The Super Rich and Taxes

[youbet]

https://www.dividend.com/taxes/a-br...85, dividends would,dividend tax rates to 15%.

The background of federal income taxes begins with the passage of the 16th Amendment to the United States Constitution on February 3, 1913. This amendment states: “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”

This relatively vague text has allowed Congress to impose its power to tax anything that it might consider income, which has included dividends paid by corporations to its shareholders. There has been a lot of controversy behind this interpretation; many believe that dividends should not be accounted in this income power.

 

[jollystomper]

It isn't all that complicated. I should pay less in taxes. Everyone else should pay more.

"Politicians say 'more taxes will solve everything',
And the band played on..."

- from "Ball of Confusion", sung by the Temptations, in 1970.

Plus ca change...

 

[youbet]

You pay income taxes?!!? 60% of US citizens do not. The only taxes they pay are sales taxes.

Despite perhaps paying gasoline tax, sales tax, utilities taxes, property taxes, excise taxes, taxes disguised as fees and many others, those folks that don't pay at least small amounts of federal income tax (ie., have a small bit of skin in the game) likely do suffer from a disconnection to our Congress-Critters and their spending habits. I always try to remember that the old saying "put your money where your mouth is" holds very true for them. Don't listen so much to what your Congress-Person says, watch what she/he spends on!

 

[Sunset]

The one that always gets me is the "The rich should pay their fair share." No one ever says what that share should be. I may agree with the statement, but not its usual meaning, which is "The rich should pay more than we're taking now."

..

If this ever came true, a fair share could be like a vote, equal for everyone. Everyone pays the same amount.

 

[Gumby]

The people who pay the most taxes percentagewise are probably the well paid salaried professionals. They get W-2 wages, taxes are paid off the top and they do not have avenues to reduce them that are available to business owners and people who get their income streams from something other than salary. That was the story of my working life - I made good money, but I paid a boatload of taxes along the way. >39.6% federal marginal in some years.

 

[djsander]

Nobody wants to pay more taxes. So, the rich need to pay more as the argument goes. When the individual defines the rich it is anybody that makes more than them! A lot of good points on this thread.

 

[Magus]

I am not a fan at taking aim at a particular class. There are "good" and "bad" across every income level.

From what I can see, most people on this board work to avoid, not evade, taxes; and many seek to minimize their income to maximize their subsidies. It seems as if most want someone else to pay their taxes and/or pay for their benefits.

When I pay my estimated taxes, the IRS states if your payment is in excess of 100 million, to break it up into partial payments. BTW, that doesn't pertain to me.

We know that most taxes are paid by higher earners but when was the last time that the administration sent out a thank you to the high tax payers?

Agreed - looks like Bill Gates pays $500m a year in taxes from that article. Thanks Bill!

I believe we need a tax overhaul, in general. But have no idea what or how. If we could simplify and get rid of so many deductions, it would help. I am not sure a flat tax is a great idea either, as I have read it is harder on those with less money, but admit I don't know that much about it.

Believe it or not, probably 90% of deductions from 60-70 years ago have been eliminated - the so called 90% tax rates were a joke because you could deduct a stupidly large amount of things - hence why they had to add the AMT in the late 60s because so many millionaire income folks were paying zero income taxes.

The main problem is the extremely wealthy (say $500m+ in wealth) make a stupidly large amount to the average American, there just aren't that many and it just doesn't generate that much taxes - you need a much larger tax base - really folks in the $100k to $500k range - to really make a big difference in our $5T annual federal budget. And that's just not a real political option unless you are looking to retire lol

If you really want the ultra rich to pay more taxes, you need to change the laws, which will require that you stop allowing them to buy a Congress amenable to them.

Agreed! Doesn't help that most of our politicians want to join that class one day themselves

 

[MichaelB]

In addition to all the consumption taxes, a fair number of people work and pay taxes on the salary earned, but because those taxes are termed “payroll” and not “income”, they are regularly used as examples of people who pay no taxes.

The people who pay the most taxes percentagewise are probably the well paid salaried professionals. They get W-2 wages, taxes are paid off the top and they do not have avenues to reduce them that are available to business owners and people who get their income streams from something other than salary. That was the story of my working life - I made good money, but I paid a boatload of taxes along the way. >39.6% marginal in some years.

The disparity between how labor and capital is taxed has grown over time. Ironically, there is a surplus of capital in this country but it is still taxed as if it were scarce. A larger and more robust economy would result from an increase in employment across all salary levels, but that income is heavily taxed. Our tax policies are driving us in the opposite direction of where we need to go.

 

[Magus]

“The law, in its majestic equality, forbids rich and poor alike to sleep under bridges, to beg in the streets, and to steal loaves of bread.”

Anatole France - The Red Lily (1894)

LOL is that a real quote? If so that is amazing. I might steal that for the future.

 

[Letj]

That reminds me. I better sit down and do my 2021 income taxes. But of course, I'm no billionaire.

Nice to keep things simple when it comes to my business. And I don't have the headaches of having to plan out and execute any saving tax strategy either.

But this is the starting year of my RMD's, and more decisions will be required.

You need to accumulate some more. That way you can hire experts.

 

[Letj]

In addition, those who will never have the means to "buy" a Congress, tend to vote as if one day, they just might. They vote to protect their never-to-really-be Future self, who, just maybe, becomes a billionaire, and they would not want that future billionaire self to have any less ways to reduce their taxes.



Many people don't vote with their actual wallet, but their fantasy wallet.



I'm also fine with anyone taking full advantage of legal allowances..to a point. When it comes to shell corporations, off shore stuff, eh....dodgy.

This!! As for me, can’t imagine what I would need billions for. It would be an absolute waste of resources on me. I won’t/can’t spend what I have so I don’t know how billionaires manage.

 

[Chuckanut]

I think the issue is not how much the rich folks pay, but do they use their money and influence to tilt the playing field in their favor. They can do things that the rest of us can't, like buy their own election. Let me give you a clear example of that:



https://www.wired.com/1997/06/paul-allen-ventures-into-seattle-election/

Paul Allen's latest investment - this time in the election process itself - seems to have paid off. In an unprecedented statewide election in which the balloting itself was funded by the Microsoft billionaire, Washington voters approved Referendum 48 to fund a new US$425 million football stadium for the Seattle Seahawks.


Allen will now buy the football team for $200 million. During the campaign, Allen agreed to reimburse the state $4.2 million for the election itself. That's on top of more than $5 million he spent on an unrelenting pro-stadium media barrage that filled the state’s airwaves over the past month.


As of last count at midnight Wednesday, Referendum 48 was leading, with 51 percent of the vote, or a 22,000-vote margin. Some 137,000 votes had yet to be counted. Assuming that the measure passes, Allen will buy the Seahawks from owner Ken Behring, who threatened to move the team to Los Angeles last year.

In effect, he bought his own election, and the timetable for the election. IIRC, the opposition had a bit over a month to raise money and make their case.

Was this fair? You can judge for yourself. But, I think it's the cunning use of money, much of which goes goes on under the radar, that is what concerns people.

 

[Magus]

The people who pay the most taxes percentagewise are probably the well paid salaried professionals. They get W-2 wages, taxes are paid off the top and they do not have avenues to reduce them that are available to business owners and people who get their income streams from something other than salary. That was the story of my working life - I made good money, but I paid a boatload of taxes along the way. >39.6% marginal in some years.

Yup - 30% federal income effective rate for me for 2021 and 5% state, plus medicare, SS, $50k in property taxes, plus sales/use/etc taxes I think put me at roughly 45% effective all in, higher if you count company match of medicare/SS. I've come a long ways from 20 years ago when I made $7/hr and paid about 2% effective rate federal! I am looking forward to retiring in 2-3 years and getting my effective rate down to about 18% all in and 5% federal...

 

[Letj]

You pay income taxes?!!? 60% of US citizens do not. The only taxes they pay are sales taxes.

Only sales tax? The last time I checked, my tax rates were higher than many pay in European countries. I pay Federal, state, city, real estate, sales, personal property, FTC Communication, hospitality taxes, vehicle taxes, net investment taxes and a host of other nickel and dime taxes.

 

[Midpack]

Campaign finance reform, and that seems highly unlikely. But until then, this is all tilting at windmills. For a politician to claim some billionaire isn’t paying their fair share in taxes is the height of hypocrisy. Fix the tax code or shut up.

 

[travelover]

Only sales tax? The last time I checked, my tax rates were higher than many pay in European countries. I pay Federal, state, city, real estate, sales, personal property, FTC Communication, hospitality taxes, vehicle taxes, net investment taxes and a host of other nickel and dime taxes.

Plus FICA and Medicare taxes

 

[OldShooter]

Plus FICA and Medicare taxes

Actually most payroll "taxes" aren't taxes at all. FICA, Medicare, Work Comp, Unemployment, are all insurance schemes and the "tax" is really an insurance premium. The people that pay in will (statistically) get most of their money back excepting, of course, vigorish retained by the bureaucrats.

Re "nibble" taxes there are many of course, but the tax biggies are income taxes and sales taxes. I maybe should have mentioned property taxes, which nationally are about 2/3 of sales tax collections, but vary significantly state by state.

 

[GravitySucks]

It isn't all that complicated. I should pay less in taxes. Everyone else should pay more.

Don't tax you
Don't tax me
Tax that fellow
Behind the tree.

§Russel B. Long

 

[jimbee]

Many assumptions, little data.

 

[travelover]

Many assumptions, little data.

I'm impressed by your data.

 

[Closet_Gamer]

IMHO, the problem isn't in-life wealth creation, its inter-generational wealth transfers.

Jeff Bezos went from packing books in his apartment to having enough money to look and act like a James Bond villian. Along the way, he changed the world and had the courage to not sell all his shares when it was "only" worth $2B.

Bill Gates started comfortably wealthy and then changed the planet. Along the way he didn't sell off all of his shares. He's now trying to cure disease in Africa.

Elon Musk...you get the idea.

Amen to them.

But that's not to say all is right in the world:

The relative treatment of earned vs. non-earned income is not right and things like stepped-up cost basis at death are downright silly for the super-wealthy and the rest of us alike.

The problem I would personally address is dynastic, multi-generational wealth.

A modest proposal:
Tax the concentration of inheritance received rather than the size of the estate.

For example, we could decide that any inheritance (all sources) to an individual in excess of $5m would be taxed at 99%. Below $5m is 0%.

If Jeff Bezos decided at his death to distribute his $200B by giving 2m families each $100k...zero taxes. Best lottery every. A lifetime of wealth goes back into society. And Bezos can decide how its distributed. Knock yourself out.

If he decides to give it to his one kid? We will take about $199B of that, thank you for playing. His kid will have scrape by on $1B.

I think this single change would do much to disrupt the creation of a new aristocracy, which is as the root and long term risk of these challenges. (Of course, we can now all argue about wether the cut-off is $1m, $5m, $10m...)

My $0.02.

 

[PERSonalTime]

True to that, Gumby!

1+

 

[Magus]

Closet Gamer - good post and ideas but it’s even trickier than that. Many of these huge billionaires are skirting inheritance tax laws entirely by sticking huge amounts of money into their foundation tax free and then letting their kids and friends run the foundation, where they can use those funds for anything they want, including huge salaries and massive perks for themselves, their families and their friends while the investments grow tax free forever. And that’s just the tip of it depending on how egregious someone wants to get (foundation buys things at outrageous prices from family that qualify as LT capital gains). The “giving pledge” isn’t nearly as charitable as they pretend. 10-15% of the money does get spent on good causes on average I suppose at least.

 

[target2019]

Closet Gamer - good post and ideas but it’s even trickier than that. Many of these huge billionaires are skirting inheritance tax laws entirely by sticking huge amounts of money into their foundation tax free and then letting their kids and friends run the foundation, where they can use those funds for anything they want, including huge salaries and massive perks for themselves, their families and their friends while the investments grow tax free forever. And that’s just the tip of it depending on how egregious someone wants to get (foundation buys things at outrageous prices from family that qualify as LT capital gains). The “giving pledge” isn’t nearly as charitable as they pretend. 10-15% of the money does get spent on good causes on average I suppose at least.

+1

 

[Ronstar]

I'd like to see income taxes eliminated, and a new tax system put in place based on consumption. Probably would trim the IRS by 80%.