How Superrich Avoid Taxes (some made >$400mil paid 0% tax)

jkimcpa said:   You could tax $1m and above at 100% and it would not make a dent in the deficit.

http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.h...
2009 AGI $1m and above: $727 billion
2009 Federal deficit: $1.4 trillion

Even if you tax $500K and above at 100%, you still don't close the deficit
2009 AGI $500k and above: $1.06 trillion

Well, I know we are just speaking hypothetically here (since 100% taxation would never actually happen), but do you really think that reducing a problem by 50-75% should be classified as not making a dent?

LordKronos said:   jkimcpa said:   You could tax $1m and above at 100% and it would not make a dent in the deficit.

http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.h...
2009 AGI $1m and above: $727 billion
2009 Federal deficit: $1.4 trillion

Even if you tax $500K and above at 100%, you still don't close the deficit
2009 AGI $500k and above: $1.06 trillion


Well, I know we are just speaking hypothetically here (since 100% taxation would never actually happen), but do you really think that reducing a problem by 50-75% should be classified as not making a dent?Precisely. Just as reducing welfare payments alone won't balance the budget. Nor food stamp reductions. Nor ending further Mars boondoggles.

nsdp said:   The essential fact is the reason we have budget deficits are that the "rich" cheat far more than the lower income levels. http://www.irs.gov/newsroom/article/0,,id=252038,00.html 2006 is the last year IRS has closed the books on compliance audits and about 17% of all taxes due were not paid. That is about $450 BILLION dollars. IRS has man power to audit about 1 out 6 returns over $1million. 53% of those returns had substantial errors justifying gross negligence penalties(100% penalties). Overall error rate>$5k in taxes due of 88%. The second tier (35%) had run of the mill mistakes like math errors or using the wrong table or errors cause by inaccurate K-1's issued by someone else etc. No intent on the part of the preparer or the tax payer.

The amount of tax avoidance in the bottom 40% of income would not even make up rounding error in the total amount of underpaid taxes. Total amount of unpaid taxes due to criminal activity is probably about $10-12 billion if white collar crime is excluded. Total gross receipts for the illegal drug business is about $30 billion.

If the rich didn't cheat in 2006 we would have had $120 billion to refund to tax payers and still balance the budget. I spent quite a number of years on the Federal Public Defenders A Panel for White Collar Crimes and I know who was indicted and who wasn't.

http://www.nytimes.com/2010/07/31/business/31wyly.html?_r=1
http://www.mysanantonio.com/news/local_news/article/Local-employ...
http://www.johnmcduff.com/articles/san-antonio%E2%80%99s-gourmet...

Some local examples.I see a great argument for more enforcement of existing tax laws. Hire more auditors to perform more audits, etc. Even if we had 50% tax fraud rate for people making over $1M, raising taxes for *everyone* in that bracket for this specific reason is not the right way to go. In fact, it is counter productive, as it will affect those who file taxes correctly more than those who file fraudulently.

raringvt said:   Look around you...trickle down economics is BS made up by the wealthy to convince you to allow them to pay less taxes. Some wealthy people use their wealth to create jobs, the majority hoard more wealth. Put more money in the hands of those who will spend it if you want to spur economic activity & grow tax revenue.You clearly have no idea how the economy works.

blok said:   arktc said:   blok said:   amage038 said:   blok said:   amage038 said:   People who want to be richer than average are fools - they waste their lives to make money and end up paying more than others. My income is low but I pay a negative income tax, get various benefits and have a lot of free time. Why? Because I'm smart and humble.

LOL WHAT?

My income is high, I pay low taxes from pushing it over seas and extensive write offs (which I wouldnt do if my tax rate was reasonable), get whatever benefits I want because I can pay for them and have time to do whatever the hell I want. Why? Because im smart and busted my ass building my businesses.

How does one get the mindset of glorifying being poor?

Your taxes will be higher - it's a matter of time till all your loopholes will be closed. Plus, you owe a shit load of money - guess who is going to pay the national debt? Not me. You will be working more and more to stay afloat.

You really dont get it.

I think a lot of people don't get it. The highest marginal tax rate in the US before Kennedy was above 90% and people still had plenty of incentive to keep working and to keep earning more money. After Kennedy, it was still 70%, and once again, same deal. Work hard play hard is also doable and not mutually exclusive with earning money.

Also I've noticed many people, even many so-called "small business owners" who think they make $250K/year (when really they make $250K in gross, not net), don't understand marginal tax rates and stupidly assume that all of their income would be taxed at 36 or 39.6%.

No one in that tax bracket actually paid 90% in taxes and I dont know anyone that cant differentiate net and gross.

Bottom line, you tax high earners more and they will take their money elsewhere. The ones who really get screwed are high income W2 employees.

You know, if you watch the people the major media networks interview, it seems like they can find plenty of idiots who don't understand marginal tax rates and don't know the difference between net and gross. There are numerous "small business owners" who have been interviewed who probably make $50K/year in actual income from their mom 'n' pop shop but think Obama is trying to tax them to oblivion. The media finds them and so can you, and I've met some too.

If you tax high earners more, they take their money elsewhere, but only to a point. Sure, some but not nearly all big corporations have incorporated elsewhere, but they all do big business here and pay US taxes on it. Sure, some expats in London who work in finance have gone to Singapore, but that's not nearly practical for everyone and lots of people have stayed in London despite higher taxes.

The reality is that most big businesses are looking for corporate welfare. That's exactly what every single Chamber of Commerce advocates and most people who are in power are too much of a coward to call it that. Think about the packages that cause a business to locate a new factory -- state income tax breaks, property tax breaks, subsidized land leases, payroll tax breaks, etc. This is welfare by another name.

You don't have to tell me twice about high income W2 employees getting screwed. I'm part of that group. I pay much higher taxes than the average population and much higher than the top 0.5% too, but I'm not nearly as well off as the latter.

That graph is BS as it only shows short term effects of changes in tax policy. Shocking, that there is a spike in realized gains in the month prior to a capital gains tax increase and in the months after a tax decrease.

Not sure what drove the Y2K spike, can anyone comment on what tax policy changed?

Also, +1 to the corporate welfare rant. Just look at what they are doing in Maryland, where incomes over $100k are being taxed higher in exchange for casino subsidies. Or Georgia that is "creating jobs" by issuing tax credits to the movie industry.

jkimcpa said:   Do you guys really think raising capital gains rates would boost revenues?

Absolutely. Would it raise revenues as much as the rate increase? No. There would be some additional efforts around avoidance, holding periods would probably rise, etc. At the same time, you'd also see somewhat less of efforts to classify income as capital gains (i.e. hedge fund compensation), which would have an offsetting effect. All that being said, would it increase revenues? Almost certainly, at least according to the serious tax economists out there.

jkimcpa said:   All empirical data suggests otherwise.

What empirical data?

Everybody agrees that, at the endpoints of the Laffer Curve, revenue is zero. No serious economist argues that we're to the left of the peak at current rates, however.

PS It's "all empirical data SUGGEST otherwise." The word data is a plural noun.

raringvt said:   I guess where we disagree is that I don't think it should be entirely on the backs of the lower & middle classes.
With this statement, are you trying to brainwash us into thinking it's entirely on the backs of the lower and middle classes?

raringvt said:   Look around you...trickle down economics is BS made up by the wealthy to convince you to allow them to pay less taxes. Some wealthy people use their wealth to create jobs, the majority hoard more wealth.
I'm sure it works at some levels. There's probably a point of diminishing returns where it is no longer feasible.

raringvt said:   Put more money in the hands of those who will spend it if you want to spur economic activity & grow tax revenue.
Rhetorical remarks:
-Perhaps we should reward people for spending money? For every $1 you spend, the government will pay you $1.01. That should encourage everyone to spend more. What do they have to lose? The more you spend, the more you make.
-Should we take more from people who work hard and make responsible savings decisions? Should we reward people who spend their money irresponsibly?
-Should we just print 100 trillion and divide it equally between everyone?

curtisekarr said:   LordKronos said:   jkimcpa said:   You could tax $1m and above at 100% and it would not make a dent in the deficit.

http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.h...
2009 AGI $1m and above: $727 billion
2009 Federal deficit: $1.4 trillion

Even if you tax $500K and above at 100%, you still don't close the deficit
2009 AGI $500k and above: $1.06 trillion


Well, I know we are just speaking hypothetically here (since 100% taxation would never actually happen), but do you really think that reducing a problem by 50-75% should be classified as not making a dent?Precisely. Just as reducing welfare payments alone won't balance the budget. Nor food stamp reductions. Nor ending further Mars boondoggles.

Welfare payments (aka TANP), food stamps (including child nutrition), and the entire NASA budget, combine to about $140 billion a year.

So, for the same ~$80 billion impact on the deficit, we could:

Alternative 1: Eliminate NASA entirely, and cut all food stamp and welfare payments in half.

Alternative 2: Let tax rates on income above $250k rise to 2000 levels.

riznick said:   raringvt said:   Look around you...trickle down economics is BS made up by the wealthy to convince you to allow them to pay less taxes. Some wealthy people use their wealth to create jobs, the majority hoard more wealth.
I'm sure it works at some levels. There's probably a point of diminishing returns where it is no longer feasible.

raringvt said:   Put more money in the hands of those who will spend it if you want to spur economic activity & grow tax revenue.
Rhetorical remarks:
-Perhaps we should reward people for spending money? For every $1 you spend, the government will pay you $1.01. That should encourage everyone to spend more. What do they have to lose? The more you spend, the more you make.
-Should we take more from people who work hard and make responsible savings decisions? Should we reward people who spend their money irresponsibly?
-Should we just print 100 trillion and divide it equally between everyone?

It's really not as black and white as your questions are, although I appreciate the thought process. If we give some small amount of money to "irresponsible people", they'll spend it and it goes higher up the chain and still improves our economy. The most effective government stimulus is generally to the less well off because they are guaranteed to spend it and send it into our complex economy. That's not always true of tax cuts for the rich as we've seen repeatedly for the last several years. That's why things like unemployment benefits are very effective stimulus -- they are basically guaranteed to be spent.

Listen, I don't disagree that, for example, in doing all these loan modifications for truly irresponsible people that we are encouraging moral hazard, just like we are when we subsidize the truly irresponsible and incompetent banks. But some degree of this is necessary and some higher degree is not. We can certainly argue about where the line is, but I don't think it's a black and white issue that X is bad and Y is good. Both are generally somewhere in between.

mwa423 said:   raringvt said:   Look around you...trickle down economics is BS made up by the wealthy to convince you to allow them to pay less taxes. Some wealthy people use their wealth to create jobs, the majority hoard more wealth. Put more money in the hands of those who will spend it if you want to spur economic activity & grow tax revenue.

I can't wait to hear where you think the money in the stock market comes from, where banks get their capital to lend from and where anybody who has ever borrowed or sold equity to make an investment got that capital from...

I get what you're saying, but be careful in how hard you assert it. When one person sells stock (or another asset), another person buys stock (or the same asset), so the net money in and out is zero. In an IPO, you are truly getting new money.

Banks also "create money" through fractional reserve banking, so it's a little more complex than saying "my deposit makes sure the bank has money to lend out to the next guy."

Again, I don't disagree that finance is a necessary and important part of our economy. The problem is that finance should be a much smaller percentage of our economy and it should be a more boring process where the banks make a steady income but are not getting massive profits, like it used to be. Banks have convinced politicians that if we don't have unfettered finance, that all of our liquidity will go away and the world financial system will grind to a halt. That's not true; what is true is that banks will not be able to engage in leveraged gambling with Other People's Money as easily if we regulate them properly. We can have old fashioned finance where banks lubricated the wheels of production (banks do not actually produce anything for our economy -- they simply facilitate others to produce things) but did not make excess profit on our backs. That's why Glass-Steagall was helpful -- the lubricating portions were separate from the gambling portions. The Volcker rule helps and is a step back in the right direction, but has a lot of loopholes as it is currently mooted and implemented.

jkimcpa said:   LordKronos said:   jkimcpa said:   You could tax $1m and above at 100% and it would not make a dent in the deficit.

http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.h...
2009 AGI $1m and above: $727 billion
2009 Federal deficit: $1.4 trillion

Even if you tax $500K and above at 100%, you still don't close the deficit
2009 AGI $500k and above: $1.06 trillion


Well, I know we are just speaking hypothetically here (since 100% taxation would never actually happen), but do you really think that reducing a problem by 50-75% should be classified as not making a dent?Shaving half the deficit would still put us at record deficit levels pre-2009 so no, it's not even close to making a dent.

But your bolded statement gives an insight into how you think. I find it funny that your concern with 100% tax rate is that it would never happen, not that it would produce close to $0 revenue.

No, it doesn't give any insight into how I think. You were the one that mentioned the prospect of 100% tax rate and it not even making a dent. I was simply subtly pointing out that you apparently don't have a very good grasp on common usage of the English language. And now I can say that for 2 reasons

1) "not make a dent" is not a phrase that is commonly used to describe solving over half of the problem. When you have to do something 1000 times and at the end of the day you've done it twice, THAT is not making a dent.

2) The saying "I know this is hypothetical, but" is often not used to mean "even though my dreams won't come true by making this happen". It can, and often is, used in the context of "I know this is sort of a waste of time to discuss, but I have to correct your faulty logic anyway".

But thanks for giving me insight into how YOU think.

raringvt said:   I guess the only real solution would be to start taxing churches.

If we're making pointless non sequitors, it makes more sense to just have the government pay 100% tax! I mean you want fairness, the guvment should pay taxes like every other business.

I knew I could revive this thread. Seriously though, churches are businesses like any other...why shouldn't they be required to pay taxes?

ETA: non sequitor it may be, pointless it is not.

Why do people who do not have the first clue about the tax code yell the loudest? Is the difference between ordinary income and capital gains that difficult of a concept? I paid 72k in taxes on 214k of gross income last year because all of my income is ordinary including my wall street bonus. I pay city tax on top of my state and federal tax. Additionally I do not get to enjoy any of the deductions that most people get(dependents, mortgage, marriage) much due to the fact that I cannot afford those things given the cost of living. Do I think it is fair that I pay close to 3x of my income in taxes on a percentage basis more than Romney...Yes. We all make our own decisions in life. I'm tired of people complaining about how unfair everything is when the same tax code exists for everyone. Why do people feel entitled to the fruits of other people's hard work?

LynchMobHoo said:   Why do people who do not have the first clue about the tax code yell the loudest? Is the difference between ordinary income and capital gains that difficult of a concept? I paid 72k in taxes on 214k of gross income last year because all of my income is ordinary including my wall street bonus. I pay city tax on top of my state and federal tax. Additionally I do not get to enjoy any of the deductions that most people get(dependents, mortgage, marriage) much due to the fact that I cannot afford those things given the cost of living. Do I think it is fair that I pay close to 3x of my income in taxes on a percentage basis more than Romney...Yes. We all make our own decisions in life. I'm tired of people complaining about how unfair everything is when the same tax code exists for everyone. Why do people feel entitled to the fruits of other people's hard work?

Yes, but we can make that tax code better. As I said above, a lynchpin of Reagan's tax plan was that capital gains and ordinary income were taxed the same so that people's behavior would be neutral between investment and labor. This is not a bad thing.

arktc said:   LynchMobHoo said:   Why do people who do not have the first clue about the tax code yell the loudest? Is the difference between ordinary income and capital gains that difficult of a concept? I paid 72k in taxes on 214k of gross income last year because all of my income is ordinary including my wall street bonus. I pay city tax on top of my state and federal tax. Additionally I do not get to enjoy any of the deductions that most people get(dependents, mortgage, marriage) much due to the fact that I cannot afford those things given the cost of living. Do I think it is fair that I pay close to 3x of my income in taxes on a percentage basis more than Romney...Yes. We all make our own decisions in life. I'm tired of people complaining about how unfair everything is when the same tax code exists for everyone. Why do people feel entitled to the fruits of other people's hard work?

Yes, but we can make that tax code better. As I said above, a lynchpin of Reagan's tax plan was that capital gains and ordinary income were taxed the same so that people's behavior would be neutral between investment and labor. This is not a bad thing.

Money I have available for investment has already been taxed once. Why should I be taxed significantly again for taking on risk of investing in companies who use my capital to create jobs, build factories etc. When I lose money in the stock market I don't get a refund. I'm not even allowed to offset my ordinary income of the full amount. Increasing tax on capital gains will reduce access to capital. Want to start a business...nope sorry. Want a mortgage...nope pay in full upfront.

LynchMobHoo said:   Why do people who do not have the first clue about the tax code yell the loudest?

LynchMobHoo said:    Are you forgetting that the money he has available to invest has already been taxed once?

LynchMobHoo said:    Money I have available for investment has already been taxed once.

Thanks for proving your own point.

arktc said:   LynchMobHoo said:    Increasing tax on capital gains will reduce access to capital. Want to start a business...nope sorry. Want a mortgage...nope pay in full upfront.

Yes, clearly capital dried up completely during the Reagan and Clinton years, you are absolutely right, Wall Street worker.

LynchMobHoo said:   Money I have available for investment has already been taxed once. Why should I be taxed significantly again for taking on risk of investing in companies who use my capital to create jobs, build factories etc.

Also, of course, very little of *your* capital is used for anything if you are merely buying stock in the secondary market. If you are a VC or buying IPO stock, sure you might be providing capital to someone yourself.

I did not say completely and yes I do work on wall street. Please go back and tell me what the real interest rates were back in the Reagan years. Now imagine that you are a business who is looking for a loan. Please let me know if you would be able to afford to get that loan to build your new plant. Now that we have that settled while you are correct that buying stock in the secondary market is merely a transfer of ownership from one investor to another you need to think about the bigger picture and don't forget that capital is fungible. Financial institutions provide investor capital to businesses whether in the form of equity (primary offerings) or debt.

mwa423 said:   raringvt said:   I guess the only real solution would be to start taxing churches.

If we're making pointless non sequitors, it makes more sense to just have the government pay 100% tax! I mean you want fairness, the guvment should pay taxes like every other business.Why stop at 100%? Why not tax 150% of income?