Mildly interesting article in Slate about why it's barely worth it to invest

[SLC Tortfeasor]

People on this board may be somewhat interested in this article. Here's the upshot: American tax policy doesn't do much to encourage investing rather than spending.

http://www.slate.com/id/2164050/

I think the author has a point, but he ignores Roth IRAs and Roth 401ks.

 

[MasterBlaster]

The author hit the nail on the head.

We discourage savings through our tax policy and encourage consumption.

 

[Mwsinron]

I don't think its all about the taxes. A lot of people feel the need to spend every penny of their paycheck. So they can have the latest gizmos and gadgets/clothes etc.

 

[JustCurious]

The author hit the nail on the head.

We discourage savings through our tax policy and encourage consumption.

That is bunk. Our tax policy actually encourages saving in tax deferred plans. I am smart enough to figure out that every dollar we defer into our retirement plans saves us 25 cents. So if we defer 10k, we get to keep $2,500 that I don't have to pay uncle sam. I also get to reduce our AGI, so I can qualify for higher tax credits, which puts even more money back in my pocket. And the money grows tax free until it is withdrawn. Those are powerful incentives for me to save. And for those who get an employer match...the incentive is even more powerful...you get free money! Who would pass up free money?

 

[chinaco]

People on this board may be somewhat interested in this article. Here's the upshot: American tax policy doesn't do much to encourage investing rather than spending.

American do spend. That drives our economic engine. And the income part of the tax equation is larger than the spend part of the tax equation. And I am not a fan of taxes.

All of that said. The USA has lower taxes than many of our Western European counter parts. The Tax Burden % of GDP in most of the European countries is much higher than the US. Foe example in the US, in 1999 it was about 30% in Sweden it was 50%.

The combination of low tax (in relative terms) and high income in the US makes us an economic powerhouse. Our consumptions drives the economy. We just need to get the trade deficit in line.

For us LBYM saver/investors... that means that we benefit. All of that consumption is good for company profits.

 

[farmerEd]

That is bunk. Our tax policy actually encourages saving in tax deferred plans. I am smart enough to figure out that every dollar we defer into our retirement plans saves us 25 cents. So if we defer 10k, we get to keep $2,500 that I don't have to pay uncle sam. I also get to reduce our AGI, so I can qualify for higher tax credits, which puts even more money back in my pocket. And the money grows tax free until it is withdrawn. Those are powerful incentives for me to save. And for those who get an employer match...the incentive is even more powerful...you get free money! Who would pass up free money?

True to an extent...but if you are lower paid, have a few kids and the property tax and mortgage deduction, you probably don't pay much taxes anyway...so the tax savings is not that compelling...in addition, if you have save a few hundred thousand in non-retirement savings by the time your kids are off to college, Guess who will foot the bill? and if you have saved nothing, chances are you kids will still go to college.

My brother-in-law (whos kids are college age now) often bemoans the fact that after saving for years his is basically writing a check for each of them each year...almost full freight. My other sister-in-law spends everything she makes and then some...her kids are also going to college that is just as expensive but she only pays a fraction of the cost.

Its not always obvious who made the better choices....

 

[Lusitan]

My brother-in-law (whos kids are college age now) often bemoans the fact that after saving for years his is basically writing a check for each of them each year...almost full freight. My other sister-in-law spends everything she makes and then some...her kids are also going to college that is just as expensive but she only pays a fraction of the cost.

Its not always obvious who made the better choices....

The best choice for my parents was to stay on top of me in high school so that my grades were good enough to earn some merit-based scholarship, and then to enroll me in the School of Life through my paying for the rest of my university education. It definitely lit a fire under my @ss to get out and start working hard to pay off my student loans, and that eventually led me to LBYM and plans for FIRE.

 

[donheff]

My brother-in-law (whos kids are college age now) often bemoans the fact that after saving for years his is basically writing a check for each of them each year...almost full freight. My other sister-in-law spends everything she makes and then some...her kids are also going to college that is just as expensive but she only pays a fraction of the cost.

Its not always obvious who made the better choices....

It is pretty rare for kids to get a true free ride unless they are exceptional in one way or another. A lot of these deals are student loans. I would rather pay my kids' freight than saddle them with loans.

 

[2B]

It is pretty rare for kids to get a true free ride unless they are exceptional in one way or another. A lot of these deals are student loans. I would rather pay my kids' freight than saddle them with loans.

I got a full ride except the equivalent of 1 year's cost was in the form of a subsidized student loan. Of course, I was a genius. My father being out of work with 4 other kids at home helped too.

My kids with working, saving parents got token merit scholarships to a state school. They had much better grades than I did in both high school and college.

There were a number of poorer kids getting close to full rides that my kids knew. I don't think its changed that much.

 

[NinjaPigeon]

I have too short of an attention span to read the entire article, but I fail to fathom where he's going with his logic. Is he suggesting we should just spend everything instead?

Even after taxes, the numerous financial calculators would seem to dispel the notion that it's not worth investing.

 

[justin]

Right now most married couples with two income earners can save up to $36000 per year in tax exempt or tax deferred accounts. Then there are plenty of tax-managed funds (like vanguard's) or tax efficient funds (like index funds) that will have you paying a fraction of a percent in taxes each year. Add that to tax loss selling, and you could potentially have a very small tax burden. Although the author of the article thinks you have to be "skilled and well-informed" to avoid massive tax bills. Not really true. It really isn't that hard to buy a simple, extremely inexpensive tax managed or index fund from the likes of Vanguard for your taxable accounts, or anything else for your tax-advantaged accounts.

Factor in the stepped up cost basis for inherited mutual funds/stocks, and you have a number of tax-efficient reasons to invest/save. I know I'm avoiding a marginal tax rate of 32-40+% when I save in my tax deferred/tax exempt accounts. I expect to pay little to none in the form of taxes when I withdraw this money in the future.

Of course we have to realize this was an opinion/editorial piece and not meant to be taken as any form of serious financial discussion.

 

[al_bundy]

my wife used to think investing in a 403b was a waste until she saw the tax savings