December 14, 2018 David McKnight
POZ vs. White Coat Investor (final response)

The White Coast Investor and I exchanged a few more posts a few days ago and I thought you might derive benefit from the exchange:

The White Coat Investor | December 13, 2018 at 12:53 pm MST

For some reason, your industry doesn’t seem to sell those policies to my readers. Instead, they sell policies that seem designed to maximize the commission charged. Maybe that’s why the Society of Actuaries notes that 80% of policies are surrendered prior to death. This M.O. seems fairly typical for your industry. So even if I gave that impression that most policies charge a net rate of interest on loans, that statement is likely accurate, even if there are some policies that have wash loans.

If you feel that the central premise of your book is that future tax rates must rise precipitously, I really think your argument is wrong. Tax rates don’t have to rise precipitously. As demonstrated in the chart on my post, the US GDP to debt ratio is nowhere near the highest it has ever been and it seems to be leveling off as noted here:

Besides, even if it is decided to lower that ratio, there is a far more politically attractive method than raising tax rates: inflation. That debt can be inflated away very quickly at 1970s style inflation rates. What you did in your book is simply classic fear mongering about future tax rates that has real life consequences on people that follow the advice there. They buy inappropriate whole life insurance policies, make inappropriate Roth 401(k) contributions, and do inappropriate Roth conversions. Your advice is costing real people real money that they could be spending now and/or in retirement or leaving to their heirs. It needs to be debunked.

I know you feel that the future will vindicate your opinion. Even a broken clock is right twice a day. How long do we have to wait for rates to rise before we can say you were wrong? 5 years? 10 years, 20 years? If it’s 50 years, well, that’s irrelevant to the decisions people are making today for their retirement. It’s already been 5 years since you wrote the book and tax rates have only gone down. How much longer do we have to wait?

David McKnight | December 13, 2018 at 1:50 pm MST

The debt seems to be leveling off? Maybe a tiny bit over the last three years, but like I said in my previous post, it’s not the debt that we’ve accrued so far that should worry us, it’s what we’re planning to accrue in the future. So telling that you used a chart that ended in 2018 to drive your point home. Kind of like the guy in the eye of the hurricane that says, “Hmm, things seem ok to me.”

And, because politicians lowered taxes instead of raising them vindicates your position that taxes won’t go up in the future? Since when do politicians always act in our best interest? These are the same politicians who, while the rest of the world is paying their debt down during this period of relative prosperity, are continuing to slam money onto the national credit card at staggering rates. You’re taking your cues from those guys? All the experts say we have to double taxes, reduce spending by half or some combination of the two. We did just the opposite: we reduced taxes, and increased spending by $1.5 T over the next 10 years to pull it off. All this tax legislation did was make the problem even harder to fix.

Again, you can’t inflate your way out of the Medicare problem, which is the single largest expense driving the national debt. When inflation goes up, the cost of the services you provide goes up, and that drives the cost of Medicare up.

As far as how long you’ll have to wait for taxes go up? Irrelevant, as long as it happens in your lifetime. Let’s say it’s 10 years or 20 years from now. When either 2028 or 2038 rolls around and tax rates double, you will invariably look back at the year 2018 and say, “Huh, why was I getting a deduction at historically low tax rates so I can pay double the rate today?” If you’ll be alive 10 to 20 years from now, this discussion is relevant today.

This 2 1/2 minute trailer, interestingly enough, counters almost every single one of your points:

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