Family Update
We also had our fantasy football draft last week, done virtually again, which just isn't the same as being in the same room talking trash. My team's nothing to brag about so far, but it's early.
And Dalanee continues to do well since finishing cancer treatment, though she's still on daily medication to keep it from coming back. The pills come with their own side effects, so it's not exactly simple, but she's here, she's strong, and we don't take that for granted.
Chris is settling in well at college, loving his professors and really enjoying chorus, where he's singing tenor. Back home, Coconut the cat hasn't adjusted nearly as well. She and Chris have always been best buddies, and she's made it clear she's not interested in transferring that loyalty to the rest of us. For weeks she just sat outside his door and cried. She perks up when he's home on weekends, but the rest of the time she seems a little lost.
On the wilder side of the animal kingdom, Stinky the cat dragged a decent-sized mouse into the house and nearly gave my wife a heart attack in the process. I fear if he brings in another one, it might be the end of Stinky. (I won't let that happen.)
Ready for a math lesson? You might have heard: "The wealthy already actually do pay a lot in taxes."
There's some truth to that. The top 1% of earners do pay about 40% of all federal income tax. That's a real number, and people repeat it because it sounds like it settles the argument. But it only counts tax paid on income that gets reported to the IRS. It doesn't explain how the super wealthy avoid reporting much income in the first place.
Here's the trick. You only pay tax on stock gains when you sell the stock (usually 23.4%). So instead of selling, the wealthy borrow money using their stock as collateral. Picture a founder who owns a billion dollars in company stock. Instead of selling shares and owing tax on the gain, he goes to a bank and borrows against those shares.
The bank is happy to do it, because the stock backs up the loan. That borrowed money isn't income, so it isn't taxed. He gets cash to live on without ever selling a share or reporting a dollar of gain. Some people even take out new loans just to pay the interest on the old ones, so they can go years without selling anything or owing a dime in tax on their gains.
Look at Elon Musk. He doesn't take a salary from Tesla. Instead, according to Tesla's own SEC filings, he's pledged around $85 billion in Tesla shares as collateral for personal loans. He borrows against the stock instead of selling it, so he pays no capital gains tax on the money he spends. This isn't a rumor. It's sitting in public filings for anyone to look up.
Then they die. And when someone inherits stock that's grown in value, the tax code resets the clock. This is called "step-up in basis." The years of growth before death simply disappear for tax purposes. The heir can sell the next day and owe nothing on that growth. So if somebody paid $10 for an Apple share 30 years ago and it's now worth $10,000, if you die, the new price is $10,000, meaning your heirs would pay no taxes if they sold it.
Buy it, borrow against it, and pass it on when you die. None of this is illegal. Nobody is cheating or gaming a mistake in the tax code. This is exactly how the rules were written.
The wealthy still owe estate tax when they die (40% of what they own), at least on paper. But the first $15 million per person is exempt, and married couples can shield $30 million. On top of that, wealthy families use years of legal planning, trusts, and gifting to move money out of their estate long before death. So very little of a large fortune actually gets taxed at the full rate.
Now think about how most of us live. Your paycheck gets hit with Social Security and Medicare tax on every single dollar, before you even see the money. You can't borrow instead of earning a paycheck. A savings account you leave to your kids has no step-up in basis. If your money comes from wages, none of these escape routes exist for you.
So next time you hear "the rich pay almost all the taxes," ask what's actually being counted. Tax paid on reported income is real, and I'm not saying otherwise. But a system that lets huge fortunes grow for an entire lifetime while creating almost no taxable income, and then resets to zero when that money changes hands, could be viewed as more unfair in practice than the headline numbers make it look.
Be Blessed,
Dave