Taxing the Super Rich

[LivingAlmostLarge]

Jim, you are wrong. People who are very wealthy shelter their money in trusts. These trust do not have taxes, when inherited and the cost basis is raised. Also when money is disbursed it is often not taxed as income tax.

When you are in the extreme wealthy, often you cash out stuff that is tax free. Think not? Why does FL have no state income tax but high property taxes? Because many retirees get $$$$ of dollars tax free so they can't be taxed. So to catch them FL instituted a high property tax.

Same thing, when you are a rich business owner, you can pay almost zero in taxes but still live really well. You lease cars for your business. You don't pay yourself per se. But you pay for your gas, etc all through the businsess.

My dad even paid my mom a retirement profit sharing benefit from his business of $100k into a Roth IRA. Hmmm..think it wasn't tax sheltered? It was.

My FIL does the same thing, and they don't pay taxes on a bunch of money. In fact both our parents pay less than DH and I but make a lot more because they own their own businesses.

They are definitely in the wealthy category. Will we get there? I damn well hope so. I'd love to shelter money like that. Rules for the rich and business owners are different.

Monkeymama is a CPA if i'm not mistaken and see her post about how much people actually pay in taxes.

[jIM_Ohio]

Jim, you are wrong. People who are very wealthy shelter their money in trusts. These trust do not have taxes, when inherited and the cost basis is raised. Also when money is disbursed it is often not taxed as income tax.

When you are in the extreme wealthy, often you cash out stuff that is tax free. Think not? Why does FL have no state income tax but high property taxes? Because many retirees get $$$$ of dollars tax free so they can't be taxed. So to catch them FL instituted a high property tax.

Same thing, when you are a rich business owner, you can pay almost zero in taxes but still live really well. You lease cars for your business. You don't pay yourself per se. But you pay for your gas, etc all through the businsess.

My dad even paid my mom a retirement profit sharing benefit from his business of $100k into a Roth IRA. Hmmm..think it wasn't tax sheltered? It was.

My FIL does the same thing, and they don't pay taxes on a bunch of money. In fact both our parents pay less than DH and I but make a lot more because they own their own businesses.

They are definitely in the wealthy category. Will we get there? I damn well hope so. I'd love to shelter money like that. Rules for the rich and business owners are different.

Monkeymama is a CPA if i'm not mistaken and see her post about how much people actually pay in taxes.

You state I am wrong, but have switched from taxable income to estate planning. And changed discussion to small businesses, which was not a premise of original discussion...

YES a person can create a trust and will the trust to a family member with a stepped up cost basis. How does this affect the INCOME TAX issue?

You want to make the rich out to be bad people, you want them to pay their share of taxes and your share too. That is not right.

You also bring up business owners, and yes business owners have different tax laws which apply to them. I work for a living and have a private business I run on the side. The tax advantages of the private business are quite good. It lowers the taxes I pay, but if you combine taxes and expenses, I probably pay more to other people than most.

I have read that more than 75% of private businesses lose money (mine probably comes close to this). The private business does allow me to lower my overall tax bite... but if I made a lot of money doing what I do, then my overall tax bite gets much larger (I would have to pay full FICA and many other taxes).

It is not wrong to create a business for the tax advantages. 2 or 3 of the biggest tax write offs apply to small businesses and only to the self employed. The richest people I know are small businessman. You should not suggest these people pay more in taxes than the working class, because without the small business spirit, many people in this country would not work.

[Aleta]

Jim: You are so right. As self-employed people for years now, we have been paying 15.3% social security and medicare taxes, while the others out there only pay 7.65%. We also have to pay unemployment, liability, licenses, workman's compensation, suta and futa taxes. Business are also expected to give benefits to employees, namely insurance, vacation, holiday and sick leave pay. As small business owners, we don't have those benefits or someone matching our retirement plans. There is a reason why businesses get tax breaks. If they didn't, most of the posters wouldn't be receiving any benefits at all.

People with money have always not been the popular people on the block yet they employ so many people. We have to stop looking at what everyone else has and look at what we have.

As Jim says, anyone can have tax advantages. Anyone here can have trusts and by trusts to shelter their money. The rich know how to do it. Maybe, we should all watch what they do and emulate their techniques. Reading and keeping up with the latest financial news also keeps one ahead of the game.

[jIM_Ohio]

Jim: You are so right.

I tell myself this at least 10 times each day.

JK

thx for chiming in

Sorry, Jim and Aleta, but the small business tax tricks and small-time trust techniques you're talking about are not what the big fish use. Don't take my word for it, take it from Warren Buffet... he knows. The only thing different between him and the other guys is he realizes it's not right.

Jim, I'm not sure how you can say a regressive tax is fair. Again, I can see the argument that a progressive tax isn't fair and we should go flat. But a regressive tax is about as unfair as a tax system can be.

[cptacek]

Sorry, Jim and Aleta, but the small business tax tricks and small-time trust techniques you're talking about are not what the big fish use.

Please name some. Just waiving your hands saying "b...b...b...but Warren Buffett said so" isn't going to win your argument. I most of the time agree with Warren Buffett, but I would like some concrete examples of what you are talking about.

[cptacek]

When you are in the extreme wealthy, often you cash out stuff that is tax free. Think not? Why does FL have no state income tax but high property taxes? Because many retirees get $$$$ of dollars tax free so they can't be taxed. So to catch them FL instituted a high property tax.

We're ALL hoping to do this...cash out money tax free. Why do you think everyone suggests starting out with an Roth IRA's?

Please name some. Just waiving your hands saying "b...b...b...but Warren Buffett said so" isn't going to win your argument. I most of the time agree with Warren Buffett, but I would like some concrete examples of what you are talking about.

Offshore vacation homes, offshore life insurance, variable annuities, deductions for funding offshore businesses, foreign earned income exclusions, export sales exclusion, expatriation, and those are just the well-known ones. The IRS cracks down on illegal schemes (like Son of Boss) from time to time, but there are many more questionable schemes going on all the time. The billionaires have the resources to stay ahead of the game.

[jIM_Ohio]

Jim, I'm not sure how you can say a regressive tax is fair. Again, I can see the argument that a progressive tax isn't fair and we should go flat. But a regressive tax is about as unfair as a tax system can be.

I don't see it as regressive.

If my wife and I make 100k per year and it get taxed at the 25% marginal rate... my effective tax rate is between 11% and 15% each year, depending on the deductions I can take.

Someone making 200k per year would probably have an effective rate arounf 17%... assuming they only had "earned income".

300k would start going up more, probably in 20 or 30% range, again assuming earned income.


But if we remove the "earned income" assumption for the rich- because they might be pulling in major dividends, cashing out stock etc... which we have established as being taxed at lower rates...

then the laws of numbers play out

if a person has 400k of income, maybe 200k "earned" and 200k from "other sources"... those other sources are probably taxed lower (dividends at 15% and long term gains at 15%).

so a person with 400k of earned income is paying more taxes than someone with 200k of earned income and 200k of other income. Both had 400k of AGI, but not all income is taxed the same. Smart rich people will look to create income taxed at lower rates because that puts more money in their pocket. That's not regressive, that's capitalism. I plan my retirement using these same capitalistic methods, even though I will never have the money a Warren Buffet does.

Add to this things like rental income and other income sources... and writeoffs associated with renting- then realize the rental increases their net worth and allows them to write off many of their expenses associated with the property...

and this is how the system is not regressive. You rant (as other posters have pointed out) without specifically thinking about how someone like Buffet's 1040 form looks. Buffet might have 200 M of AGI, but it's not 200 M of earned income. You need to get more familiar with how taxes work, and make specific tax points to hold any water in this argument, IMO.

[jIM_Ohio]

Offshore vacation homes, offshore life insurance, variable annuities, deductions for funding offshore businesses, foreign earned income exclusions, export sales exclusion, expatriation, and those are just the well-known ones. The IRS cracks down on illegal schemes (like Son of Boss) from time to time, but there are many more questionable schemes going on all the time. The billionaires have the resources to stay ahead of the game.

Please explain how an offshore vacation home hides income from taxes.

Please explain how an offshore life insurance policy hides income from taxes.

You and I can use variable annuitities too... this is not a product which only the rich use.

please explain offshore business deductions.

please explain foreign earned income exclusions.

I'm not trying to "win an argument" and I'm not "ranting". If anything you guys are being a bit rude. If you disagree with me, I'm totally fine with that. Frankly there's not much that can be done about it anyway, so this is just an academic discussion and I'm bored with it.

[Aleta]

Actually, I like the consumption tax. I think that it flushes out alot of money from those not paying taxes. It rewards those who save. Those wealthy enough to buy luxury boats would pay a tax on that. I think that it's a pretty good system although I would like to read more on it to give it my definite stamp of approval. I've just heard the arguments for it and it makes sense.