing on the Internet this weekend, I urge you to read "Why we need the rich: A message to Americans – and our leaders in Washington DC – on wealth creation by a wealth creator." It begins thus:

It has an often repeated axiom that a person can learn a whole lot about a society by how it treats its poor. But just as much can be learned by looking at how that society treats its rich. Indeed, the economic future of the poor – and our nation – will be determined in the coming decades by how we treat the people in this country who create great wealth. It will be determined by our understanding of the so-called rich. And our ability to protect this minority. 

Please, please, please go read the whole thing. But if you won't, at least think about this: 

Socialist regimes try to guarantee the value of things rather than the ownership of them. Thus socialism tends to destroy the value, which depends on dedicated ownership. In the United States, on the other hand, the government normally guarantees only the right to property, not the worth of it. The belief that wealth consists not in ideas, attitudes, moral codes, and mental disciplines but in definable and static things that can be seized and redistributed is the materialist superstition.

It stultified the works of Marx and other prophets of violence and envy. It betrays every person who seeks to redistribute wealth by coercion. It balks every socialist revolutionary who imagines that by seizing the so-called means of production he can capture the crucial capital of an economy. It baffles nearly all conglomerateurs, who believe they can safely enter new industries by buying rather than by learning them. Capitalist means of production are not land, labor, or capital but minds and hearts.

The wealth of America isn't an inventory of goods; it's an organic, living entity, a fragile, pulsing fabric of ideas, expectations, loyalties, moral commitments, visions, and people. To vivisect it for redistribution would eventually kill it.

I'm reminded of Francisco D'Anconia's "Money Speech" from Atlas Shrugged. You should really read that, too. Please!

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How to live like a millionaire

Posted by Richard on March 8, 2010

So you want to live like a millionaire? OK, but if you're living the typical upper-middle-class lifestyle, you'll have to give up some things. Like that big house and fancy car.

Thomas J. Stanley, Ph.D., is a former business professor who's been researching the wealthy for 30 years and has written numerous articles and best-selling books on the subject. He's conducted studies, surveys, and focus groups of millionaires. His latest book, Stop Acting Rich: And Start Living like a Real Millionaire, contains some interesting findings about millionaires (which he defines as people with investments worth at least $1 million, not including their home, personal property, etc.):

  • Three times as many millionaires live in a home worth less than $300,000 than one worth $1 million or more.
  • The most popular car brand among millionaires is Toyota. Almost 9 out of 10 owners of luxury cars aren't millionaires.
  • Almost two-thirds of millionaires have never owned a second (vacation) home. Even more have never owned a boat. Among those who at some point bought a boat, most sold it and never bought another one.
  • Millionaires are much more likely to wear a Seiko watch than a Rolex. If they're wearing a Rolex, they probably got it as a gift.
  • A millionaire's clothes typically come from J.C. Penney and the like. If it's from Saks or Brooks Brothers, it was probably purchased at 60% off. One exception: millionaires buy good-quality shoes (Cole Hahn, Allen Edmonds, etc.) and then have them resoled when needed.
  • The median price that millionaires pay for a bottle of wine is $13.

None of this should be shocking or surprising. The way to accumulate wealth is to accumulate — that means spend much less than you earn. But the people who think that the rich are the "winners of life's lottery" don't get it. They spend all they can. And then they buy a bunch of lottery tickets and hope for the best. 

It's not just a problem of the poor (although it's especially a problem of the poor, in particular the lottery tickets). That's why the country's full of people with $80,000 incomes facing foreclosure on their $500,000 homes.

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