From: Tad Borek 
Newsgroups: misc.invest.financial-plan
Subject: Re: Getting "relatively wealthy"
Date: Fri, 16 Jan 2004 12:44:37 CST
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D. Stephen Heersink wrote:
> All good and well, except that our economy discourages savings at
> every turn. It taxed savings and dividends (twice mind you), 

I see it completely opposite...savings (rather, ownership - by investing 
your savings) is strongly incentivized, and working is highly taxed. If 
you want to get the best benefits out of the tax code, you own stuff, 
and get the heck out of the work force!

Remember everyone is taxed at least 15.3% on _every_ dollar earned at 
work, at least up to a certain level (social security/medicare). That's 
more than the total tax on dividends and long-term capital gains (and 
the latter are only paid when realized). THEN you tack on the income 
tax, which will clip as much as another 1/3 of your earnings. Investment 
income fares much better really.

It's not just that either. When you sell your home, a great deal of the 
gains aren't taxed. When you pass property on to heirs, the gains aren't 
taxed, as long as you avoid the estate tax. If you're smart about real 
estate investing, your gains aren't taxed, you roll them into another 
property. This is absolutely a system favoring saving and investing (so 
the lesson is, become an owner, even if in a small way).

and most
> people are lucky if they can get by on two paychecks, with two spouses
> working. The diminishment of the middle class and the growth of the
> underclass make savings for many people untenable. Not until the
> middle class returns to save the surplus of their income minus
> expenses can such an easy policy ever come about.

I hear that, but I think the counter-argument is that our middle class 
looks like most other countries' upper class in terms of consumption. So 
I don't think the argument that savings is impossible can be made, it's 
more likely that savings isn't the chosen alternative. Certain it's not 
chosen by anyone who drives a car less than 5 years old (or a 
low-mileage car, or lives in a household with more than one car), who 
owns a cell phone, who pays for cable/sat TV, who smokes, who purchases 
non-essentials using credit. These are all choices, and costly ones.

I realize I am in a minority on this one but I think all of those things 
are luxuries that should be considered only if the essentials (including 
savings) are covered. Especially the car, which is why I mentioned it 
three times. An early-in-life new car can literally be the difference 
between retiring comfortably, or not. God forbid, two new cars.

I realize there are people who don't spend money on any of those things, 
and who still have trouble making ends meet. But the consumer statistics 
for the US show a lot of consumption by the middle class that I consider 
completely discretionary. Most of the consumption by the upper class is 
discretionary. And once something's discretionary, it means there's the 
alternative of saving those dollars. That more people don't do so keeps 
the economy going, of course, but nobody is forcing those purchases on 
anyone. There's a huge reward to making that choice, and becoming an 
owner. This makes perfect sense - in capitalism, you want to be one of 
the people with the capital.

As for the lower class I think that's a completely different discussion. 
It is truly impossible for a large subgroup to save even a dime and the 
issue is privation more than discretionary spending. But I think that 
becomes a discussion not of financial planning, but of public policy. 
And the moderators are watching!

-Tad