Who’s money is it?

Gerald E. Scorse is a nut case.  Not quite Charlie Sheen nut case, but he isn’t too far away.  Read this Op-Ed he wrote in the LA Times.

He seriously thinks that people who bother to save for their own retirement are cheating everyone else in the country out of “untold billions in future Treasury receipts”, totally forgetting that those “untold billions” in growth (which he wants to tax) wouldn’t even be there without the Roth IRA law.

I’ll admit that money would be somewhere – invested in a rental property, perhaps they would’ve bought a car or two more over the years, or maybe those “untold billions” would’ve been simply blown on lottery tickets, who cares – but that’s not the point.

The point is that it’s money that an individual has earned, they have paid taxes on it, and yet Mr. Scorse thinks it belongs to everyone else.  He knows better how to spend it than the person who earned and invested it.  And he thinks that the money would be there even if the Roth IRA program would have never been put in place.  Moron.

He appears to seriously think that people would have invested the money even if the tax laws were different, not even contemplating the possibility that this money is invested simply because the law was put in place to encourage the investment in the first place.  Is he really that dumb? (Note that I’m not arguing whether or not Roth IRA’s are a good idea, simply noting that they do after all, exist, and that people make decisions based on the laws at the time.)

Another example of his level of cluelessness: “Roths could be a drag on the U.S. economy. Since no withdrawals are required, assets can lie idle indefinitely.”

Mr. Scorse-  do you really think investments are simply piles of cash, lying idle in a bank vault or under a mattress somewhere?  I suggest you look up the definition of “investment.”

Here, let me do it for you.  According to Investopedia: An investment is “An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.”

So Mr. Scorse thinks that an investment is simply an idle asset – his words, not mine – that don’t actually do any good until the assets are sold, and the money invested is spent on something he considers worthwhile.

At this point it’s probably instructive to see what actually happens to the money when you buy stocks, bonds, real estate, etc.  There are many other assets you can invest in, but I’m trying to keep this simple and fairly short.

  • If I invest capital (look it up) in a startup company, my money is (hopefully!) being used to buy equipment, pay salaries, rent buildings, or even pay lawyers, to grow the company.  Painters, legal aides, accountants, construction workers, computer, carpet, office equipment, cubicle, and paper manufacturers are all using – and spending – my investment. (I put hopefully in quotes, because many startups simply go broke and disappear, then I lose my investment.  I no longer have the money, but someone else does.  Either way, it’s not simply lying idle.)
  • If I invest in stock (or bonds, even government bonds) in an existing company, my money went to the person/government I purchased the stock/bond from. Maybe they use my money to buy a house or car or TV, or to invest in another company – or to fund Aunt Jane’s Social Security/Medicare check.  It doesn’t really matter, as – unless they stick it under a mattress – the money is still in circulation.  It’s NOT lying idle.
  • If I invest in real estate, I once again gave my money to someone else to use in exchange for something they had owned.  Maybe it’s a rental property (in which case my investment is providing shelter for someone) or maybe I invested in a house for myself.  Either way, the money I gave the person who originally owned the property is now being used for something else.  (Maybe they are paying someone to build a retirement home – or even using the proceeds to pay off debt – look it up Mr Scorse – or maybe they are buying lottery tickets.  Again it doesn’t matter, the money is still in circulation.)

Speaking of debt, I really don’t think the problem we have in the USA is too little savings, and not enough debt.  (I know Mr Scorse didn’t say that explicitly, but that’s what must be inferred from his argument against investments sitting idle.)  I wonder if he thinks paying off debt is useful to society?

To the borrower, debt is an obligation, to a lender, that exact same debt is an investment.  I doubt Mr Scorse has ever understood this. He probably thinks debts are something owed to large faceless evil corporations who exist only to pay taxes on illegitimate gains – never even realizing that the corporation who wrote the check for his Op-Ed is using someone’s investment (or past investment) to be able to have the funds to write that check.

I need to quote the end of the article verbatim, as I find it hard to believe:

Roths could also multiply in an instant. A provision making Roth IRAs the default retirement plan for employees at certain companies is in the president’s 2012 budget. The president, says Howard Gleckman, is being seduced by “the siren song of the Roth.”

Gleckman is the editor of TaxVox, a blog published by the nonpartisan Tax Policy Center in Washington. Here’s Gleckman on Roths for the rich: “In the long run, turning billions of dollars from tax-deferred to tax-free savings will be a huge loser for Treasury. My colleagues at Tax Policy Center figure that, through mid-century, allowing unlimited Roth conversions will reduce federal revenues by $100 billion.”

That’s $100 billion “through mid-century” – I assume he means 2050, or about 40 years from now.  We need to cut spending and/or increase taxes by $1.65 TRILLION this year alone, and he’s quoting someone who’s concerned about a potential $100 billion reduction in tax revenue in the next 40 years?  Seriously?

Whatever the answer for individuals, there’s little doubt that Roths are wrong for America. They’re Frankensteins, fated to wreak havoc. It’s time to retire Roth IRAs.

“Wreak havoc”?  To let investments (aka “capital”, which is the very foundation of capitalism) that have already been taxed, to be sold without taxing them again will “wreak havoc?”  Seriously?  To encourage people to fund their own retirement instead of relying on Social Security (which is already broke and adding to the debt, but that’s a different story.) is a “financial Frankenstein”, which is “fated to wreak havoc”?

I am no genius (just read this site for multiple examples!) but Mr Scorse is seriously missing some common sense genes.  That’s why I say he’s a moron, and a financial nut case.

To sum it up, Mr Scorse appears to think that all money belongs to the government, and that by the grace of that government, individuals may be allowed to use the product of their labor from time to time.  He thinks that having people invest and save money means that they aren’t using their money wisely.

Although he doesn’t explicitly say it, he appears to argue that allowing people to convert traditional 401k’s to Roth IRA’s is also somehow harmful.  Even though they have to pay all deferred taxes due right now – at the time of conversion – they are somehow gipping the government out of billions in future taxes.  They are a “fiscal Frankenstein”.  End of story according to him.

The fact that those investment earnings wouldn’t even be there to tax without people adapting to the law is beyond his ability to comprehend.  Assuming that IRA’s – both traditional and Roth – never existed, people would be doing other things to save for retirement.  Such as buying rental property or iBonds, or buying a McDonalds franchise, or whatever.

IRA’s were set up to ENCOURAGE people to save for their own retirement, precisely because Social Security was never intended to be a full retirement plan, it’s supplemental.  If the law is changed to tax Roth IRA’s when money is removed as well as taxing it when the initial investment is earned, what does that encourage?

It simply encourages more people to depend on the government – and THAT is what Mr Scorse really wants. And that is why I say he’s a moron with no concept of investment or capitalism.


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