You need to go a bit more in depth in understanding before quoting certain things to avoid taking certain things out of context. The bolded points are really off or worded very badly context wise.
Your $20-24 billion lost number is not purely foreign tax dodging as you implied. It's total tax gaps before audits. Audits reduce the tax gap between 30-75% depending on the category. There's even a nice little picture chart on the link you put up. Foreign taxes are around $0.8-3 billion. BUT, most of these numbers are pre-Audit numbers for which the article mentions that they recover around %. Furthermore, the article discusses "what is tax gap"? Not all of it is tax dodging as you implied, but it includes things like bankruptcy, honest mistakes not filing on time or at all and finally, "deliberate choices". IMO only the last two are actual tax dodging and I wouldn't say the first two aren't insignificant. The first two I'd assume are pretty close to half (+/- a little bit).
Tax minimizing/tax efficiency is NOT tax avoidance. Please learn the appropriate terminology if you want more reasonable rebuttals. Tax avoidance is known as GAAR. Tax minimization is not tax loopholes either. As I mentioned Canadian and US taxation are completely different. The Income Tax Act as I mentioned is based on principles unlike the US that is rules based. There are excruciatingly few tax loopholes in Canada. There are on occasion situations where the Department of Finance/Governments feel that they want to tax certain types of income higher/lower, but that's not a loophole. That's a tax rule that was perfectly fine at one point, but as time went on, CRA/Department of Finance felt it makes more sense to tax those things to meet a certain objective. This includes relatively recent changes to dividend rates, TOSI rules, income attribution and sprinkling, FAD rules, FAPI rules etc. If CRA or Department of Finance do not like certain things, they can close those out easily. This is completely different than the USA.
Tax minimizing strategies is like wanting to buy a TV right now. An awesome LG OLED. You do the research, find the retailer with the lowest price and/or wonder about deals and timing of expected mark downs and you're done, right? No, you can go further and look for coupons, or special retailer only deals (ie: Spend X, get freebies or extra value on redemption of points). Done again? No. Research credit cards for extra cash back or warranty extension options etc. Ask someone to put in all that effort for you and you paid the lowest price on that awesome LG TV. It's all legit. What you're claiming in terms of "tax avoidance" is akin to someone buying that LG OLED for one of the absolute highest prices out there or absolutely no discount, jealous someone else got it for way cheaper and lashing out screaming scam and unfair etc. It is not avoidance.
Your concept of an estate tax and not caring about double taxation is also a bit off. The reason why Canada does not have an estate tax is because Canada has many other taxes along the way that end up accumulated to significantly more overall taxes paid than a US counterpart AND reduces capital up front (in comparison to an estate tax) which also reduces opportunity cost to individuals vs their US counterparts. An individual who passes away has deemed disposition on their estate prior to distribution to the beneficiaries. There is a sudden rush of income and that income is often likely sitting in a marginal tax rate of around 50% ish. A US estate tax rate is approximately 18% up to 1 million and then 40% after that for amounts over the US citizen lifetime estate exemption of $11+ million or something like that (I am not well versed in US tax law, but it's approximately that). Not to mention, not everything is capital gains. Capital gains on the deemed disposition is basically taking the snapshot at that time of death and resetting the "pregnant liability tax clock" on the appreciation of that asset.
If someone dies, tax is paid. If you inherit it, you inherit it at the baseline tax basis. If you sell that inherited asset in 2 years or 22 years at a gain, that's when the tax is owed again. For the US situation, if I am not mistaken, that $11 million is eroded if you use it to shelter gifts. So in essence, if I am not mistaken, you could keep kicking a major chunk of that tax bill further down the road over and over and over through the beneficiaries if that asset/estate value is not over $11 million.
The last point isn't really off, but it's not really on point either. Raising consumption taxes doesn't do much of anything. In fact, we have a ton that you'd likely not recognize. Beyond GST/HST/PST have you ever seen a bill that includes a tourism tax? Deposit? Enviro? Alcohol/Cigarettes? Those are types of consumption taxes? What do they do overall to those you're arguing need to be taxed more (the rich)? Squat. Do you know who it hurts? Lower and middle income.
A consumption tax would not work as effectively as income tax for wealth spreading as you're usually hinting at. But another aspect of the income tax is that you cannot just turn up the dial and not expect a point where you suddenly stifle innovation and attract talent. Innovation wise, some of the things we have like SRED only goes so far. Lower taxes is part of the reason why the US attracts and retains so much talent. Higher tax rates isn't always beneficial if you cannot grow your pool to tax from. Lower tax rates may mean a higher bigger pool to tax from and even though it's lower rates, you end up with more overall tax income. It's an incredibly delicate balance, especially with how global our world has suddenly become.
I think many of your concepts have some merit even if I don't completely agree. However, IMO, if you want to further the discussion in a more interesting and engaging manner, you may need to better learn the concepts at hand, how to separate certain concepts for discussion and package your opinion better. You're mixing up Canada and foreign concepts together. You're mixing up different types of taxes. You're mixing up fairness and jealousy. It's OK not to know all of these concepts. Lots of what is being discussed is also extremely high level. It's fair you don't know them.
However, if you want higher level enjoyment, you might want to bring your understanding higher. This comment isn't intended to tear you down, but to encourage you to equip yourself to be able to discuss these topics at a higher level and perhaps discuss them in a manner where you could actually create good conversation that could further real life solutions in the long run. That might be "fun" to you.
If any of this was driven by jealousy, or all I cared about was my own financial well being and furthering my personal self interests, there's no way I'd be advocating a policy that would be of detriment to me personally. And I certainly wouldn't be spending my time posting on CP about things like inequality, climate change, etc. Nothing about this is "fun" for me, as you seem to suggest.
Your post, while containing lots of good information regarding tax policy, comes across as not seeing the forest for the trees. You're putting all the emphasis on the fine print/technical details of each policy, and not bothering to get at the heart of what truly matters here. Wealth inequality continues to get increasingly stark, more and more of the world's wealth (and the political power that comes with it) is concentrating into fewer and fewer hands, and the system that those people are using to grow their wealth at historic levels is the same system that's polluting our environment into oblivion. What's more, the big winners of a global pandemic that has caused incalculable human suffering have been the wealthiest members of society. You can probably guess who the big winners of climate change are going to be...
If it seems like I'm mixing up Canadian & US policies here, it's because wealth inequality is a global problem, and the only way to fundamentally solve it is to do so on a global scale. In that sense it's just like climate change; it's a problem that needs a collaborative effort by the global community to tackle. That said, it's still important to make changes here in Canada, as the issue of how much of the nation's tax burden should fall on whose shoulders, is an important topic to broach.
GST hurting middle class... fair point.
Tax avoidance vs tax minimizing... seems like an argument of semantics/technicalities. Ultimately they are getting at the same concept: ways to legally reduce one's taxes. The distinction there doesn't have much of a difference, IMO.
Your TV analogy doesn't make much sense to me. Of course there's nothing wrong with a person doing everything possible to buy a product at the lowest possible price that a business is willing to sell it for, just like there's nothing wrong with a person doing everything that's legally allowed within the tax code. My issue is with the tax code itself. It does seem like we could find ways to reduce the tax minimizing strategies that the wealthy have available to them. You contend that this would lead to a mass exodus of talent and innovation, I would contend that we're not near that threshold yet. I also think that governments place too much emphasis on attracting & retaining talent. Is it important? Of course it is. But not as important as a lot of people make it out to be. For all the talent the US has, they have a disturbingly high rate of poverty.
So do I have a perfect smoking gun plan with every single detailed ironed out? No. But that doesn't mean that wealth inequality isn't a major problem, nor does it mean there's nothing we can do about it.
Actually, the opposite is largely true. Additional wealth, in the hands of the poor and the middle class, results in additional spending, or as you described it: more money chasing around goods & services.
Wealth, in the hands of the rich, does not generate spending, it generates investment. We can debate whether this is a net benefit or a net hindrance to the economy, but what it doesn't do is push up the prices of goods and services.
What you may be trying to get at is that more economic activity results in more inflation. This is true, but inflation is well known as the enemy it is, and central banks are very diligent towards keeping it in check.
Yes, if we slowed the economy down, there would be less inflation, but I very much doubt that slowing the economy down would benefit the poor.
More investment leads to a rise in stock prices which means investors make more money which generally means they spend more money. Investment and spending are interconnected. One leads to the other and vice versa. So while a billionaire may have most of his wealth tied up in non liquid forms, other people are essentially spending money into the economy on his/her behalf. This leads to inflation.
There are better ways of helping the poor than kowtowing to multimillionaires & billionaires.
I don't believe this was the goal - pre-Covid, they were keeping interest rates low to fight deflationary risks.
I've yet to read anything about that. There was definitely detention at the beginning of the pandemic, when no one was spending any money. Various consumer goods were very cheap.
More investment leads to a rise in stock prices which means investors make more money which generally means they spend more money. Investment and spending are interconnected. One leads to the other and vice versa. So while a billionaire may have most of his wealth tied up in non liquid forms, other people are essentially spending money into the economy on his/her behalf. This leads to inflation.
There are better ways of helping the poor than kowtowing to multimillionaires & billionaires.
Pick a fight and stick with it.
You said billionaires cause inflation (which is false). Now you're saying the stock market creates wealth which results in more spending, which causes inflation. Okay, but people creating wealth is a good thing. The resulting inflation is not outpacing the wealth creation. More wealth means more taxes, which means more benefits for the poor.
I get the feeling that what you really want is for everyone to cough up their wealth so the government can distribute it equally to everyone. No one is poor if everyone is equally poor!
I've yet to read anything about that. There was definitely detention at the beginning of the pandemic, when no one was spending any money. Various consumer goods were very cheap.
Deflation has been a global concern for some time - it is the primary driving force behind the quantitative easing programs that has been happening since 2008.
If any of this was driven by jealousy, or all I cared about was my own financial well being and furthering my personal self interests, there's no way I'd be advocating a policy that would be of detriment to me personally. And I certainly wouldn't be spending my time posting on CP about things like inequality, climate change, etc. Nothing about this is "fun" for me, as you seem to suggest.
Your post, while containing lots of good information regarding tax policy, comes across as not seeing the forest for the trees. You're putting all the emphasis on the fine print/technical details of each policy, and not bothering to get at the heart of what truly matters here. Wealth inequality continues to get increasingly stark, more and more of the world's wealth (and the political power that comes with it) is concentrating into fewer and fewer hands, and the system that those people are using to grow their wealth at historic levels is the same system that's polluting our environment into oblivion. What's more, the big winners of a global pandemic that has caused incalculable human suffering have been the wealthiest members of society. You can probably guess who the big winners of climate change are going to be...
If it seems like I'm mixing up Canadian & US policies here, it's because wealth inequality is a global problem, and the only way to fundamentally solve it is to do so on a global scale. In that sense it's just like climate change; it's a problem that needs a collaborative effort by the global community to tackle. That said, it's still important to make changes here in Canada, as the issue of how much of the nation's tax burden should fall on whose shoulders, is an important topic to broach.
GST hurting middle class... fair point.
Tax avoidance vs tax minimizing... seems like an argument of semantics/technicalities. Ultimately they are getting at the same concept: ways to legally reduce one's taxes. The distinction there doesn't have much of a difference, IMO.
Your TV analogy doesn't make much sense to me. Of course there's nothing wrong with a person doing everything possible to buy a product at the lowest possible price that a business is willing to sell it for, just like there's nothing wrong with a person doing everything that's legally allowed within the tax code. My issue is with the tax code itself. It does seem like we could find ways to reduce the tax minimizing strategies that the wealthy have available to them. You contend that this would lead to a mass exodus of talent and innovation, I would contend that we're not near that threshold yet. I also think that governments place too much emphasis on attracting & retaining talent. Is it important? Of course it is. But not as important as a lot of people make it out to be. For all the talent the US has, they have a disturbingly high rate of poverty.
So do I have a perfect smoking gun plan with every single detailed ironed out? No. But that doesn't mean that wealth inequality isn't a major problem, nor does it mean there's nothing we can do about it.
No, it isn't semantics - tax avoidance is a crime.
No, it isn't semantics - tax avoidance is a crime.
I would say tax evasion is illegal, but there's technically nothing wrong with tax avoidance (legally). Ethically it may or may not be wrong. But really, how is it the fault of the user to utilize loopholes to their favour? Is it not the government's duty to make sure these loopholes are closed? I think people blur the line between avoidance and tax minimization though, which I guess can confuse people (me being one of them).
I know I try to minimize my taxes annually utilizing the tools given to me (ie. taking advantage of all the tax deductions, RRSP deferrals, etc.) In Mathgod's eyes, it seems like if I were a millionaire / billionaire doing that rather than just the average Joe Blow, I'd be doing something wrong.
Maybe we can set aside the practical problems with an inheritance tax and turn to a problem it’s trying to address: the hardening of Canada into an intergenerational class system. A society where your parents’ income and affluence is responsible for setting your trajectory in life. Where the rich are all the children and grandchildren of the rich, the middle-class are the children and grand-children of the middle-class, and the poor are all the children and grandchildren of the poor.
We aren’t there yet. We aren’t the U.S., a country that contrary to myth has very low social mobility. But we’re trending that way. The wealthy and upper middle class are turning away from public education. The well-off are ponying up hundreds of thousands of dollars to ensure their children can own homes. The trillions the Boomers will pass on will gift the fortunate with windfalls and leave others with nothing.
Is this something we’re okay with? Was Canada’s egalitarianism of the 20th century a temporary anomaly that must inevitably give way to a society divided sharply by class?
And this isn’t about Jeff Bezos and the 1 per cent. The divide I’m talking about is the divide between a family with two professionals earning $100-150k, and a family with an adult earning 50k and another working part-time, or a single mom trying to raise two kids on the salary of a retail clerk. It’s the divide we seem really uncomfortable talking about - between the top 25 per cent and everyone else.
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Deflation has been a global concern for some time - it is the primary driving force behind the quantitative easing programs that has been happening since 2008.
Source?
I think that's way oversimplified. And if I had to name the primary cause of quantitative easing, I would say growth - which has been positive but sluggish in most Western economies. The cynic in me would say the "primary" cause of quantitative easing is to keep money flowing in the financial markets.
But really, it's mostly about Western economies taken as a whole. I'm not sure deflation has really been a significant worry.
Maybe we can set aside the practical problems with an inheritance tax and turn to a problem it’s trying to address: the hardening of Canada into an intergenerational class system. A society where your parents’ income and affluence is responsible for setting your trajectory in life. Where the rich are all the children and grandchildren of the rich, the middle-class are the children and grand-children of the middle-class, and the poor are all the children and grandchildren of the poor.
We aren’t there yet. We aren’t the U.S., a country that contrary to myth has very low social mobility. But we’re trending that way. The wealthy and upper middle class are turning away from public education. The well-off are ponying up hundreds of thousands of dollars to ensure their children can own homes. The trillions the Boomers will pass on will gift the fortunate with windfalls and leave others with nothing.
Is this something we’re okay with? Was Canada’s egalitarianism of the 20th century a temporary anomaly that must inevitably give way to a society divided sharply by class?
And this isn’t about Jeff Bezos and the 1 per cent. The divide I’m talking about is the divide between a family with two professionals earning $100-150k, and a family with an adult earning 50k and another working part-time, or a single mom trying to raise two kids on the salary of a retail clerk. It’s the divide we seem really uncomfortable talking about - between the top 25 per cent and everyone else.
I agree with this. So contrary to the OPs attack on billionaires, the real question is, for a working professional couple who might have amassed say around $1M in assets or more when they pass away, should the government be entitled to a chunk of that to ensure they get a piece of the pie every time there's wealth transfer, regardless of if it's $300K, $1M or $10M?
Maybe we can set aside the practical problems with an inheritance tax and turn to a problem it’s trying to address: the hardening of Canada into an intergenerational class system. A society where your parents’ income and affluence is responsible for setting your trajectory in life. Where the rich are all the children and grandchildren of the rich, the middle-class are the children and grand-children of the middle-class, and the poor are all the children and grandchildren of the poor.
We aren’t there yet. We aren’t the U.S., a country that contrary to myth has very low social mobility. But we’re trending that way. The wealthy and upper middle class are turning away from public education. The well-off are ponying up hundreds of thousands of dollars to ensure their children can own homes. The trillions the Boomers will pass on will gift the fortunate with windfalls and leave others with nothing.
Is this something we’re okay with? Was Canada’s egalitarianism of the 20th century a temporary anomaly that must inevitably give way to a society divided sharply by class?
And this isn’t about Jeff Bezos and the 1 per cent. The divide I’m talking about is the divide between a family with two professionals earning $100-150k, and a family with an adult earning 50k and another working part-time, or a single mom trying to raise two kids on the salary of a retail clerk. It’s the divide we seem really uncomfortable talking about - between the top 25 per cent and everyone else.
I guess I'd question whether the way to address a possible issue with social mobility is with an estate tax? I mean, you're saying that the US has a problem here and they have the tax in place, so that seems to be ineffective.
And to be entirely forthright, the example you give of two professionals making $125k each compared to others making $50-60k/year is just always going to be a problem. I'm not sure how you can address that kind of inequality. I went to school with some brilliant people who went on to do nothing, and some other brilliant people who went on to be surgeons or lawyers or mayors. Arguably, the issue there wasn't opportunity, but application and choices that these people made.
...
And to be entirely forthright, the example you give of two professionals making $125k each compared to others making $50-60k/year is just always going to be a problem. I'm not sure how you can address that kind of inequality. I went to school with some brilliant people who went on to do nothing, and some other brilliant people who went on to be surgeons or lawyers or mayors. Arguably, the issue there wasn't opportunity, but application and choices that these people made.
And to be entirely forthright, the example you give of two professionals making $125k each compared to others making $50-60k/year is just always going to be a problem. I'm not sure how you can address that kind of inequality. I went to school with some brilliant people who went on to do nothing, and some other brilliant people who went on to be surgeons or lawyers or mayors. Arguably, the issue there wasn't opportunity, but application and choices that these people made.
But it’s a problem that’s getting worse. Countries vary in how much economic mobility they have. Canada and Germany have more than the UK and U.S. But mobility is decreasing here. We’re becoming more like the U.S., and can expect to see the social ills that afflict the U.S. - crime, division, distrust - increase.
One school used to be much like another on Canada, and students across all economic classes would attend them together. Now professional-class parents send their kids to private and charter schools. When I was a kid, the children of affluent families in Pump Hill, Bayview, and Palliser went to John Ware. Now the students who attend John Ware all come from Braeside, Cedarbrae, and Woodlands because the affluent families now send their kids to Westmount Charter and Webber Academy.
We know that the amount of money first-time homeowners get from parents has soared into the 100k+ range. That was not the case 30 years ago. And it will only widen the divide between the professional classes and the rest.
The trends are all pointing towards Canada becoming more like the U.S. - more stratified, more divided. The fact it’s caused largely by smart parents doing what’s best for their children doesn’t make it any less troubling to those of us who think the U.S. is a trainwreck.
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Last edited by CliffFletcher; 09-24-2021 at 10:11 AM.
But it’s a problem that’s getting worse. Countries vary in how much economic mobility they have. Canada and Germany have more than the UK and U.S. But mobility is decreasing here. We’re becoming more like the U.S., and can expect to see the social ills that afflict the U.S. - crime, division, distrust - increase.
One school used to be much like another on Canada, and students across all economic classes would attend them together. Now professional-class parents send their kids to private and charter schools. When I was a kid, the children of affluent families in Pump Hill, Bayview, and Palliser all went to John Ware. Now the students who attend John Ware all come from Braeside, Cedarbrae, and Woodlands because the affluent families now send their kids to Westmount Charter and Webber Academy.
We know that the amount of money first-time homeowners get from parents has soared into the 100k+ range. That was not the case 30 years ago. And it will only widen the divide between the professional classes and the rest.
The trends are all pointing towards Canada becoming more like the U.S. - more stratified, more divided. The fact it’s caused by smart parents doing what’s best for their children doesn’t change that.
I'm not saying there's no issue though. What I'm asking is whether an estate tax is the best way to address that? I don't think it is.
And have you been in John Ware lately? It's probably unchanged from what it was 30 years ago...there's not even a computer lab in there! It's no wonder that parents want to send their kids elsewhere. I'm a graduate of the public system with the unwashed masses, and kind of think that it was good enough for me, so it's good enough for my kids. But when you see things like that, it does boggle the mind on how kids will compete going forward.
I think that's way oversimplified. And if I had to name the primary cause of quantitative easing, I would say growth - which has been positive but sluggish in most Western economies. The cynic in me would say the "primary" cause of quantitative easing is to keep money flowing in the financial markets.
But really, it's mostly about Western economies taken as a whole. I'm not sure deflation has really been a significant worry.
Of course its an oversimplification - this is a chat forum, and if I post more than 2 paragraphs, most people won't read it.
As to the bold, we are saying the same thing: growth has been sluggish, and the purpose of quantitative easing is to keep money flowing because the risk is that it doesn't keep flowing and growth could stall, which could trigger deflation (because the inflation rate is so slow already.
That's the point. In a normal environment, slowing growth doesn't warrant quantitative easing. The reason it is necessary is that, with the current set of global economic circumstances, deflation is an actual risk that needs to be defended against. It isn't just a lack of growth (that alone is enough), it's that a lack of growth, now, could significantly increase the risk of deflation.
Maybe we can set aside the practical problems with an inheritance tax and turn to a problem it’s trying to address: the hardening of Canada into an intergenerational class system. A society where your parents’ income and affluence is responsible for setting your trajectory in life. Where the rich are all the children and grandchildren of the rich, the middle-class are the children and grand-children of the middle-class, and the poor are all the children and grandchildren of the poor.
We aren’t there yet. We aren’t the U.S., a country that contrary to myth has very low social mobility. But we’re trending that way. The wealthy and upper middle class are turning away from public education. The well-off are ponying up hundreds of thousands of dollars to ensure their children can own homes. The trillions the Boomers will pass on will gift the fortunate with windfalls and leave others with nothing.
Is this something we’re okay with? Was Canada’s egalitarianism of the 20th century a temporary anomaly that must inevitably give way to a society divided sharply by class?
And this isn’t about Jeff Bezos and the 1 per cent. The divide I’m talking about is the divide between a family with two professionals earning $100-150k, and a family with an adult earning 50k and another working part-time, or a single mom trying to raise two kids on the salary of a retail clerk. It’s the divide we seem really uncomfortable talking about - between the top 25 per cent and everyone else.
So if mom and dad work hard and save some money, you don't think they should be able to pass that on to their children? Are we going to eliminate all personal motivation from the system and share everything equally? Because if we are, please let me know so that I can retire tomorrow and stop working so hard.
Also, your premise that all wealth creates class division is just not as cut and dried as you are suggesting.
First of all, anyone can be successful - the barriers to success are small. Yes, there are advantages to being wealthy, and yes, there are barriers from being poor, but everyone has some opportunity at success. And everyone has plenty of opportunity for failure. According to one source, only 21% of American millionaires received any inheritance, and only 16% received more than $100,000. (there are lots of studies and numbers online, so I am not going to bother quoting any one of them as the studies are typically informal - it is the aggregate data that is more relevant here)
Second, receiving that inheritance is not the automatic ticket to wealth building and class segregation that you are suggesting. Again, there are various informal studies that give a wide range of data, but the aggregate message is clear: people who receive an inheritance are often inclined to blow it, and the numbers for the 3rd generation (the grandkids), appear to be even worse. I have seen studies that suggest as many as 80% of inheritances are gone within 2 generations. Actual numbers are impossible to determine, but we can be confident that a significant number evaporate or largely evaporate.
Another thing that we tend to see is that the recipients tend to spend the money (one study suggested that most recipients spend at least half of the money fairly quickly (within a couple years or so). One of the complaints about saving is that the money isn't being spent - it isn't isn't 'in use'. However, once passed to the children it does tend to get spent. So that concern isn't all that great either.
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Another thing about saving that hasn't really been discussed is that it reduces one of the burdens of society.
The simple fact of the matter is there is very little appetite to have society pay for everyone's retirement - we simply can't afford that. People who save for their retirement remove themselves from the burden that society has to take care of their retirement.
People becoming financially independent for their retirement is a good thing for society. If they end up dying with some assets left, they should be able to do with those assets as they please (after paying the tax bill, of course).
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So if mom and dad work hard and save some money, you don't think they should be able to pass that on to their children? Are we going to eliminate all personal motivation from the system and share everything equally? Because if we are, please let me know so that I can retire tomorrow and stop working so hard.
Also, your premise that all wealth creates class division is just not as cut and dried as you are suggesting.
First of all, anyone can be successful - the barriers to success are small. Yes, there are advantages to being wealthy, and yes, there are barriers from being poor, but everyone has some opportunity at success. And everyone has plenty of opportunity for failure. According to one source, only 21% of American millionaires received any inheritance, and only 16% received more than $100,000. (there are lots of studies and numbers online, so I am not going to bother quoting any one of them as the studies are typically informal - it is the aggregate data that is more relevant here)
Second, receiving that inheritance is not the automatic ticket to wealth building and class segregation that you are suggesting. Again, there are various informal studies that give a wide range of data, but the aggregate message is clear: people who receive an inheritance are often inclined to blow it, and the numbers for the 3rd generation (the grandkids), appear to be even worse. I have seen studies that suggest as many as 80% of inheritances are gone within 2 generations. Actual numbers are impossible to determine, but we can be confident that a significant number evaporate or largely evaporate.
Another thing that we tend to see is that the recipients tend to spend the money (one study suggested that most recipients spend at least half of the money fairly quickly (within a couple years or so). One of the complaints about saving is that the money isn't being spent - it isn't isn't 'in use'. However, once passed to the children it does tend to get spent. So that concern isn't all that great either.
Sorry Enoch, the bolded is an outrageous statement and shows a lack of understanding to what most low income families truly go through. It is not at all fair to say the barriers to success are small. As someone who went to private school, had my university paid for, and had every leg up in the world, I can say when compared to my peers I certainly was starting from a huge advantage. That advantage cannot be overstated.
Are there cases of low income individuals being able to be successful? Absolutely. But statistics show that they are far more likely to not graduate university.
As for mom and dad working hard, for sure - they should be able to pass some wealth down to their children. However, I believe to an extent anything over and above a threshold should get taxed heavily. Jury is out on what that threshold could or should be.
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Originally Posted by Enoch Root
Another thing that we tend to see is that the recipients tend to spend the money (one study suggested that most recipients spend at least half of the money fairly quickly (within a couple years or so). One of the complaints about saving is that the money isn't being spent - it isn't isn't 'in use'. However, once passed to the children it does tend to get spent. So that concern isn't all that great either.
This is superficial in the extreme. If an average inheritance is like $5000, I would certainly expect it is spent quickly.
If you're like a friend of mine who inherited about $50M in real estate, none of the principal has been spent and he's worth about double that now.
