(C) Common Dreams
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The Harsh Unfairness of ‘Buy-Hold for Decades-Sell’ [1]
['Bob Lord']
Date: 2025-04
How do rich Americans get away with paying so little in taxes? I’ve written before about the mechanics behind Buy-Hold for Decades-Sell, the perfectly legal pathway that lets rich Americans pay taxes on their investment gains at super low effective rates.
How unfair a tax reality — for average taxpayers — has Buy–Hold for Decades–Sell helped create? Let’s consider how our current federal tax system goes about treating two prototypical taxpayers we’ll call Bob Golfsalot and Morris Worksalot.
Bob and Morris have several things in common. Both have just turned 30. Both start with the same $75,000 nest-egg and have cut financial deals with their wives that commit both Bob and Morris to growing that nest-egg until they hit age 65.
In Bob’s case, his wife has agreed to fund the couple’s household expenses over the next 35 years. Morris, for his part, will use income from his full-time job to help with household living expenses. Bob and Morris each will pay any tax on the income their activity generates, but otherwise may accumulate all the income they generate for their respective nest-eggs.
The Worksalots will depend on the nest-egg Morris accumulates to fund their retirement. The inheritance Bob stands to receive, by contrast, will be more than enough to finance the Golfsalots’ retirement years.
And a most comfortable retirement those years promise to be. The professionals managing the investment of Bob’s inheritance will, in all likelihood, generate returns far in excess of what’s needed to cover the couple’s extravagant lifestyle. For Bob, that lifestyle will include an annual golf vacation at one of the world’s best courses.
Bob and Morris, at age 30, have set equivalent goals for their $75,000 nest-eggs. Each wants to accumulate by age 65 a sum grand enough, once invested in U.S. Treasury bonds yielding a 3 percent annual after-tax return, to underwrite annual spending equal to their original $75,000. Morris will use that after-tax return to fund his family’s retirement expenses. In Bob’s case, all that annual return will go for golfing outings.
Bob and Morris live quite different lives. Bob and his wife, a highly paid corporate executive, live in a posh neighborhood and belong to a country club boasting two 18-hole golf courses. Bob, the club’s best putter, spends several hours a day on a practice green the Golfsalots installed in their backyard. Bob’s initial $75,000 nest-egg came as a gift from his deep-pocketed parents.
Morris, a plumber, and his wife, a cop, live in a middle-class neighborhood. His $75,000 nest-egg at age 30 has come entirely from money the Worksalots had saved from their jobs and from a small egg farm they had maintained in their backyard.
Why did Morris and his spouse work so hard to amass that $75,000? They needed that sum, the couple felt, because the city where they lived had eliminated — the year before Morris’ wife had become an officer — pension benefits for new police hires. To make matters worse, the small plumbing firm where Morris worked had no retirement plan for its employees.
Bob and Morris take entirely different approaches to the task of building their respective nest-eggs. Bob, seeking to maximize the time available for golf, invests in a publicly traded corporation that recently held its initial public offering. One of his golf friends recommended the investment, telling Bob he should see a 10 percent annual rate of return on the investment.
Morris works nights and weekends to expand the family egg farm. Why not simply invest his $75,000 nest-egg in a retirement account? Morris has learned from his reading that the annual return on investment for smaller retirement accounts typically runs lower than 4 percent. That rate of return will not generate a retirement fund sufficient for a decent retirement.
Morris also knows that he and his wife don’t have access to the high-returning investments rich Americans make, like the one he overheard a customer bragging about to a friend when Morris was fixing a leaky faucet at the Golfsalot residence.
For Morris, these realities make expanding the egg farm his best financial option. The income from the Worksalot egg farm, he believes, will run about 10 percent of the amount he’ll have available to spend each year on operating expenses. So if Morris spends $75,000 on his farm its first year, the operation should bring in that amount plus 10 percent, a total of $82,500.
Morris commits himself to pumping his egg farm’s net initial proceeds back into expenses the following year. From the $82,500 in total proceeds, Morris will pay the income and self-employment tax on the $7,500 profit from the operation, a total of $1,800, and plow the remaining $80,700 back into the operation.
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[1] Url:
https://inequality.org/article/the-harsh-unfairness-of-buy-hold-for-decades-sell/
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