Friday, December 31, 2010

Four Reasons For a Bright New Year

Roll up your sleeves, fiduciaries and estate planners. 2011 should keep you hopping.

1. The market is up.

2. Favorable income tax rates continue, and low rates on dividends and gains should encourage investors.

3. Estate planners have a newly revised estate tax to play with, stacks of wills and trusts to review.

4. The first Boomers will turn 65, and the affluent ones will need all the unbiased investment and planning help they can get.

Have a Busy New Year, a Productive New Decade!

Thursday, December 30, 2010

O Brave New World . . .

. . . to have such gadgets in it.

David Pogue is out with the 2010 Pogie awards, honoring the year's best ideas in personal tech. The awards rate mention here because the big winner comes from financial services: a cell phone app for depositing checks. No longer need we resort to hand delivery or the mail to put paper checks in our accounts.

Some of the runners up were equally awesome. (Imagine taking a photo of a shop sign in Copenhagen and seeing it turn into the same sign translated into English!) Check out Pogue's entertaining video version of the awards.

Tuesday, December 28, 2010

Crowd-Sourcing For Jeremy Bentham

Remember Jeremy Bentham? As we mentioned recently, he's still sitting pretty at University College London, thanks to instructions he left in his will.

The New York Times reports that the Enlightenment philosopher is now the beneficiary of … crowd-sourcing. The Bentham Project is enlisting volunteers to transcribe some of the 40,000 unpublished Bentham manuscripts that have been scanned and put online.

How might crowd-sourcing evolve? For instance, could trust companies or other investment advisers with clients scattered around the country enlist them in amateur "expert networks"?

Monday, December 27, 2010

“Money Management For Women”?

Slate asks, are women bad with money? " has a special 'money management for women' category but no equivalent category for men. Major banks like Citigroup and Wachovia have special departments to guide women with their finances."

Savvy marketing or sexist condescension?

You'll have to answer that one yourself. Here we merely offer a little background. Both ads date from 1956, when marketers were just beginning to notice that some women had significant net worths and the freedom to choose their investment managers.

God Rest Ye Merry, Trust Officers

On the Third Day of Christmas, a belated salute …

Despite the bad press heaped on Universal Banks and Wall Street manufacturers of faulty investment products, the field of financial services does contain unsung heroes. Prime examples: the men and women laboring in personal trusts and investments at banks and trust companies across the country.

Some of these unsung heroes have spent more time in nursing homes, ministering to their clients, than most old people.

Some take more guff from sullen teenagers and troubled post-adolescents than most parents, seeking to mold trust fund babies into responsible adults.

Many strive mightily to resolve the dilemma of retiree clients who are desperate for income in an era of artificially depressed interest rates.

Few of these unsung heroes will achieve the Superstar Success Jim Gust refers to in the post below. We salute them nevertheless.

Happy Holidays and a Prosperous New Year!

Sunday, December 26, 2010

Winners and losers

I've long commented on the phenomenon in the tech field, that we can only have a couple winners.  The New York Times excerpts a book that explores the increasing concentration of success, attributing it to modern technology and communication.  

Friday, December 24, 2010

Wednesday, December 22, 2010

You Betcha State Taxes Matter!

This Forbes article includes a map indicating which states impose estate or inheritance tax, or both.

Tuesday, December 21, 2010

Do state death taxes matter?

The census report is out.

Eight states will gain seats in Congress.  Only one of them, Washington, has death taxes.

Seven of the ten states that will lose seats still have death taxes.

Coincidence?  Are people fleeing death tax states, or do death taxes just slow population growth?

Monday, December 20, 2010

Following Google's Nose

The new Google Books Ngram Viewer lets you create charts showing how often words or phrases have occurred in the world's books over the years. Fascinating. Chart "fiduciary," for example, and you'll find the word showed up in books less frequently after the Great Depression but rebounded in recent decades.

The viewer also lets you view books and magazines that contained a chosen word or phrase. "Fiduciary" led me to a c. 1920 edition of Trust Companies and this ad:

Don't know the company, but another Google search led me to this, from a 1922 issue of Printer's Ink:

Edwin Bird Wilson is a name I do know. His agency is where a New Hampshire lad, Merrill Anderson, got his start in financial advertising.

Let's Refudiate Austerity

Words and images are the only arrows in a marketer's quiver. Now it's word-of the-year time, and Merriam Webster has awarded the honor to "austerity." Not much jollity in that. Holiday sales appear to be up anyway, especially at the high end.

The Words of the Year list in The New York Times is livelier, though few of the finalists (like "retweet") are really new. Sarah Palin's "refudiate," for example, already had street creds.

No one should think Mrs. Palin is not a gifted word-user. With one word, "refudiate," it's possible not only to disprove something but also to reject or refuse to acknowledge it.

This week procrastinators start their Christmas shopping. Proceed with zeal! Do your part to refudiate austerity.

Friday, December 17, 2010

How the New Tax Law Affects Your Estate Plan

Props to Deborah L. Jacobs for speed in issuing an online update covering next year's new, friendlier estate tax. Jacobs is the author of Estate Planning Smarts.

See also Jacobs' Forbes column.

Some perspective

I hadn't fully appreciated this, from Hot Air:
The Democrats voted for Obama’s deal, but Obama’s deal consisted of endorsing the tax rates proposed by George W. Bush in toto. Not just the income tax rates, either, but also the capital-gains tax rates that Obama insisted on raising during the 2008 campaign to either 20% or 28%.  In the end, those tax rates got more votes last night in a Democratic-controlled House (277) than they did in the GOP-controlled House in 2001 (230), and more Democrats voted to extend them than Republicans, 139-138.

A squeaker?

Not exactly.
The final vote in the House was 277 to 148 after liberal Democrats failed in one last bid to change an estate-tax provision in the bill that they said was too generous to the wealthiest Americans and that the administration agreed to in a concession to Republicans. The amendment failed, 233 to 194. 
 What was all the fuss about?

Thursday, December 16, 2010

Nest Egg Takes Sleigh Ride

The photo in this Chase nest egg ad from Christmastime, 1960, is cool. Otherwise, not so hot. Advertising buffs who compare the ad with this predecessor from earlier in the same month will notice signs of campaign fatigue: Overuse of "nest egg" in the copy. An unfortunate multicolor rendering of the Chase octagon.

Never mind. 'Tis the season to be charitable. Enjoy the sight of a Morgan (a popular breed among country ladies and gentlemen then and now) taking a nest egg for a ride.

Tax bill pulled off the floor

The tax bill has been pulled off the House floor due to a disagreement about the rules that apply to its consideration.  Perhaps they really don't have the votes for it yet.  Or they are still working out a way to save face without defeating the bill. Reportedly the pressure from the White House to accept the bill without amendment is intense.

As a minor aside, the bill is H.R. 4853.  That bill number was first associated with bill on the airport trust fund. A Senate amendment replaced everything but the bill number, and renamed it the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010."  The bill now being considered by the House is named "Middle Class Tax Relief Act of 2010."  MCTRA 2010. Don't know when in the process this change took place.

There is a small but real chance that this compromise is defeated, which would be remarkable.

Some “Small Businesses” Still Face Estate Tax

As Jim Gust notes below, we may know more about the future of the federal estate tax tonight. But even if Congress enacts a 35% tax with a $5 million exemption, some family businesses will continue to face steep death taxes. The Wall Street Journal cites the example of a family-owned lumber company in Arkansas. In addition to owning timberland of unspecified value, the company operates five mills, valued at $150-$250 million.

House votes today

Tax Notes ($) is reporting that the House first will vote on an amendment to the tax bill that reduces the estate tax exemption to $3.5 million and boosts the rate to 45%.  A simple majority will be needed to pass the amendment.  Whether or not the amendment passes, the House will then almost certainly pass the entire bill.

However, if the House does succeed in changing the terms of the estate tax fix, the bill must go to a very uncertain future in the Senate.  The odds are high that, coupled with all the "Christmas tree ornaments" that the Senate already accepted in the bill (restoration of ethanol credits, for example), as well as the emerging opposition to the bill on the right, the legislation instead will be kicked into 2011.

Notice that there's no longer any comment about the "cost" of these changes, because the estate tax is such a puny revenue generator.  What's more, most of the dollars come from estates of $20+ million, which will remain taxable.  This is all about the show and appeasing the base. 

All this past year, a bipartisan group headed by Kyl and Lincoln begged Congress to consider a plan to phase in a $5 million exemption and 35% rate over ten years.  The Democratic leadership rejected that legislation, refused to allow a vote, and the result may be the elimination of the phase-in element of the plan.

You'll recall that when it came to final passage of Obamacare, the House was forced to bend to the Senate's will because Ted Kennedy died and Scott Brown took his seat.  In that case, side legislation was enacted to overcome the House's main problems with the bill.  Here again, the House may be forced to accept the Senate-crafted compromise.

Blue dog Democrats would be expected to vote for no change in the bill, as would those Democrats who remain loyal to the President.  However, the wild cards are those who are retiring or who lost the election, who can vote without worrying what their constituents think.

Wednesday, December 15, 2010

Estate tax commentary roundup

At the TaxProf Blog.

An alternative to the estate tax?

Boston College law professor Ray Madoff, writing in the New York Times, suggests we abandon the estate tax and subject gifts and inheritances to the income tax instead. He acknowledges that the estate tax has, in recent years, failed its primary purpose of breaking up large fortunes in private hands.

I would argue that the reason for that failure is the estate tax has been applied at such punitive rates that it makes sense to spend large sums on clever lawyers to avoid it completely.  It will be interesting to see what happens to collections with the 35% rate.  Of course, two years is too short a time for the experiment.

It wouldn't be easy to collect income taxes on gifts.  Income taxes on inheritances could be collected via a withholding scheme imposed upon the executor. Still, there are significant valuation problems with any such plan, just as there are with transfer taxes.

Tuesday, December 14, 2010

Why High Income Tax Rates Didn't Matter

President Obama and others are talking tax reform – featuring, of course, lower income tax rates. But thanks to the chart Jim Gust showed us, we know the rates don't matter. Decade after decade, high rates or low, federal tax collections (mainly the income tax) have amounted to roughly 18% of GDP.

Why did the punitive income-tax rates of the 1950s and early 1960s bring in no greater share of GDP than in 1987, when the listed top rate dropped to 28%? For the benefit of those born after the baby boom, let us count the ways:

1. "I expense everything." Circa 1960 somebody actually said this to me. He tied vacations to business trips, drove a company car and rarely ate a meal that lacked a business purpose. (If he were a Midwesterner required to hang out at corporate headquarters in New York, he might have lived tax free, in housing provided "for the convenience of the employer.")

2. Genuine deductions. All loan interest was considered akin to business expense, hence deductible. Medical expense was deductible from dollar one, as were most state and local taxes.

3. "Daddy's little taxpayers." Through gifts in trust, parents could shift investment income to their kids. In those days kids were regular little taxpayers, with their own exemptions and entitled to their own low tax brackets.

4. Ten-year trusts. A chap named Clifford didn't want to shift too much of his portfolio to his kids. He funded a trust that paid income to his little taxpayers for a few years, then the trust principal reverted to him. The IRS didn't buy that idea. Neither did the court, saying in effect: "You can't shift income so easily. An income-shifting reversionary trust would have to last much, much longer. Ten years at least!"

Ta da! Twitter and texting didn't exist in those days. Must have taken close to a week for tax practitioners nationwide to start drafting ten-year reversionary trusts.

5. Corporate retirement plans. As pension plans multiplied after World War II, profit-sharing plans, thrift plans and other variations emerged. Much of the investment wealth accumulated by high-income individuals was sheltered within such plans, growing tax free until drawn upon.

Tax rates do matter, of course. But no more or less than the tax base on which they are levied. If a high-income taxpayer of fifty years ago paid 90% on his top $100 of income, his tax came to $90. If he expensed, deducted, shifted or sheltered all but $20, however, his effective tax rate on the $100 dropped to 18%.

Take-away: Unless Congress comes up with a new revenue source (a VAT?) reform probably will bring lower income-tax rates, but you shouldn't expect to pay less tax. Watch the tax base!

Related post: Estate Planning in the Nifty Fifties.

Madoff Claims Become Hot “Distressed Asset”

Fee fi fiddle-de-dee,
A hedger's life looks fine to me.

As the year winds down, hedge fund managers have good reasons to Deck the Halls. Last I heard, the tax-extender legislation will not tax the "carried interest" portion of their earnings as ordinary income. And The New York Times reports that hedgers and other "sophisticated distressed investors" have a new asset in their sights. Claims of Madoff victims.

Know anybody who has sold his or her claim?

Nora Ephron's 5 stages of inherited wealth

In a recent short piece describing her reaction to news of an inheritance from her Uncle Hal, screenwriter Nora Ephron identified five distinct stages that heirs may experience.

Possible masterpiece in the closet

—from “My Life as an Heiress,” The New Yorker, October 11, 2010

An abstract of her article is here, but please, try to read the delightful original. (The abstract gives away the punchline of the story without a proper setup).

Monday, December 13, 2010

Who benefits?

After a decade of demonizing the "Bush tax cuts for the rich" the NYTimes has finally discovered that the middle class has been the primary beneficiary all along.
But a hefty portion of the $858 billion tax package will benefit middle- and upper-middle-income Americans — precisely the demographic that felt neglected the last two years as the White House and Congress focused on the major health care law and on helping the unemployed and people facing foreclosure. 
 Better late than never.

Still, the stimulative effect of this bill will be far smaller than projected.  Fully $137 billion consists of not imposing a tax that has never yet been imposed.  That's right, the AMT on households with income below $75,000.  An accounting gimmick is not a tax cut!   No one except the Congress has ever counted future inflation-unadjusted AMT revenues in their planning.  

If this is so good, let's first triple the AMT, and then not impose it.  Triple the stimulus at no added cost!

A tremendous amount of pork was added to the bill in the Senate—Christmas came early!  Passage today seems likely, though I suspect that there will some Republican defectors joining the liberals in a protest vote.  Some in the House want to "test" Republican resolve on the new estate tax numbers, but I don't expect them to change.

Conventional wisdom after the Sunday morning news shows is that the bill passes this week.

Sunday, December 12, 2010

Why Pets make Admirable Heirs

Unlike too many humans, they don't squabble over the estate.

Perhaps that's why "more and more animal-lovers [are] leaving fortunes to beloved pampered pets." Read about Chihuahuas with a mansion and a chimp with a farm in Estates Going to the Dogs.

Photo of long-haired chihuahua via Wikimedia Commons

Hundreds of Ponzi Perps, Thousands of Victims

Bernie Madoff was exceptional only for the scale and duration of his thievery. See Plenty of Ponzis:
Confessed Ponzi schemer Sean Mueller received a 40-year prison sentence last week.
Since Aug. 16, the [U.S. Department of Justice] has rounded up 343 criminal defendants and 189 civil defendants, many accused of running schemes similar to Mr. Mueller's. The department tallied 120,000 victims and $10.3 billion in losses.
It's a jungle out there – which is why many investors need a fiduciary on their side.

Friday, December 10, 2010

Senate vote scheduled for Monday

The procedural vote on the tax compromise legislation will happen Monday, so the Senators will have the weekend to review it.  Scrolling though the modest, 74-page bill, I see there is a raft of "pork" added at the end.  I suspect that the Senate will approve this and leave town, so it will be take it or leave it in the House. If House members wanted to have more influence, they could have taken up this legislation any time in the last two years.

However, there is some resistance developing on the right to the package.  For example, from Charles Krauthammer:

Barack Obama won the great tax-cut showdown of 2010 — and House Democrats don’t have a clue that he did. In the deal struck this week, the president negotiated the biggest stimulus in American history, larger than his $814 billion 2009 stimulus package.
It will pump a trillion borrowed Chinese dollars into the U.S. economy over the next two years — which just happen to be the two years of the run-up to the next presidential election. This is a defeat?
If Obama had asked for a second stimulus directly, he would have been laughed out of town. Stimulus I was so reviled that the Democrats banished the word from their lexicon throughout the 2010 campaign. And yet, despite a very weak post-election hand, Obama got the Republicans to offer to increase spending and cut taxes by $990 billion over two years — $630 billion of it above and beyond extension of the Bush tax cuts.

I would challenge his numbers. He's using the expiration of the current rates as a baseline, and I have always felt that is bogus.  We've never allowed the AMT to go unpatched for inflation, for example.  But we won't go for the permanent fix because the need for a patch offers Congress a ready-built excuse for raising other taxes to be "revenue neutral." 


Senator Reid has introduced an amendment to H.R. 4853,  a bill about the Airport and Airway Trust Fund.  So the constitutional requirement that the tax bill originate in the House has been met.  The amendment embodies the agreement President Obama reached with the Republicans, with a few tweaks.  For example, I cheered the expiration of the ethanol credit, but that has been restored for one year.

The amendment substitutes for the language of the House bill the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010."  That would be "TRUIRJCA 2010."  Lacks the snappiness of "ERTA" or "TEFRA," I don't think it will catch on.  "2010 Tax Act" seems more likely.

Key points on estate planning:

• $5 million exemption, no phase-in.
• 35% top tax rate, but not quite a flat rate tax, because the tax on the first $500,000 in transfers is less than 35%.
• Exemption portability for surviving spouses.  However, we might salvage credit shelter trusts.  To get the additional exemption, the estate of the first spouse to die must file an estate tax return, even though by definition no estate tax will be due. That return must put IRS on notice of the amount of unused exemption the surviving spouse inherits.  In the absence of the election, the spouse gets just the one exemption.  Having the formal estate structure that includes trusts and professional estate settlement will assure that the election is made and the enhanced exemption is secured for the family.
• The changes last for only two years, so planning for tax uncertainty remains an important point.
• The changes are retroactive to the beginning of 2010, and carryover basis is repealed.  So the 70,000 small estates adversely affected by the trade of capital gain taxes for estate taxes are protected, and no action need be taken.  Larger estates have an election to make, to be covered by carryover basis instead.  They have an extension of time to make that election, and the extension applies to ancillary planning matters such as disclaimers.

House Democrats tried to invent their own version of a filibuster yesterday.  It seems likely that the compromise will pass the House, but some Democrats argued that unless a majority of Democrats alone favored the bill, it should not even be brought up for consideration.  That argument was accepted on a voice vote in the caucus, but it is not binding.  Still, Speaker Pelosi may have the power to block this.  The Senate got to make some face-saving tweaks, the House has been told to take it or leave it.

They may have to be satisfied with their venting.

Thursday, December 09, 2010

$9 trillion

That's how much residential real estate wealth has evaporated since the housing price peak in June 2006, according to Zillow.

That was some bubble.

Which States Have the Highest Financial I.Q.?

Hint: the northern branch of this blog is located in one of them, as reported here.
Residents of New York, New Jersey and New Hampshire know the most about managing their personal finances, while denizens of Kentucky and Montana know the least, according to nationwide survey sponsored by Finra.
Know which state's residents are most likely to live beyond their means? According to the study web site, it's Delaware.

Wednesday, December 08, 2010

Life insurance industry and the estate tax

JLM felt I was being too hard on Warren Buffett for his profiteering from the estate tax.  I was not as hard on him as these folks are.  A sample:
Estate taxes must be paid to the U.S. Treasury within a year of the testator's death. In cash.
Back in 1931, the liberal son of an immigrant banker knew what to call this kind of business. Matthew Josephson wrote The Robber Barons to argue that the industrial giants of the 19th century had not created wealth in the right way. They had acted like the feudal barons who for centuries had dominated the mountain passes through the Alps. The great corporations of the Gilded Age "monopolized strategic valley roads or mountain passes through which commerce flowed" just like the old barons-of-the-crags. 

Hello, Warren? Isn't your business model exactly the one that so offended young Matthew back in the Great Depression after he got back from a decade living la vie bohème as an ex-pat in Paris? Aren't your businesses sitting at an economic choke-point, exploiting the unintended consequences of bad government economic policy, gouging successful family businesses both coming and going, and exploiting grieving widows?
Read the whole thing, as someone once said.

Jeremy Bentham: Still Dead, Still Sitting Pretty

Jeremy Bentham, the great English legal philosopher and political radical, died in 1832. In his will he directed that his skeleton be preserved, "wearing his usual clothes and sitting on his favorite chair," with his embalmed head placed on top. The head was damaged and replaced with one fashioned from wax, but Jeremy is still said to attend an occasional council meeting at University College London, where he is recorded as "present but not voting."

His photo comes from The Telegraph slide show, London's secret historical treasures – a fine appetizer for anyone planning to be in London at Christmastime.


Yesterday's post that the estate tax exemption was going to $5 million was based upon news reporting and a Republican bill from last September consistent with that reporting.  However, this morning I'm seeing reports that there could be a phase-in to the $5 million, and a phase-in to the 35% tax rate.  These would hold down the "cost."

Also, it's unclear how many other estate tax "reforms" might be included as revenue raisers, such as restrictions on GRATs and Crummey powers.  Tinkering time is short, and it doesn't seem like Republicans need to give much.  But there might be some face-saving tokens tossed in.

One bit of good news, the ethanol credit is not renewed in the compromise proposal.

Tuesday, December 07, 2010


The original Bush tax cuts were passed under budget reconciliation, because the Republicans thought that didn't have enough votes to end a filibuster.  As it turned out, they got more than 60 votes for the tax cut. Nevertheless, the reason the tax cuts are expiring is because they were enacted under reconciliation.

Why can't the Democrats do the same thing?  The Senate did, after all, have 53 votes to pass a version in which some of the tax cuts at the top end are allowed to expire, and the House already passed a similar measure. Why couldn't the Democrats do what the Republicans did ten years ago?

Because you can't have budget reconciliation if you don't pass a budget first.

Bipartisan opposition?

As much as liberals hate the Obama compromise on taxes, some conservatives don't like it any better! I'm surprised by this, I don't know what they think Republicans should hold out for.

Perhaps this is just posturing to head off Democrats watering down the compromise on the legislative path?

The new estate tax?

Liberals appear to be deeply unhappy with the compromise President Obama reached with the Republicans.  It's possible, but not likely, that they will scuttle it.  It's more probable that they will try to change the details.  However, usually Congress takes months, not days, to hammer out the nitty gritty of major tax legislation.

Key elements of the Republican estate tax legislation as accepted by Obama:

• Estate tax exemption of $5 million, retroactive to January 1, 2010.  Estate tax rate set at 35%.  Exemption indexed for inflation after 2010.

• 2010 decedents have the option to be taxed under carryover basis instead.  So, no constitutional problems.

• Gift tax exemption goes to $5 million, as estate and gift taxes are reunified.

• Portability of estate and gift tax exemptions between spouses, but serial marriage can't lift the exemption above the maximum.  Inherited unused exemption amounts not inflation indexed.

One item from the Baucus proposal that may yet be included, that the Republicans overlooked, was to effectively exempt family farms from the estate tax. It would help the optics for the death tax considerably, eliminating one of the most potent arguments for those who want death taxes killed.  On the one hand, there would never be an estate tax so long as the farm stayed a farm.  On the other hand, there would be a recapture tax if the farm was ever sold or developed, and there would be no time limit for the recapture (unlike special use valuation). Not clear if the recapture spans multiple generations and transfers.

The Republican plan feels to me like a permanent change to the estate tax, not a temporary patch on the way to outright repeal. I would say that the money invested by the life insurance industry to keep the estate tax has paid off.

Monday, December 06, 2010

Warning on year-end gifts

2010 has been the year for maximum restructuring of family wealth at minimum transfer tax cost, with zero taxes on generation-skipping transfers and a 35% federal gift tax rate.  However, a little-noticed element of the tax bill defeated in the Senate on Saturday should send shivers up estate planners spines, because year-end gifting might not be a slam dunk.

The legislation was introduced by Senate Finance Chairman Max Baucus to extend the Bush tax cuts except for those who earn more than $200,000/$250,000.  The legislation was defeated, of course, generating the headlines that Democrats evidently wanted. However, the bill also included an extensive reform of the estate tax, picking up ideas proposed by the President.  That portion of the bill might resurface in the legislation that comes later this week to extend all the income tax cuts temporarily.

Here's the key point. The Baucus bill retroactively reinstates the GSTT and the 45% gift tax rate to the beginning of 2010. However, transfers before December 2, 2010, are grandfathered, with the 35% gift tax rate preserved. Gifts after December 2, 2010 will be subject to GSTT and the higher tax rate. In effect, 2010 will be divided into two taxable periods for transfer tax purposes.

There's much more, but that's enough for now.

Although the Baucus bill went down to defeat, it is possible that the December 2 effective date will be retained in future legislation, on the theory that taxpayers were put on notice by the failed legislation.  Seems weak to me, but stranger things have happened. The point of treating December gifts differently would seem to be to protect future estate tax revenues by heading off massive taxable gifts at low rates.

Ironically, those who prudently deferred their major gifts to the end of the year, to see what Congress might do, would be the ones losing the utilization of the low gift tax rate.

Friday, December 03, 2010

A Seasonal Nest Egg Ad

Take a break from Congressional tax turmoil. Get in the spirit of the season with this Chase nest egg ad from 1960. The push sled (dating from the early 20th century? Late 19th?) was an anachronism fifty years ago. Was the odd vehicle meant to suggest Old Money? New Money that had bought an old house?

Today, the anachronism would be the ad copy, with its references to stock rights (presumably more common in those days) and interest coupons (bearer bonds had no registered owner to whom interest checks could be sent).

Fifty years from now, could Wall Street's investment banks be the antiques, rendered anachronistic by the digital age? If anything, including shares, easily can be sold online, who needs underwriters?

Consequences of not extending the Bush tax cuts

U.S. News says December stock market crash.

TaxProf Blog points out an extraordinary December 30 dividend that will lock in the 15% tax rate.

Thursday, December 02, 2010

Worst Congress Money Can Buy?

Jim Gust is a bit hard on Warren Buffet, whose fondness for the estate tax can't have much to do with Berkshire-Hathaway's insurance holdings. Mostly those holdings involve property and casualty insurance, as the American Family Business Foundation report acknowledges. Life insurance operations are trivial.

Nevertheless, the life insurance industry obviously spends big in order to gain the "access" necessary to steer Congress in the desired direction. It may even outspend banks who are determined too big to fail. Said banks are the subject of a NY Times op-ed by Thomas M. Hoenig, who presides over the Federal Reserve Bank of Kansas City.
[T]he five largest financial institutions are 20 percent larger than they were before the crisis. They control $8.6 trillion in financial assets — the equivalent of nearly 60 percent of gross domestic product. Like it or not, these firms remain too big to fail.

How is it possible that post-crisis legislation leaves large financial institutions still in control of our country’s economic destiny? One answer is that they have even greater political influence than they had before the crisis. During the past decade, the four largest financial firms spent tens of millions of dollars on lobbying. A member of Congress from the Midwest reluctantly confirmed for me that any candidate who runs for national office must go to New York City, home of the big banks, to raise money.
As for the argument that we need humongous banks to compete globally, Hoenig doesn't buy it.
More financial firms — with none too big to fail — would mean less concentrated financial power, less concentrated risk and better access and service for American businesses and the public.
How would you characterize our largest financial institutions? 800-pound gorillas … or 800-pound stumblebums?

Behind the scenes on the AMT

Tax Notes reports on a warning from IRS Commissioner Shulman that sheds some light on how the IRS is preparing to handle the 2010 AMT.
Taxwriters assured Shulman in a November 9 letter that there will be no such scramble this year. Congress would "do everything possible" to enact an AMT patch by the end of the year, with exemption amounts for 2010 at $47,450 for individuals and $72,450 for joint filers, lawmakers wrote.
Apparently, the IRS has gone ahead and reprogrammed their computers with these numbers. Now it's beginning to look like Congress would rather argue than legislate.  If nothing is done, Republicans will pass new tax legislation with retroactive dates when they take over in January. Sounds easy, but it isn't. IRS will have to proceed on what the law is, not what it was promised to be.  They will have to reprogram for the unpatched AMT.
"It would be an unprecedented and daunting operational challenge to open the tax filing season under one set of tax laws with respect to AMT and extenders, begin accepting tax returns, and then have the law change," Shulman wrote to Democratic and Republican taxwriters in the House and Senate.
At a minimum, refunds will be delayed as the computers are reprogrammed for a third time for the 2010 AMT.

Americans Still Don't Like Estate Tax

Half the respondents in a Gallup-USA Today poll want to see the Bush tax cuts extended. A majority, 56 percent, want to see legislation that tones down the stiff estate tax slated for next year. So says this American Enterprise Institute blog.

Why does Warren Buffett favor the estate tax?

Because it made him rich.

A new report from the American Family Business Foundation documents the $10 million a month the life insurance industry has been spending to try to get death taxes returned to federal system. Buffett owns six life insurance companies.  He also reportedly likes to buy businesses when their prices are depressed due to  impending estate tax obligations.  The report identifies the folks behind the lobbying effort as well.

A better comparison

JLM's chart below of top rates is interesting, but even better is this one:

This one compares top rates to taxes collected as a share of GDP.  Note that the two are almost unrelated.  I got the chart from this article, which suggests there seems to be a natural ceiling on federal tax collections of 19% of GDP.

Same old same old

Republicans fail their first spending test.

Wednesday, December 01, 2010

The Game is Afoot

Saw a reference to Stephen Alton's article a while back but lacked time to hunt it down: The Game is Afoot!: The Significance of Gratuitous Transfers in the Sherlock Holmes Canon. Thanks to the Wills, Trusts and Estates Prof for providing the link.

Baker Street Irregulars may find Alton's report not quite pukka. So what? Who can resist viewing any subject, even estates and inheritance, through the eyes of the world's first consulting detective?

Representation Without Tax Legislation

Jim Gust called it right: "The clock ran out on this game in October, but no one wants to admit it yet." On TV tonight we heard the same soundbites about taxing or not taxing "the rich," recited from memory by members of Congress who know full well the Bush tax cuts will be extended, at least for a few years. There's really no alternative, as David Leonhardt explains in the NY Times.

This provocative pair of graphs accompanies Leonhardt's article. Only seriously high-income taxpayers were in the top bracket back in the 1960s. Trouble is, the near-the-top brackets were almost as onerous. In 1960 couples making the equivalent of $250,000 or more today generally faced a top rate of 50% or higher. See tax brackets and rates for selected years, (and remember to adjust for inflation). Tax addicts can also browse through Forms 1040 from times past.

On the web, the Times includes a feature from its archives, showing the highest incomes of 1943. Watson of IBM and Grace of Bethlehem Steel made over $500,000. In today's money that's over $6 million.

In 1943 John D. Rockefeller's income from all sources exceeded $5 million. Today's equivalent: over $62 million.

Maybe "income inequality" isn't a modern invention after all.

Happily, I was partly wrong

Have glanced at the release of the deficit commission's report, and I'm pleased to report that the Commission recommends elimination of tax freedom for muni bonds.  At least the issue is on the table!

Taxation of giant tax-free foundations and endowments? No, that's still off the table, which is a shame.

Massive simplification of business taxation is proposed, a good thing. The mortgage interest and charitable deductions are retained, but provide benefit only at a 12% rate, not the taxpayer's marginal rate. Exclusion of employer paid health insurance premiums is largely retained, subject to caps.

And as I noted below, they adopted the "tax earmarks" phraseology, which I still think is bogus posturing.

Tuesday, November 30, 2010

’Tis the Season to be Gifting

The maximum gift tax rate, 35 percent, is the lowest in a generation. In December the "hurdle rate" for GRATs shrinks to 1.8 percent, the lowest ever. Add the threat of a punitive estate tax next year, and it's no wonder the wealthy may ring out 2010 with tax-minded gifts.

Diligence or Insider Trading?

Back in the day, major trust banks had their own investment analysts. Some of our clients boasted that their guys didn't just sit around poring over financial statements. They got out in the field. Questioned management. Kept their eyes open.

Was traffic at the local McDonald's picking up?

Was the employee parking lot at the local GM plant becoming less crowded?

Those working for today's "expert networks" also ask questions and keep their eyes open. The tidbits they gather form "mosaics" that may yield actionable insights. But it's not like the old days, as Andrew Ross Sorkin explains in the NY Times.

Going into one Gap store and asking the manager how sales are going is no big deal. The Gap has more than 3,000 stores around the globe. "However, if you went store to store and managed to find out sales figures for 1,000 of them, you might have something closer to [inside] information."

After you read Sorkin's column, the question of what constitutes insider trading certainly doesn't look black and white. More like a mosaic.

Kabuki day

Finally, the stars have aligned and President Obama will meet with Congressional leaders today.  The main topic is how to head off an automatic $4 trillion tax increase.  Are they serious about it, or is it just political theater?  From Tax Notes:
The meeting will simply be the beginning of negotiations, White House Press Secretary Robert Gibbs said during a briefing with reporters.
"I do not expect that we'll come out after an hour, an hour-and-a-half, and have full agreement on this," Gibbs said. "I hope there is agreement on the notion of how important it is to get this done by the end of the year." 
So, not serious. 

In addition to the expiration of the "Bush tax cuts for the rich," of which 80% went to the middle class, the minor tax cuts included in the stimulus bill also expire. If I understand Democrat Dick Durbin's position, we can't afford to extend the tax cut for the top 2%, but Democrats will yield on that if Republicans agree to enlarge the "cost" even more with an extension of unemployment benefits and the Make Work Pay credit.

Republicans are saying that this moment in the business cycle is a poor one for any tax increases on anyone. Logically, they should therefore accept at least the Democratic proposal to continue the stimulus bill tax cuts.

I believe that the clock ran out on this game in October, but no one wants to admit it yet.  Payroll services have to be putting new withholding in place for January based upon the law as it is, not as it might be.  Ditto for those writing the tax preparation software.

Another sign of unseriousness: no one is paying attention to the AMT for 2010, which still isn't patched.  I suppose that could be attended to in January retroactively to a prior calendar year, but I am unaware of any other provision that has been handled in this way.

Monday, November 29, 2010

Double Digit Inflation for “Twelve Days of Christmas”

Gold is expensive and the price of French Hens has gone through the roof.

See PNC's cutsey presentation of the 2010 Christmas Price Index.

He Thought He Was Rich (Take Two)

Research before you write. Following that rule would have saved me from missing part of the story surrounding Nick Martin, who thought he was rich.

Mr. Martin adopted a lifestyle apparently aimed at keeping up with his brother and brother-in-law. Both of them did become rich, thanks to their much larger stakes in the family business.

Yet now I discover that the brother-in-law, David Weyrich, also went broke! In the process he seems to have disappointed a number of California brides.

When I was writing the Investment and Trust Newsletter, I might have pointed to Mr. Martin and Mr. Weyrich as examples of why inheritances are best passed down in trust. On his Wills, Trusts and Estates Prof blog, Gerry Beyer makes that very point:
One effective way to prevent beneficiaries from following in the footsteps of the Martins is to place the gifted assets into a trust rather than giving it to them outright.
But now I'm not so sure. Mr. Martin was in his late 40s when his liquidity event occurred. Mr. Weyrich was probably of similar age – a mature businessman. At some point a person ought to be old enough to blow a fortune if he or she really wants to.

Income-Tax Brackets: A Million Dollar Solution?

On Morning Edition, Cokie Roberts says lame-duck sessions of Congress aren't necessarily impotent. Sometimes they do legislate. She believes sentiment is building for an extension of the Bush tax cuts, but with higher rates on incomes over $1 million. We'll see.

Update: Return of Estate Tax Looms as Final Impediment to Extending Bush Tax Cuts.

Friday, November 26, 2010

He Thought He Was Rich. Whoops!

The subjective definition of "rich" is easy: Anybody with noticeably more money than me is rich.

Objective definitions are elusive. Is anyone with income over $200,000 rich, as proponents of limiting the Bush tax cuts assert? $300,000?

To generate $300,000 a year, using Tiger 21's 3% rule, requires $10 million in investable assets. Yet $300,000 per annum doesn't allow for much rich living, as big-city professionals with kids in college have pointed out.

In marketing we often say "rich" – that is, ultra-high net worth – starts at $30 million.

Nick Martin, the man whose plight The New York Times examines here, behaved as if $10 million made him really rich. He now knows that was a mistake. Though he blames investment setbacks and poor advisers, the prime culprit appears to be himself. He spent more than half the $10 million buying and improving residences here and abroad.

Perhaps the subjective definition of "rich" is best after all. Even if a liquidity event brings $30 million, the recipient will realize he or she can't live like those with $300 million.

Good wealth managers help new clients understand the relativity of "rich." The value of this service may exceed their fee.

The First Trust Fund Hippy?

That's how David Brooks characterizes Leo Tolstoy.

Count Lyev Nikolayevich Tolstoy died one hundred years ago this November. The photo, from Wikimedia Commons, shows him at age 20.

Wednesday, November 24, 2010

Give Thanks for Selective History

Most investment managers – and most private investors, for that matter – have beaten their benchmarks sometimes. Selective history is the art of commemorating the good times, ignoring the bad.

The founders of our Thanksgiving holiday must have had a talent for selective history, too. Otherwise our Holiday tables would be full of codfish. See our Thanksgiving post for 2008.

Update: Give thanks as well that Thanksgiving menus don't include eels.

Eat, drink and be thankful!

Tuesday, November 23, 2010

Fight Over Millionaire's Estate Taxes

Disputes over which state has a right to tax an estate are familiar. This case is the first I've seen involving which town could claim to be a wealthy decedent's home base.

Is There an Alternative to “Alternative Investments”?

What's all that thrashing about in the hedges? Three funds were raided by the FBI, and the SEC is nosing around Steven A. Cohen's SAC Capital Advisors.

Venture capital isn't looking good either, according to Sean Parker, the entrepreneur played by Justin Timberlake in "The Social Network." In Parker's view, “The risk-reward doesn’t work out … anymore.”

More than two years ago I fantasized about a return to all-natural, plain vanilla investing. Must have been ahead of my time.

Sunday, November 21, 2010

George Orwell, call your office

One of the "usual suspects" that Congress rounds up when preparing tax legislation is "closing loopholes."  You might think from the phrase that loopholes get into the tax code by accident, they are drafting errors spotted by diligent accountants.  Not so; every loophole has been inserted quite deliberately.

Apparently, the juice has been drained from the word "loophole" after so many years of repetition.  The deficit commission needed an alternative, one that would instantly convey "badness."  They tried "tax expenditures," but that was too complicated, plus it gives away the game that Congress puts these into the code on purpose, for a purpose.

So, what's another phrase we could use?  Doesn't have to be accurate, just instantly recognizable as something we don't want?

"Tax earmarks." I am not kidding.

From Tax Notes:
Commission Co-Chair Erskine Bowles said November 18 that based on the week's discussions, the commission will refine the draft proposal he and Co-Chair Alan Simpson released the previous week, and that the final product would focus on what he called "earmarks in the tax code." 
 Uh huh.   Prominent examples of tax earmarks that were snuck into the tax code at midnight without a vote when no one was looking include the home mortgage deduction and the exclusion from income of employer provided health insurance.   Yeah, those must be earmarks.

Saturday, November 20, 2010

Sell Like a Fiduciary, Quack Like a Pony?

In Dear S.E.C., Please Make Brokers Accountable to Customers, Tara Siegel Bernard begs the regulator to transform broker-dealers and annuity salespeople into fiduciaries. But the problems she acknowledges raise doubts that the fiduciary standard can stretch that far. Maybe there's a simpler solution: Require brokers to call themselves brokers – not "financial advisers" – and stop misusing the term "wealth management."

See also Flawed fiduciary duty and the appended comments, including this from John Olsen:
… the question [is] whether ALL investment advice - even broker-rendered advice that is "solely incidental" to that broker's "conduct of his business as a broker or dealer and who receives no special compensation therefor" [Investment Advisors Act of 1940, Sect. 202(a)(11)(C)] - ought to be subject to the FIDUCIARY standard that generally applies to "investment advice". Sect. 913 of Dodd-Frank specifically states that the charging of commissions is not, per se, a violation of fiduciary duty. But the question remains as to whether the rendering of advice by someone compensated by commissions is subject to that fiduciary duty.
Related post: Dogs and Cats, Fiduciaries and Brokers

Friday, November 19, 2010

Paging Heraclitus

Heraclitus, as imagined by Hendrick ter Brugghen in 1628

Where is the Greek philosopher Heraclitus when Congress needs him?

As Jim Gust notes in recent posts, the Dems and Reps know they're going to extend the Bush tax cuts. But … they just can't figure out how to do it.

Some temporary!

Others permanent!

All temporary!

All permanent!
Give me a break! In my lifetime the Internal Revenue Code has never achieved long-term stability. Never. "Improvements" to the last serious effort at income tax reform, in the 1980s, began metastasizing almost immediately.

All together, now. What did Heraclitus teach us?

Nothing is permanent except change.

Change on the estate-tax front is a certainty. But what sort of change?

Laura Saunders in the WSJ:
The Bush tax-cut extension has lawmakers so tied up that they have pushed the estate tax to a back burner. According to BNA's Daily Tax Report, Senate Finance Committee Chairman Max Baucus (D., Mont.) said on Nov. 16, "We're barely talking about it, let alone ready to make a decision."
Could this all be a bad dream?

Republicans dig in also

The NYTimes reports that the Republicans have promised to block the Democrats' planned partial extension of the current tax system.  Key point:
Republicans, of course, will take over the majority in the House in January, at which point they would vote to extend all of the lower rates if Congress has not already resolved the issue.
 Yes, in the House. But in the Senate? Will the Democratic majority there even bring such a bill up for a vote?  Doubtful.  Might Obama veto it?

Lots of life left in this drama.


Tax Notes offers this additional insider baseball on how the House vote could play out:
The Hoyer aide said no decisions have been made about the bill's structure, its timing, or if the vote would be held under regular order or under suspension of the rules. Bills brought under suspension cannot be amended but require a two-thirds majority to pass. Using that approach would prevent Republicans from adding "poison pill" provisions to the bill, but because Democrats hold less than two-thirds of the chamber's seats, it would also enable the GOP minority to vote the bill down. 
Senate Democrats haven't settled on their strategy yet.

Democrats dig in

The Daily Caller reports that House Democrats have decided that confrontation is  the way to go.
Steny Hoyer, the number two in the House Dem leadership, told Democrats at a caucus meeting this morning that they would get to vote this year on just extending the Bush tax cuts for the middle class, a senior Dem aide tells me, signaling support for a confrontational move towards the GOP that liberals have been pushing.
They will call the Republican's bluff. They will dare the Republicans to vote against a measure to head off tax increases for 98% of taxpayers.  If Republicans hold to their position, the Democrats will accuse them of abandoning the middle class. 

This is an exercise in political theater, it is not serious legislating.  Such a bill is unlikely to even be brought up in the Senate.  I think that the Democrats are signaling that they plan to address the tax code next year, as the Republicans did yesterday.  

I'm also seeing signs that the real action next year won't be about the "Bush tax cuts," it will be about stripping all the "tax expenditures" from the tax code, per the deficit commission's recommendations.

But  what about the AMT for 2010? Will that be kicked down the road as well?

Thursday, November 18, 2010

No surprise here

Another day, another discouraging Tax Notes item.  Orrin Hatch has said that of course Republicans will block any attempt to decouple the tax increases of the middle class from those for the top earners. Some Democrats were evidently trying to float a compromise of permanently keeping the current tax code for some, and temporarily extending it for others.

Democrats are too busy with their leadership fights to talk about their tax strategies.  The bipartisan meet-up with the President is deferred until November 30. Scheduling problems.

Most ominous is this: "Hatch said he would prefer to pass a two- or three-year extension of all the tax cuts in the lame-duck session or postpone the debate until early 2011 and find a permanent solution, rather than make some cuts permanent but not others."

So, as I surmised below, some Republicans think that kicking this down the road is an acceptable path.

Once the enlarged AMT hits tax filers in the first quarter, I think we'll see a whole new round of Tea Parties, and they'll be targeting all incumbents, regardless of party.

Wednesday, November 17, 2010

Still not encouraging

The headline today in Tax Notes:  "Lawmakers Cede No Ground on 2001, 2003 Tax Cuts"

Democrat Dick Durbin complains that Republicans are not compromising, darn it.  They seem to be under the illusion that they won the election.

The usually sensible Max Baucus sticks to the line that a tax increase on the wealthy is essential, failure to allow the tax increase to go forward is "unaffordable."

Congress has become so accustomed to annual gamesmanship with the AMT, they now appear to have no qualms about playing games with whole tax code.  This is really irresponsible.

Which side is going to blink?

Here's the thing.  Republicans might be thinking, let the tax increase take effect, we'll repeal it when we take over in January. And they can do that. But the AMT for 2010 has not been patched yet, so the exemption is a scant $40,000.  If Congress does not act, the federal tax bite in the blue states will skyrocket.

Could the 2010 AMT be patched retroactively in 2011? There are enormous practical problems, it seems to me.  Among them, reprogramming the tax software that everyone now must use to file their returns.

Tuesday, November 16, 2010

Taxing Capital Gain. Is It Double Taxation?

A comment on Richard Thaler's blog links to Steve Landsberg's fervent argument that taxing capital gains is always double taxation – that is, a surtax on income that has already been taxed before it was invested.

Valid point?

Valid even when I invest the interest from tax-exempt bonds?

Not encouraging

From Tax Notes this morning:

Lawmakers convened a lame-duck session of Congress November 15 with no clear path forward on big-ticket tax items that expire at the end of the year.

Senate Finance Committee Chair Max Baucus, D-Mont., had no conclusive announcements after a meeting with committee Democrats to discuss the year-end tax agenda. 

Further on in the article, it appears that Democrats will demand "offsets" to neutralize any economic benefit of heading off the huge tax increase.  Failing that, they appear poised to allow the full tax increase to go forward, putting the blame on Republican intransigence.  Just as with the estate tax last year, it is a giant game of chicken.

Frankly, if they don't even have legislative language yet, I don't think it's physically possible to get through the process--including getting the budget effect estimates--before the end of the year.

Get ready for the $1 million exemption from federal estate tax. The more interesting question, what happens when the credit for state death tax returns? Do the suspended death taxes return in the states that used to have a "mop up" estate tax?

Monday, November 15, 2010

Rounding Up the Millionaires

Robert Frank's Wealth Report spotlights a new survey of high-net-worth-investors, produced by U.S. Bank and Harris Interactive. Most respondents indicate they've maintained their long-term investments but have not seen their net worth return to 2008 highs. Welcome to the club.

The survey's full name is impressive: The Private Client Reserve of U.S. Bank Millionaire Investor Insights Annual Survey. Reserve? Innovative term for a financial services unit. As a noun, the Oxford Dictionary tells us, "reserve" is generally used in the plural: "financial reserves," "military reserves." The second meaning may be closer to U. S. Bank's intent:
A place set aside for special use, in particular
  • an area designated as a habitat for a native people.
  • a protected area for wildlife.
Hope this doesn't mean millionaires are an endangered species.

Sunday, November 14, 2010

Mind Control (Or, “My Unmentionable Job”)

My first job after the Army was with O'Brien-Sherwood Associates, a market-research firm on New York's Madison Avenue. Our offices were a block or two south of Brooks Brothers and handy to Grand Central, giving me an easy commute from Connecticut.

Mind you, I didn't tell my Connecticut friends I was doing market research. Too embarrassing. "Advertising research," I would mumble, if pressed.

The man to blame for my embarrassment was Ernest Dichter, a psychologist from Vienna,. By the latter 1950s Dr. Dichter had made "market research" synonymous with "motivational research." That wasn't good. Motivational research was widely regarded as a black art – one that sought to use Freud's psychoanalytic concepts to influence consumer behavior.

Dr. Dichter's motivational techniques made a lot of people nervous, including a little-known writer, Vance Packard. While I mumbled about my job, Packard was writing what would prove to be a surprise best seller: The Hidden Persuaders.

When Packard realized that a prime motivator for less-than-rational purchasing decisions was the desire to appear "high class," he followed up with another best seller, The Status Seekers.

(Remember Kaye Miller, the psychologist on Mad Men? She wouldn't be there if not for Dr. Dichter. Some say he invented focus groups.)

Motivational research never had the evil power ascribed to it in the 1950s and 1960s. Yet a significant percentage of hedge-fund investors must be status seekers. And brokers use plenty of hidden persuasion to frame product sales as "advice."

Today motivational research is old hat. There's a new key to creating Ads that Whisper in the Brain. If Vance Packard were still around he'd probably write another book, this one about neuromarketing.

Thursday, November 11, 2010

A Public Service Announcement

This message is brought to you by the Ancient and Honorable Guild of Trust and Estate Planners:

(With apologies to the F.D.A. and its proposed new anti-smoking campaign.)

Wednesday, November 10, 2010

Half measures?

A draft of the deficit commission's report has been released. Their approach looks rather modest, just tweaking around the edges of current policies.  Some adjustments to Social Security, including raising the retirement age to 68 by 2050.  If they were really serious they'd raise it to 68 next year.  Well, maybe by 2020. The mortgage interest deduction would be limited to $500,000 of value, but not eliminated. That would cover most of the homes in the red states, not in the blue states.  Hasn't that deduction outlived its usefulness?  The deduction for state and local taxes would be eliminated.  At least the AMT would finally be eliminated. That provision outlived its usefulness a decade ago.

I was hoping for more. When all the politicians are patting themselves on the back for being so brave in making the proposals, I immediately get suspicious. 

Tea Party Gold Rush

Photo via Wikimedia Commons

Think of gold as the Tea Party of investments, advises the NY Times. But don't fall for the notion that gold is hitting new highs. David Leonhardt reminds you to allow for inflation:

"The actual record was set 30 years ago, when the price of gold, in today’s dollars, hit $2,387, or 71 percent higher than it closed on Tuesday. "

Does this mean the gold boom still has a ways to go? Or will investors end up tumbling out of their "24-karat safety net"?

Monday, November 08, 2010

Taxes, Inheritance, Wealth Planning . . . Tell Me More!

As the sponsors of this blog like to point out, people crave information on taxes, inheritance and other facets of wealth planning. The New York Times has taken note. Last Friday it offered a special section on concerns of the Sandwich Generation.

(Sometimes the sandwich is a double-decker. A middle-aged acquaintance of ours was worried not only about his elderly parents but also about his extremely venerable paternal grandmother.)

The next day's Times offered an article on Stepping In For a Parent With Alzheimer's. Included is a nice plug for that bank with the stage coach:
Wells Fargo Private Bank, which requires more than $1 million in investable assets, offers an Elder Services program. It will coordinate a variety of services, from dealing with medical claims, taking the cat to the veterinarian and paying the bills, while keeping a close eye on the accounts for fraudulent activities. The service is included in the bank’s investment management fees, which range from 0.80 to 2 percent of assets. Let’s hope we see more such services — and not just for the wealthy.
Sunday's Times offered Richard Thaler's lucid report on the looming estate tax debate, to be conducted by a lame-duck Congress. Subjecting estates of $1 million to $3.5 million to estate tax would impact "middle-class households," Thaler observes, confirming our suspicion that the middle class isn't what it used to be.

As The Times' Paul Sullivan notes, even middle-class millionaires are low on the wealth ladder these days:
We live in Fairfield County, Conn., one of the more affluent areas of the country. I joke that, for all the money here, there are still three classes of people: upper middle class, upper class and hedge-fund rich.
In other words, marketers of trust services, imagine a set of suburbs exceeding your wildest dreams. Every household contains a prospect!

How can we get the economy growing?

Becker has some good suggestions. Note his reframing of the debate over avoiding a massive tax increase on January 1.  He moves away from the entitlement mindset and who can "afford" to pay more, and instead focuses on how tax rates affect growth.

Posner is skeptical, but also has good observations.

If only our politicians could have such sensible discussions.

The big assumption, of course, is that we actually want more economic growth, as opposed to just talking about it.  Some people consider the current growth rate too high, because of its environmental impact.

Wednesday, November 03, 2010

New Zealand Abolishes Last Wealth Transfer Tax

New Zealand scrapped its estate tax in 1992. Now the vestigial gift tax is going as well.

If New Zealand can live without death tax and the like, could Washington's new dose of GOP energy drink lead to similar results?

New Zealand's Parliament buildings, via Wikimedia Commons

Tuesday, November 02, 2010

Searching For The Middle Class

What do the following jobs have in common?
Municipal purchasing director
High school guidance counselor
Registered nurse
Real estate broker
All are now "working-class" occupations. So says this NY Times article on racehorse investors.

To find today's middle class perhaps we have to raise our sights. Some big-city professionals making $300,000-$400,000 or more feel financially pressured and want to keep their Bush tax cut. Are they middle class, or merely upper working class?

Maybe we should look higher still, to The Middle-Class Millionaire. Financially speaking, people with investable assets of $5 million or $10 million might better be called lower upper class. Whatever you call them, writes James Surowiecki in The New Yorker, they have reason to envy the rich … and the very rich … and the unbelievably rich. Surowiecki illustrates in terms of income:
People in the ninety-fifth to the ninety-ninth percentiles of income have represented a fairly constant share of the national income for twenty-five years now. But in that period the top one per cent has seen its share of national income double; in 2007, it captured twenty-three per cent of the nation’s total income. Even within the top one per cent, income is getting more concentrated: the top 0.1 per cent of earners have seen their share of national income triple over the same period. All by themselves, they now earn as much as the bottom hundred and twenty million people. So at the same time that the rich have been pulling away from the middle class, the very rich have been pulling away from the pretty rich, and the very, very rich have been pulling away from the very rich.
Taxation traditionally pits the have-nots against the haves. This time feels different. Soon the lame duck Congress will restart the debate over income tax cuts and the existence of the estate tax. Even the have-a-lots may be envious enough to agitate for heavier taxes on the have-it-alls. More than likely, the argument will continue to rage when the new Congress convenes

Marketing note: “Middle class” is a state of mind, not a status measured by income or wealth. You can't assume that one $5-million prospect is like another. Some are proud of their rise from rags to riches and expect you to kowtow. Others may insist on being treated like just plain folks. Middle class folks.

Monday, November 01, 2010

Sign of the times

Ships cross the oceans more slowly now than sailing ships did 150 years ago.  The reason is to offset the capacity glut. Not explained in the article, does this reduce fuel consumption?  Evidently, the higher labor costs of keeping the ships at sea longer is less than the cost of parking or drydocking a portion of the fleet.

Sunday, October 31, 2010

Farewell to Pontiacs

Before the index fund was a gleam in Jack Bogle's eye, before the Dow hit 1000, GM's Pontiac line offered cars that looked like Chevys with extra chrome. Added horsepower became a lure. And by 1960, this Bonneville Sports Coupe boasted a wide stance (plus an awesome rear window for its time).

Fittingly, perhaps, on this Halloween the Pontiac car line ends it run and becomes a ghost.