I think you’re forgetting the fact that, in order to have passive/portfolio income (taxed at preferred rates), you must first earn money (at ordinary income tax rates). (Gifts and inheritances notwithstanding, of course. That’s another subject altogether.)
This being said, I’m not sure that it’s “unfair” that savers pay less in tax than non-savers do.
Try 23.8%. You forgot about the Net Investment Income Tax.
Yeah, gifts and inherentences is a pretty convenient thing to ignore here because we all know the vast majority of HNW estates were earned in the current generation.
I’m not ignoring it. I’m simply saying that if you want to argue whether income from gifts or inheritances is patently unfair, then that’s a different argument than whether investment income should be taxed at preferred rates.
I, for one, am a vocal proponent of the gift/estate tax. It doesn’t necessarily get rid of dynastic wealth, but it definitely puts a dent in it.
Edit - In general, I think taxes should not be used as an instrument of social policy. But in this case, I’ll make an exception. And I’ll even go further, and say that all proceeds from the gift/estate tax should be used to “level the playing field”, and NOT go into the general fund. (I don’t know if that will make one cent of difference, but at least it shows that this tax is designed to help the poor at the expense of the trust fund babies.)
Plus, even if income that is inherited should be taxed differently than income that is saved, how could we possibly distinguish between the two? Let me illustrate.
If I inherit ABC stock that pays me $1000 in dividend income, how should we distinguish (on my personal tax return) that from the XYZ stock (that pays $1000 in dividend income) that I purchased through my savings?
What about the reinvested dividends from ABC? If I received and reinvested the dividends, is that inherited or “saved”?
And if I sell the ABC stock and buy DEF stock (which pays $1000 in dividends), then is that inherited or “saved”?
How about if I sell the ABC stock, pay off my house, then use the money that I would have paid on the mortgage to buy some more stock? Should that be taxed differently? Is my house now “inherited” or “saved”? Should I pay income taxes on the mortgage that I’m not paying? Should the federal government set up their own property tax system for people who pay off mortgages with inherited money?
If I take the stock and give it to my stripper/drug dealer/mistress, then does she have to pay the “inheritance” rate on the dividends? Or does she get the “saved” rate? I’ll have to think about this, because if I can divest myself of “inheritance” assets and save my “saved” assets, then I need to go that route.
Didn’t the ABC stock become 100% mine when I inherited it? I mean, it’s 100% mine now. I can take the money any time. Is there some moral reason behind taxing it differently?
My point is–you can’t tax inheritances/gifts differently from non-inheritances/non-gifts. You can argue that the system is unfair, or that many of these people are rich through no merit of their own. But that’s a separate discussion.
(Trust me on this one. I live in oil country. There’s a lot of people who make six, seven, or eight figures in royalties every year, and 99% of them did absolutely nothing to earn it.)
^easy, flat tax
This is why I advocate plumbing (or many of those physical trades, like tree removal). No one wants to clean out a clogged drain. But if you’re a smart person that can lead other plumbers, you can make a fortune at it. Why? Because the MBA types are too good for that field, so you have no real competition if you have half a brain. Same with dry cleaning, sandwich shops, pizza chains, whatever. I have a buddy that owns seven pizza franchises in town and he probably makes 7 figures a year making pizza.
Why fight in a crowded pond?
I’ve lived a similar story and I’m getting ready to make a move back to the hustle. The opportunity is there, just need to have the courage to toss the paycheque aside.
You can clean up in physical trades. Without trying to go in to too much detail, my Dad was not too unlike BS’s dad. Granted mine wasn’t trapping for furs, but barely graduated high school and went to working for a sub-contractor in the construction industry straight out of high school. A few years in, the company he worked for went bankrupt due to poor management. He and one of his coworkers were like, why don’t we do this? We can do it better and we know all the people. They built their business out of unemployment and over 20+ years turned it into the largest company in their space. They just did what they knew and they did it well. A few years ago my Dad suffered a severe heart attack (thankfully he survived and came through well) and was advised to lower his stress, etc. The fact that he was 60+ and still running around doing 12 hr days wasn’t helping, so he sold his equity interest in the business for a tidy 7 figure sum. The other partner subsequently sold the whole equity interest to a hands off owner. Now Dad still works for the company as an employee for 24 hrs a week and doesn’t have to care, other than it gives him something to do.
But here’s the real kicker and why I am the *&*%ing idiot of this whole story. Years ago I decided I was too good for the city I grew up in and made my plans to leave when I was in like grade 5. I finally succeeded in high school and moved to the US. Then years later, my Dad and his business partner both realized that none of their kids (I’m an only child) would want to carry on the business. Had I stuck around, gone to the crappy university in town, and been interested, I could right now be pulling down a nice salary for doing little other than existing and keeping the family business running. And probably would get the equity interest. But no. I’m working for a salary, for the man.
^ Story of my life.
would you really be satisfied in life if you did exactly what your parents did?
I don’t think we’re giving small business owners enough credit though, it’s not as easy as it looks.
I didn’t say it’s easy at all. But it’s also psychologically more rewarding.
I did make the point earlier that I’m torn because my academic side would have felt couped up in the family business but I think as I matured and realized that 1) life is hard 2) working in an office 24/7 isn’t all it’s cracked up to be and 3) had the freedom to travel etc, that may have reversed. Basically, it’s a catch 22, because who I am now would much rather have my father’s business, even if both careers paid the same, but I couldn’t be who I am now in terms of experiences and what not if I’d grown up in that business.
this is interesting. my wife is in this same situation and she wisely came back home and has been learning her dad’s biz to take over in the next couple years. I was unhappy about it at first because (1) it required moving from a major metro back to podunk, and (2) it required cutting her salary more than in half for a decade or so. Well it turned out to be the best decision (I know, only because it turned out ok) and it’s finally starting to bear fruit. I do feel that she did it partly out of a feeling of obligation. She didn’t want to benefit from her dad’s hard work without first paying her dues and learning the business from the ground up. We could have continued doing what we were doing and benefited by inheriting the ownership and just hiring managers to run the business. But she didn’t feel right doing that. On the other hand, I know this business is not something she’s passionate about. She likes it but not enough for her to want to start one of these businesses from scratch on her own.
My buddy went from being a sandwich artist, to army, to quitting with no job, to freelancing as an exterminator. Guess who now employs from 2-5 (seasonality) people spraying chemicals and taking out dead raccoons, owns a house and chooses to take time off whenever he wants? #notbanker
You guys also seem to be suffering from survivorship bias.
For every general contractor mutlimillionaire, there are 999 who didn’t make it, and went back to their job as a regular ol’ employee (losing their savings in the process).
^those are hacksaw caliber and it was a longshot for them in the first place. we are the AF elite.
My point is, the survivorship rate seems to be much higher than people allow. Besides that, is it even survivorship bias at this point if all three or four people with firsthand expience that have attempted it are saying it worked out? I know many many people that have gone that route and even the ones that didn’t hit it big, didn’t necessarily fail. That being said, I easily know personally at least a dozen people that pull in around the 7 figure mark annually having gone the entrepreneurial route (in a rural area no less) and I doubt I know three people personally (first name basis) that are doing that in my industry.
I really think for someone carrying low debt, it’s a very plausible and overlooked path (as other posters have pointed out). I think the risks are overstated in the same way everyone fears statistically unlikely serial murderers, it’s a boogie man.
if you have the balls to see an idea through, you will do well in life, whether working for the ‘man’ or for yourself.
difference is that working for the man gives you a steady salary and breeds complacency. working hard for your next meal breeds resiliency and a balls to the wall work ethic.
listen to the tim ferriss podcasts - he’s got some good shit on there along the lines of what a lot of you are thinking
I think more people would open a franchise if they had the capital. Have you seen the requirements these days? You need to be rich to open a franchise in the first place.
He’s of a certain ethnicity that has fantastic hustle in coming up with cash. His family came here dirt poor and they hustled and borderline conned there way to the top. Now they’re stinking rich. You can get a pizza shop for $250-300k. Some of that can be financed, the equity can be acquired through all sorts of means.