Irregular Times Diaries: Unfit Discussion
In a time of the spring, old paths are obscured and new growth begins.
Irregular Times Diaries: Unfit DiscussionIn a time of the spring, old paths are obscured and new growth begins.
When it comes to freedom, Republican presidential candidate Ron Paul seems to think that it all comes down to one thing: Money. He believes that property rights are the foundation of all rights. In other words, Ron Paul believes that, if a person doesn’t own anything, they don’t have any rights.
For this reason, Ron Paul proposes giving special tax breaks to wealthy estates. Paul writes,
“If you truly own your property, you have the right to dispose of it any way you wish. You can sell it, give it away, or direct who will receive it when you die. This control is the essence of property rights. If you can’t control what happens to your property, you don’t really own it. That’s why the estate tax is so destructive”
The problem with Ron Paul’s defense of tax breaks for wealthy estates is that there is no such thing as a legal right for people to spend money however they wish. The Constitution does not contain the phrase “property rights”, and does not establish the concept of general property rights in any language at all. People do not have the right to dispose of their money in any way that they wish. They cannot buy nuclear weapons, for example. They also do not have the right to dispose of hazardous materials they own by just dumping them in the nearest river. In the United States, people may have property, but they also have a responsibility to other people.
That’s why we have government, and it’s why the government has the constitutionally-established right to gather taxes in order to sustain itself. Government is the collective creation of all citizens, through democratic participation and through the contribution of money. Government mitigates between individual desires and the needs of society as a whole, protecting individuals from each other.
Ron Paul’s proposal to abolish estate taxes encourages selfish irresponsibility. Money is not, after all, just property. Money is an embodiment of what people can expect from their government, and from each other. People may own what they buy with money, but society as a whole is what makes money valuable.
What Ron Paul forgets when he defends abolishing estate taxes is that the taxes are not paid by the people who die and leave their estates to their inheritors. Estate taxes are paid by the inheritors. Wealthy people have the right to accumulate massive estates, and to direct certain people to inherit those estates, but once the inheritance takes place, they’re dead, and they don’t get to direct their money as if they’re alive. The dead do lose control of their property. That’s a natural part of death, and there’s nothing Ron Paul and his libertarian supporters can do to stop that.
Inheritance is a form of income, just like wages in compensation for work, and it ought to be treated in the same way. It is unjust to make people who work for their money pay income taxes on that money, while giving people who inherit their money a special loophole that allows them to keep all of their income.
Estate taxes are necessary because the accumulation of the power of property is destructive to society as a whole. If people like Paris Hilton, who gain substantial property just through their luck of being the children of extremely wealthy families, do not have to pay their share to support the government, then non-wealthy citizens have to give a larger share of their own property to keep the government functioning.
(Source: Sierra Times, June 14, 2006)
(185 votes, average: 2.95 out of 5)
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July 2nd, 2007 at 11:37 am
Government is NOT a collective creation of all citizens. It’s a collection of elite citizens
have the resources to get their hands on power. Those in government are among the most corrupt. And you can’t say that the government made from everyday people.
Government is not this magical thing that has limitless virtues and is always correct in its judgment. The US Government wastes money on such a grand scale than the collection of all the WORLD’s richest individuals can’t even compare. The only way to reduce government waste is to take away the a lot of the money that funds the government, because we know that electing “better” politicians has shown to not work.
July 2nd, 2007 at 11:41 am
Joe,
Apparently you don’t have much trust in democracy. I don’t have unlimited trust in democracy either, but I think it’s the best of all available options. People have the opportunity to do MUCH more to participate in their government than just vote, but many citizens don’t seem to care.
I do value some of the decisions Ron Paul has made, such as opposition to the occupation of Iraq and to laws like the Patriot Act. I also appreciate the very active involvement in politics that many Ron Paul supporters show.
However, I am worried by the anti-democratic rhetoric given by so many of Ron Paul’s supporters.
July 2nd, 2007 at 11:47 am
I agree totaly. I mean I though that “people[had the right] to spend money however they wish” but apparently I was wrong. According to you its not my money its the peoples money and the people gave to goverment the authority to distribute it as they please. Im also glad you pointed out the constitution gives us no property rights. Now I can feel secure in the fact when Hillary gives us our socialist paradise it will totally constitutional.
July 2nd, 2007 at 11:58 am
Funny - when I was in school and a big band of thugs beat me up and took my money they were called bullies.
Now a big band of thugs votes away my money and calls it taxes.
“There’s no right of the people to spend money anyway they wish.”
How absolutely sad that my property isn’t really mine after all.
YOu miss the point - Paris HIlton doesn’t have the right to receive her father’s fortune. Her father has the right to give his property to the people that he thinks should have it.
It’s not nearly as selfish as conspiring to concoct methods of taking that fortune away.
July 2nd, 2007 at 12:01 pm
Actually in the system that Ron Paul is advocating the Mega Wealthy lose most of their power and access to that wealth because they are usually beholden to Big Government to gain that wealth at the expense of the middle class and poor.
When states then follow the same model and reduce government access to the tax base of the state it forces corporations to deal with cities and counties on an individual basis. The state or federal government can no longer interfere in this process, giving the mega company unlimited access in one felled swoop.
It has alway been much easier and more cost effective for these corporations to go to the highest authority, with bribes, PAC money and campaign contributions to force their will on the taxpayers.
Now those same companies will have to spend millions even billions more to negotiate for the same access to those same funds. In many cases, the cost isn’t going to be worth the initial expense because activists have a far greater chance of defeating issues on a local level than they do at a statewide or federal level.
It was a grand attempt to pigeon hole Dr. Paul with that statement above.
As usual, someone stops at the first tier of Rep. Paul’s idea’s and not looking at the complete package.
We as a nation can’t just wave a magic wand in one area and expect immediate or immense changes. It requires that we scale government back on all levels which takes time.
It requires that we as individuals take control of our lives; not wait on the meager handouts from Government or Big Business which is just a means to control us.
July 2nd, 2007 at 12:06 pm
Texas Little El is right. If these progressives would only stop to look outside of their own little self-serving agendas, they’d see that their “make the rich poorer by taxes” won’t work until the monetary system is attached to the value of a commodity. Until that happens, the rich will only make more money, which devalues the money that the poor has.
That’s exactly what’s happened over the past 100 or so years. That’s why your grandparents could pay cash for a house, yet we need 30+ year mortgages. That’s why your grandparents culd pay cash at the doctor. That’s why your grandparents could save up a million dollars working an 8-5 factory job.
July 2nd, 2007 at 12:11 pm
There’s so much wrong with this, I barely know where to begin. Let’s start with the Fifth Amendment to the Constitution, which reads (in part), “No person shall be … deprived of life, liberty or property without due process of law; nor shall private property be taken for public use without just compensation.” I believe a reasonable person might infer from this a right to property. Likewise, Amendment Three implies a right to property in saying, “No soldier shall in time of peace be quartered in any house without the consent of the Owner…” Also, Amendment Four protects “the right of people to be secure in their persons, houses, papers and effects against unreasonable search and seizure.” If there was no right to property, this language would be senseless. The Ninth Amendment says, “The enumeration in the Constitution of certain rights shall not be construed to deny or disparage others retained by the people.” The Bill of Rights was so obviously grounded in the Lockean pricnicples of individual rights to life, liberty and property that only a numbskull would say the Constitution doesn’t recognize the right to property.
Do you have even a rudimentary grasp of the concept of rights? Rights cannot be granted to you — you are born with them. The right to property is implicit in the right to life. If you own your own life (your most precious property), you have the right to sustain your life through the peaceful acquisition of other things, i.e. “property” (real and personal). The role of the government is to PROTECT your rights. Anything the government grants to you is a LICENCE, and it is revokable. RIGHTS are irrevocable. Remember, if the government is strong enough to give you what you want, it is also strong enough to take it away.
Finally, consider that what remains in an estate HAS ALREADY BEEN SUBJECT TO TAX when it was first acquired. Estate tax is double taxation. And to your claim that no one can control their assets after death, a multi-billion estate planning industry might take issue with such a ridiculous statement.
July 2nd, 2007 at 5:43 pm
Taxes generally do not shift wealth from the wealthy to the disadvantaged but rather use the
funds to pay for more wasteful government bureaucracy and by the politicians to buy voting blocks for their re-election campaigns.
Ron Holland,Author of the new, free online book, “The Swiss Preserve Solution” addresses
this situation in Chapter 5 - “The Hidden History of Institutional Political Theft in America” at
http://www.swissconfederationinstitute.org/swisspreserve10.htm
July 2nd, 2007 at 11:49 pm
Who IS Ron Paul?
Why would he get this much support?
Do your OWN homework.
NOBODY explains Ron Paul
BETTER than Ron Paul himself!
Here is an interactive audio archive of
Ron Paul speeches and interviews as a resource in chronological
order.
http://www.ronpaulaudio.com
July 3rd, 2007 at 9:47 am
Mark, that amendment does not grant “general property rights”, which is what I said of the Constitution in the article. That amendment only states that the government must use due process when depriving people of their property, and must offer compensation. That’s only a very limited aspect of what Ron Paul supporters claim as property rights. The fourth amendment is similarly very limited, only applying to search and seizure by the government. Amendment three, once again, is very limited.
These amendments make perfect sense in and of themselves, without any need for a supposition of general property rights such as the right Ron Paul claims, to dispose of property however its owner chooses.
If there were a general right to property in the USA, then there would be no right of the government to collect taxes or deprive people of their property through due process in the Constitution. Those things are there.
You’re stretching and expanding the actual words in the Constitution to fit an ideology that doesn’t really have anything to do with the Constitution, and has much more to do with people’s desire to keep what they think is theirs, and expect other people to shoulder the mutual burdens inherent in society.
July 3rd, 2007 at 11:00 am
Our author writes, “Ron Paul believes that, if a person doesn’t own anything, they don’t have any rights.”
This is so obviously untrue and absurd that one wonders why such nonsense is written. Ron Paul is not all that well know yet, so I guess the writer is gambling that other fools will not bother to do any homework and will believe such crude falsehoods. Amazing.
“…giving special tax breaks” simply means “not stealing”. A “tax-break” refers merely to a pause or reduction in the extortion-racket called taxation. Pretending it is morally wrong to not steal is fun rhetoric for collectivists who want what they didn’t produce, but it’s just silly word-gaming.
Our author then pretends that by “property rights” Ron Paul means the right to harm others. Surely no one means that and surely our author knows that, but is hoping that inattentive readers will not notice his silliness.
Eliminating a tax hardly “encourages selfish irresponsibility”. Exactly the opposite. Stealing is “selfish irresponsibility” and taxing is stealing. Respecting the property rights of others is responsible. Resisting thieves is responsible.
Marxists want to steal. Their gambit is to wreck the language so that stealing becomes a virtue and keeping what you have produced is selfish and naughty. By these word games, they hope to morally and intellectually disarm their victims so as to make their stealing safer and more acceptable.
Our author writes, “Government is the collective creation of all citizens, through democratic participation and through the contribution of money.” This contains two massive absurdities. It is clear to any child that he had no hand in the creation of the parasitic gang of extortionists who call themselves government. After he has been an adult for many years, he is offered a choice between corporate-appointed whores, all of whom want to feed from and control him. And to write that the helpless victims of a massive and sadistic extortion racket are making “contributions” is a near perfect example of the rhetorical insanity that infests the parasitic mind.
Stealing because you are envious of Paris Hilton and want her wealth is pathetic. The definition of earning is that what you have, you have because others VOLUNTARILY gave it to you. Our author wants an end to voluntarism because he wants what he didn’t earn. Paris Hilton has earned her wealth by earning the love of those who gave it to her. Our author’s opinion of her is irrelevant. To have a right to property, you must either have created the property or voluntarily traded for it. Our author is upset with Ron Paul because Ron Paul opposes stealing and isn’t fooled by the word-gaming of the thieves.
July 3rd, 2007 at 11:25 am
Ron Paul appears to me to understand that no law, not even the constitution, can trump morality. He makes clear almost constantly, that the constitution is important because it is mostely moral. He criticises it when it is not.
At the root of both morality and economics is the concept of property. Those who would overthrow the idea of property are overthrowing morality and aiming at harming the harmless. They will rhetorically attack on two fronts: they will argue that for you to own property requires their permission (stealing then becomes merely permission-denying), which means that your property is ‘really’ their property. And they will argue that law trumps morality (property). This gives them the opening to make it legal to steal.
Marxism boils down to this: There is no such thing as property because your property is our property, so give me my share, or else. It is merely an extortion-racket rhetorically dressed up as political philosophy. It appeals to parasites.
July 3rd, 2007 at 12:34 pm
I have “been an adult for many years” and I have yet to be “offered my choice of corporate appointed whores”. What government department do I have to write to, or can I get one by E-mail? Can I specify stuff like height, eye color, …oooh, and gender?
Do tell me how I too can become wealthy by “earning” the love of Paris Hilton’s parents.
I never before realized how wonderful and deserving rich people are or what a privilege it is for us ordinary folk to pay for the nation’s infrastructure so they can continue to make tax free money to give to their bratty little children. These Ron Paul supporters really open my eyes.
July 3rd, 2007 at 1:48 pm
The problem with the libertarian supporters of Ron Paul is that they emphasize the destructiveness of government exclusive of its creative influence. Government is indeed entitled to a share of the Hilton family fortune, because it’s government services that have made it possible for the Hiltons to accumulate their fortune.
July 6th, 2007 at 8:36 pm
“because it’s government services that have made it possible for the Hiltons to accumulate their fortune” Huh? And they paid no taxes along the way?
Pretend for a moment that Paris Hilton’s parents died yesterday, and now their lawyers & accountants are going through the process of settling the estate.
First on the list is the taxman, as required by law. The Hilton lawyers and accountants look at all the property taxes the parents paid for their various homes, the income taxes they paid, the sales taxes they paid for the things they bought, the employment taxes they paid, and so on and so forth, but according to jclifford & Iroquis, all those millions of dollars in taxes were not enough to cover the “government services they used that made them rich. ”
In a sense, jc is half right, at least if you believe what Ron Paul and his ilk say: Many of the rich are so because of the government largesse with which they are showered. But wouldn’t it be much more efficient to NOT give the rich other people’s tax money in the first place, thereby preventing the need to take it back later? This whole thing of taxing people’s money when they die seems like an excuse to employ lawyers and accountants to figure out ways to avoid it (and there are always ways to avoid tax, because the people who write tax law certainly have no interest in paying taxes themselves). Do lawyers and accountants really need so much job protection?
I wouldn’t say any kid earned their parent’s wealth, unless they worked in their parent’s business. The parent’s wealth is theirs to use as they see fit, they don’t owe it to their kids any more than they owe it to jc and Iroquois. Certainly, if anyone is going to become a parent of their own free will, they ought to make sure they have collected enough material wealth to ensure that their kids lead reasonably healthy lives, but beyong that, I don’t see any obligation of a mulit-millionaire to transfer their wealth to anyone they don’t want to related by blood or not.
Or, you could look at it another way: Maybe every parent does owe their kid the best lifestyle they can afford, then what right do jc and Iroquois have to take it away from them?
I just shake my head at the arrogance of progressives, socialists, fascists and such who are so enamored with their own egos that they think they are deserving the fruits of everyone else’s labor. At least a blog like this lets everyone know how morally corrupt the progressive movement is.
Thank you for your efforts.
July 6th, 2007 at 11:34 pm
Gosh, we could just keep the rich from using stuff paid for by other taxpayers. Why didn’t I think of that before. We could keep them and their businesses from using the nation’s transportation systems, keep them from hiring employees educated by the nation’s educational system, keep them from using any of the nation’s banking systems that are federally regulated and protected, keep them from using government water and sewer and fire protection …the list goes on and on. Let them build their own infrastructure.
What’s wrong with you morally corrupt people who want to tax the multimillionaire’s income the same as the factory worker–after the first tax-free 1 or 2 million, of course? Don’t you know that getting money by waiting for someone to die is more deserving than getting money by working?
July 7th, 2007 at 11:15 am
So, you’re saying that rich people don’t pay property taxes while they’re alive? You have to wait ’til their dead to collect the property taxes they should have paid on their mansions? While they’re alive they don’t pay sales taxes on the stuff they buy? They don’t pay gas taxes on the fuel that goes into their limos while they’re alive?
If this is true (which I doubt very highly) then it is a failure of government in the first place to allocate the tax burden based on the costs incurred by the users of its services. Taxing the estates after death is a very inefficient system by all accounts. If rich people are using some kind of government service now, they should be paying for it now, not using it on credit against their estates (the most value of which they will be able to protect in trusts anyway).
Again, the system you advocate seems to support job protection for lawyers and accountants. Are you a lawyer or accountant? Perhaps you’re getting paid by some lawyer or accountant PAC to promote legislation that protects their interests?
I can think of one reason why it might behoove the government to wait and tax the estates of the rich post mortem, rather than making them pay as they go: It’s because the people in government know that a dollar in the hands of a rich person is likely to grow into ten dollars by the time of their death. If the government is giving the rich a pass on their property, sales, and employment taxes now (which I still doubt), expecting to collect much more later, then the government is investing your money and mine with the hope of greater returns down the line.
This idea, if true, would represent an amazing amount of foresight on the part of government officials, which is something so unbelievable that I would require much more proof than what is presented on this blog.
Do you have any evidence to support your claims? I’ll wait patiently for your reply.
July 7th, 2007 at 2:32 pm
Oh my, when a person receives money they did not earn, the taxes on it have already been paid?
But by that reasoning, when a person receives a paycheck, the taxes on that have already been paid, too. Are you really saying all these business that cut paychecks pay no real estate taxes, no transportation or energy taxes, no taxes on their profits,?
What’s wrong with you morally corrupt people who want to tax earned income? The taxes on wages have ALREADY BEEN PAID–by the entity issuing the paycheck.
July 7th, 2007 at 3:44 pm
Now you’ve changed your argument. In your earlier post you claimed that the rich die, the justification for taxing their estates was to pay for all the things that the government did for them while they were alive to make them rich. I pointed out that they had already paid for the services of government they used while they were alive with taxes they paid while they were alive. Since you have changed your argument without countering mine, then I take it that you concede the point that the rich have already paid taxes on all the government services they’ve used while alive, and this is no longer a valid reason for taxing their estates.
“Oh my, when a person receives money they did not earn, the taxes on it have already been paid?” This is a new point. It seems you are now trying to justify taxing the estates of rich people because the people who get the money did not earn it. If not earning money that someone gets is a justification for taxing it, then you have just made an argument for taxing all government transfer money (yes, I know some is already taxed), all donations, all gifts, and all insurance settlements, including life insurance, because none of the money received is earned by the receiver.
“But by that reasoning, when a person receives a paycheck, the taxes on that have already been paid, too.” That’s your “reasoning,” not mine.
“Are you really saying all these business that cut paychecks pay no real estate taxes, no transportation or energy taxes, no taxes on their profits,?” No. Whatever gave you that idea?
“What’s wrong with you morally corrupt people who want to tax earned income?” That’s what freedom loving people have been asking since the beginning of the income tax. Do you have a rational answer?
July 7th, 2007 at 4:42 pm
Sorry, this is a typo, “In your earlier post you claimed that the rich die, the justification for taxing their estates…
It should read:
In your earlier post you claimed that when the rich die, the justification for taxing their estates
July 7th, 2007 at 6:27 pm
If taxing Paris Hilton’s unearned income is “stealing” then taxing everyone else’s earned income from wages is also stealing.
I was being sarcastic.
July 8th, 2007 at 12:33 pm
Hey! You’re finally getting the idea: “If taxing Paris Hilton’s unearned income is ’stealing’ then taxing everyone else’s earned income from wages is also stealing.”
Taxation is theft.
No sarcasm required.
July 8th, 2007 at 5:00 pm
Running this country with voluntary payment of taxes has already been tried and it didn’t work. It was called the Articles of Confederation.
July 9th, 2007 at 8:52 am
Why do you claim it didn’t work?
July 11th, 2007 at 9:36 pm
They had to replace it with the Constitution.
July 11th, 2007 at 9:40 pm
Just a quick comment about the way the word “property” is being used here.
The example comes up of a family farm that parents wouldn’t be able to pass on to their children.
A private family farm is the single example of “property” in the sense of a single, identifiable possession that constitutes someone’s home and means of livelihood that would conceivably be affected by this legislation. And wouldn’t you know it, it’s the one example anti-tax advocates use again and again to oppose the inheritance tax.
Now, one could very easily write in an exemption to the tax for family farms. Would that satisfy the anti-tax people?
No, because defending the family farm is a red herring. The vast majority of wealth that would be protected by repealing the inheritance tax is tied up in something called “capital,” not the prosaic sort of “property” evoked by the family farm. We’re talking stocks, bonds, stuff like that.
The vast majority of capital inherited by wealthy heirs is (unlike a family farm worked by a family’s labor) the means by which owners accrue profit that is generated in large part by the labor of others.
I’m not against capital or capitalism, but of all the things to tax, why not tax the means by which one person profits from the labor of another person?
An argument against taxation altogether is a curious one, and I really fail to see how it constitutes anything but an argument for the most extreme form of anarchy.
Without a state (which would not exist without taxes), it is entirely correct that there would be no theft–just people forcefully taking things from each other without any sort of legal system to identify it by the name “theft.” Not my preference, but if that’s your cup of tea go ahead and advocate for it.
In the absence of taxation (and therefore of government), good luck standing out on your front porch with a shotgun protecting the “property” you own in the form of stocks and bonds.
Reminds me of an episode of the Young Ones where someone’s trying to break into the house:
“Quick, call the police!”
“But, the police are fascists…”
“Never mind that now!”
July 11th, 2007 at 11:25 pm
Just a detail, Ralph, but the inheritance tax proposals allow inheriting the first one or two million tax-free. This is not a tax on ordinary or even privileged citizens, it would affect only the super wealthy.
You are entirely correct about the rest, but doesn’t it seem sort of obvious to have to point out that government would not exist without taxation?
July 12th, 2007 at 2:22 pm
Precisely my point.
The inheritance tax laws as they now stand allow for several million dollars to be inherited without taxation. The single instance in which someone you could call an average Joe would be adversely affected by the inheritance tax is the case of the family farm (even farmers you wouldn’t think of as rich might own land that would be worth several million if they sold it to a developer).
Inheritance laws as they now stand might make it hard for family farmers to pass on property to their children (though if anyone is listening, family farmers have been complaining a lot more about recent farm bills that benefit huge agribusiness at their expense).
BUT, the family farm is the ONLY example of a way that the inheritance tax could make it difficult for “property” in the prosaic sense to be passed from parent to child.
That’s my point about it being a red herring.
Abolishing inheritance tax is primarily about abolishing a tax on capital, not “property” in the sense invoked by the misleading example of the family farm.
That’s my point.
Yes, it seems entirely clear to me that governments and laws would not exist without taxation. This apparently isn’t as obvious to some people as it is to you and me.
July 12th, 2007 at 8:30 pm
“They had to replace it with the Constitution.”
Why did “they” have to?
“…why not tax the means by which one person profits from the labor of another person?”
Why is that any more appropriate as a subject of taxation than anything else? Since we are talking about the USA, the “labor of others” is voluntary. The investor buys securities in a company, thereby giving the company money (not directly, but indirectly) which the company uses to expand its operations. The investor is rewarded for her good thinking in the future when she sells the stock at a profit, because the company did a good job using her money to make itself more profitable. The people in the company benefited because they got to use her money to expand their business, and the investor profited as well once the company grew in revenue and other ways that other investors liked. Sounds like a win-win to me.
Even though there are companies who profit by using not-so-voluntary labor inside and outside the US, an investor who is concerned by such things could adjust her portfolio to include only those companies that are kosher by true Progressive standards.
Because this investor is smart, she’s able to amass a large amount of wealth. But every time she sells stock, she must pay taxes on the gains (offset by the losses). That means, throughout her investment career, she has been paying taxes on the earnings she made through her wise investment decisions. When she dies, with a portfolio worth $10 million –on-paper-, what right does anyone have to ask for more taxes on that portfolio?
Of course, if she was smart enough to build up a portfolio of $10 million, she will be smart enough to do this:
1. Calculate her potential estate tax liability.
2. Buy life insurance equal to that amount.
3. Name a trust as the beneficiary.
That way, when she dies, her estate passes intact to her heirs and the life insurance pays the tax.
So the real reason for estate tax, to break up large estates, is easily defeated by a life insurance policy.
The other good thing for her heirs is that the cost basis of the stock is now raised to the level it’s at when they receive it. That means, if Granny bought shares of People’s Organix at $19 per share that raised to $25 when she died, her heirs, when they sell the stock at $27, will pay tax only on the growth of $2 per share (since the estate tax was taken care of by the life insurance proceeds).
(Remember when I said that the people who write tax laws don’t want to pay taxes?)
So the only people who would really lose out if the estate tax was repealed would be the life insurance companies, who would miss all those contracts for life insurance to pay estate taxes.
July 13th, 2007 at 2:07 pm
Insurance companies are for-profit corporations. They very carefully see to it that it is probable that the purchaser of life insurance will pay more than his or her beneficiaries eventually receive. That’s how insurance companies make their money. That’s how insurance works.
The idea that wealthy heirs would not benefit from a repeal of the estate tax because of life insurance simply betrays a lack of understanding of basic economics.
Thanks for the lesson in how you THINK economics works, though. I found it quite enlightening.
July 13th, 2007 at 2:57 pm
Ralph, you are wrong.
“Insurance companies are for-profit corporations.”
True. Thank goodness, too, otherwise they wouldn’t be around to pay the beneficiaries.
“They very carefully see to it that it is probable that the purchaser of life insurance will pay more than his or her beneficiaries eventually receive.”
This is false with respect to whole, aka permanent life insurance. A 35 year old male with a new $100,000 whole life policy will pay $79,980 in premiums by the time he is 95 (when the policy will be paid off). But the kicker is, by that time, the death benefit on the policy will have grown to $665,919 through reinvestment of dividends.
That means a return of 700 percent!!!!
How can an insurance company make money on paying returns like that?
By investing the premium while the insured is alive. Since life insurance companies have billions of dollars “in the bank,†they can purchase bonds and other secure and low risk investments at very discounted rates that the street-level investor cannot touch.
Term life insurance is a little more complicated, because many people live beyond the term, but most people convert it to whole life. Most life insurance companies have the majority of their policies in whole life, rather than term. Just for comparison, the $100,000 policy as a 10 year term would cost the client only $1,300, total.
“That’s how insurance companies make their money. That’s how insurance works.â€
Thanks, Ralph, on how you THINK life insurance works. Why would you be so shortsighted as to say something you don’t know is true?
In case you’re wondering where I got numbers above, I just quoted it. If you have a place I can send the PDF, I will be happy to do so.
By the way, the NASD (National Association of Securities Dealers) granted me three licenses based on knowing how economics works (and investing as well). What kind of education do you have in economics?
July 14th, 2007 at 2:57 pm
I’m not really up for doing ‘time value of money’ calculations on the weekend, Clerical Error, but it doesn’t make sense to me. After all, a mortgage is similar, and you pay for a house several times over before you can tear up the mortgage. The stock market hasn’t been doing all that great either, so how can insurance companies be making such a killing on the stock market?
I don’t really think it matters how insurance works, as long as they’re not defrauding the public. If insurance companies want to provide a service and get paid for it–and it IS a private, for-profit enterprise–that’s an honest way to make a living. Besides someone has to buy those GO bonds so we can have our new airports.
If the wealthy want to use insurance to spread out their risk, I don’t see any problem with that either. The person inheriting will still pay the tax, whether they pay out of the amount inherited or whether a third party pays it out of funds the person inheriting would have received otherwise.
July 15th, 2007 at 4:09 am
And just how much is that $665,919 going to be worth in the year 2067, adjusting for inflation?
I suppose this is your no-inflation economic fantasy world, so just never mind I guess.
My condolences to the NASD on their inaccurate assessment of your grasp of basic economics.
July 17th, 2007 at 1:19 pm
Ralph,
“And just how much is that $665,919 going to be worth in the year 2067, adjusting for inflation?â€
Since you didn’t specify what inflation rate you expected over the next 60 years, we can look at it another way. In order for $79,980 to reach $665,919 in 60 years, the return would have to be about 5.64%. Remember that the growth is tax-deferred and the benefits are most often tax free to the beneficiaries (except in some rare cases) so the taxable return would have to me much higher to match this growth. Do you have any reason to believe that average inflation will be greater than 5.64% over the next 60 years? Since 1962, it has run at an average just over 4% and about 2.7% over the past 16 years.
The cool thing is, even if the inflation rate goes up, the return of 5.64% will go up, since the underlying investments are bonds and such, which have to keep pace with or exceed the rate of inflation for people to buy them.
“I suppose this is your no-inflation economic fantasy world, so just never mind I guess.â€
No need to guess, just stop talking about things you obviously know nothing about.
“My condolences to the NASD on their inaccurate assessment of your grasp of basic economics.â€
You should put actions to your words and let the NASD know that I slipped through the cracks and passed their highly regulated and well-researched tests without knowing anything. Here is their number: (301) 590-6500
July 17th, 2007 at 2:54 pm
Iroquois,
“I’m not really up for doing ‘time value of money’ calculations on the weekend, Clerical Error, but it doesn’t make sense to me. After all, a mortgage is similar, and you pay for a house several times over before you can tear up the mortgage. The stock market hasn’t been doing all that great either, so how can insurance companies be making such a killing on the stock market?â€
It turns out that 5.64% is not such a killing after all. The insurance companies make more than that, of course, but the expenses with a life insurance policy are primarily on the front-end.
Mortgage companies are giving you lots of money now, for you to pay back over time. They are taking on the risk, so they are charging accordingly.
Insurance companies are accepting payments from you now, over time, for a guaranteed sum that they will pay now or in the future. They are investing on your behalf and sharing some of the proceeds of that investment with you (you have a choice how you get your share). The insurance company is taking on the risk for the face value of the policy. The insurance companies spread the risk by sharing a policy with other companies, if they feel they need to, and putting money in a pool of funds mandated by the states in case the insurance company goes belly up.
“I don’t really think it matters how insurance works, as long as they’re not defrauding the public. If insurance companies want to provide a service and get paid for it–and it IS a private, for-profit enterprise–that’s an honest way to make a living. Besides someone has to buy those GO bonds so we can have our new airports.â€
Very refreshing attitude.
July 17th, 2007 at 3:45 pm
I mean, Ralph, if it’s true that I have been released on the private financial planning world with an innacurate grasp of basic economics, you should report me right away so that no one is hurt by my poor understanding of financial issues. You would be remiss to not act on what you believe right away.
July 17th, 2007 at 4:42 pm
Yeah Ralph, just call them up and ask for “Clerical Error”. I can just picture it. I wonder if the stock broker types over there would find it as amusing.
I for one am not convinced that someone can pose as an expert in economics after claiming to take some stockbroker online training in industry rules and regulations.
http://www.nasd.com/EducationPrograms/index.htm
Clerical Error started out by trying to explain to us why Paris Hilton should not have to pay taxes on her inheritances, and ended up claiming to be an expert in economics. We’re suppose to go on trust, I suppose, without hearing the explanation. I still am waiting to have the first part explained.
July 17th, 2007 at 6:20 pm
I was just follwing you guys around the mullberry bush. What does Paris Hilton care what you think? Or me for that matter. My licenses are still on record no matter what you say. Besides, when did I claim to be an expert on ecomonics?
Ralph has been spouting off how I don’t know the basics of economics (which I can see why he would say that, since he knows nothing at all about any of the financial topics he’s posted about so far), but he won’t tell us where he gets his own expertise from. At least I’ve taken the classes and passed the tests, and if it really mattered, I’d tell you my real name so you could look me up. Then you-all could call if you really believed what you wrote and tell the NASD and the SEC about my incompetence. I’m sure they’d be interested in hiring Ralph as an investigator, but then, he’d have to actually know something about what he spews.
Har. Har. Liberal-baiting is so easy. I’ve become a master at it. Yuk. Yuk.
Q: What’s the difference between a puppy and a liberal?
A: Puppies stop whinning after they grow up.
July 17th, 2007 at 6:43 pm
Enough of that.
To actually answer your question, Iroquois, Paris Hilton should not have to pay taxes on her inheritances (which she won’t, anyway because her folks have good accountants and lawyers) because her family already paid the income, property, capital gains, sales, luxury, license, employer and such like taxes on the money they earned and the things they bought with it up to the time of their death.
There are two reasons why anyone would favor the estate tax:
1. To break up large estates because they are afraid of the apparent concentration of wealth in the hands of a few.
2. Because they’re jealous of rich people who managed to collect more money than they did.
Number 1 doesn’t happen because rich people and/or people who work for them are smart enough to preserve their estates intact and because the politicians provide the escape routes out of the tax system since they want to use them too.
Number 2 is up to you folks to take care of yourselves. No one can change your feelings for you. Just let go of your jealousy and rage and learn to take control of your own life, rather than trying to control the lives of others. It works out better for you and for everyone else.
July 18th, 2007 at 9:09 pm
So, assuming a long term average of over 4% annual inflation, you’re talking about an annual real-money return of less than 1.64% on a 60-year investment?
Wow. I’m impressed.
Care to explain how that kind of return renders the estate tax irrelevant for the extremely rich?
You can start by explaining how, if the estate tax were repealed, heirs of the super-rich couldn’t simply collect life insurance AND a tax-free multi-million dollar estate.
July 19th, 2007 at 9:15 pm
“Number 2 is up to you folks to take care of yourselves. No one can change your feelings for you. Just let go of your jealousy and rage and learn to take control of your own life, rather than trying to control the lives of others. It works out better for you and for everyone else.”
July 19th, 2007 at 9:34 pm
You should be impressed by 1.64% after inflation for a nearly guaranteed “investment” on which the gains, once acquired, cannot go down.
If you were getting 10% in the stock market, you would subtract both inflation and taxation, so the net would be 10 - 4 - 2 (captial gains tax at 20%) = 4% for money at risk, and no protection for the gains.
Or, if you bought any kind of bond, the risk would be lower, but still there would be risk, the net gains would be perhaps 2% after inflation (and taxation, depending on the kind of bond).
If you bought CDs your return after inflation and taxation is likely to be negative.
It’s difficult for me to believe you understand much of anything about money. You certainly haven’t shown it. Maybe that’w why you’re so jealous of rich people and want to use the government to do for you what you can’t do for yourself.