New Tax Breaks for the Rich Here in the USA, Part II

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I felt compelled to add my 2 cents to this thread. I admit to not reading the entire thread (and I didn't click on any links), but I am a CPA (tax accountant) here in the states.

The purpose of this link is to show people who really pays the taxes. There are two major misconceptions. The first is that the rich don't pay any taxes. The second is what is the definition of rich. The latest numbers I use are from 2000. In 2000 the top 25% of earners paid 84% of the individual income taxes. The kicker is you fall in that category if you made more than $55,225. At my company college grads with no experience are starting at $43,000. They are close to being considered rich.

I highly recommend people browse this site.

Tax Foundation

 

TGS - That really proves the point that the disparity between the rich and the poor is growing dangerously large. That such a small amount of people control most of the wealth is disgraceful. I guess that's why they pay the taxes - because they have ALL the money. Go figure.

BTW, I have to tell my wife that we are now in the "rich" category. She could use a good laugh.

 

Today in germany we have a vivid discusion about reducing taxes which are relatively high - however, there are many loopholes resulting in the major companies (or the rich for that instance) basically not playing taxes at all.

Why? Our tax system is about the most complex in the world, germany alone produces iirc 60% of tax related literature. The taxes are an issue so complex to the extent that ordinary people usually don't understand them, or feel so at least.
My point is that the rich generally don't much care about how high taxes are, and how complex, because they can afford excellent tax advice anyway to pay less than the ordinary citizen.

To say that the rich provide more to society by accumulating wealth and beeing eager and offering jobs, giving them a deserved bonus over the lazy ones is flawed. In fact, due to good counseling, they may do the absolute contrary: Provide less, if not nothing. That's the bitter irony of tax breaks for the rich.

Our solution here should be to axe tax exeptions and hidden subventions - but that is mostly illusionary. The lobby outcry is and will be deafening - the problem is that we lack the political will to do so, yet.

 

Ragusa is right in this. I remember hearing Kerry Packer-an Australian millionaire-say that if he paid more than $2 (which is $1 US) in personal income tax for the year he would fire his accountant immediately.

 

@ Chandos- Welcome to the ranks of the wealthy. . My wife thought I was crazy when I told her. You are absolutly correct in the disparity of wealth . Going back to the foundation's report in 1990 the top 1% meant returns with income of $167,427 made 14% of the income and paid 25.1% of the taxes. Move that to 2000 and the numbers changed to $313,469/20.8%/37.4%. This means that they are making more of the income, but they are picking up a larger share of the burden.

@Ragusa/Manus- Let me fill you in on a little secret. The number one trick tax advisors use to reduce peoples taxes is to get them to buy things. I have a client who collects garbage. By our calculations he is on pace for a $350,000 profit. Our current plan is for him to buy and finance a new garbage truck that will cost him $160,000. By using the latest approved depreciation methods I will be able to write off about $140,000 of the truck and his cash outlays in 2003 will be maybe one loan payment. The problem is next year he has to make 12 payments and will have minimal depreciation, which will probably mean more purchasing to cut the tax bite in 2004. My point is that most tax planning involves purchasing items which stimulates the economy and helps others make more. At least in the U.S. tax code there are no provisions that say "You are rich, so why don't you subtract X from your income here." Even though most people think that is the case.

 

Anyway, the question that remains is if that way, by purchasing items, the stimulus for economy (and the indirect growth in tax) outweighs the loss of direct tax for the government. Considering my german experience recent facts don't support that assumption.

When you have a business you can still write off much more than a normal employee can: Take an insurance agent who has to be mobile; he may be able to write off his car, as a major tool of his business. People who are employed and rely on their cars to get to their work can't while sharing basically the same problem.

And in the end, when both, the employee and the insurance agent, earn the same amount of money, the latter will have left more after taxes while both may even work as hard and as much. Of course, you can see this as an extra reward for the higher risk he has. It will still be seen as a disparity.

 

Tax Loopholes allow many of the rich to avoid paying most if not all of thier taxes. The same goes for companies. In KY in 2001 a gentleman made roughly 250,000 that year and did not pay a penny. Enron didn't pay a single dollar in taxes for 5 years straight. I can't make any serious deductions or run through any tax loopholes because I simply cannot afford to spend the money required to take advantage of them. The vast majority of people cannot either. Only the rich can take advantage of the majority of these loopholes that are intended for, guess what, the rich. So while yes, technically a rich person has a higher percentage share to pay than say me, Mr. Middle Class, guess what, if he has a good accountant he can easily end up paying less in taxes (percentage wise, though some will end up paying less in actual dollars) than me.

 

@Jschild

You couldn't be more wrong. See my above post. I believe it is part of the "class" struggle that makes people believe these fallacies.

1. The only way someone could make $250,000 and pay no taxes would be if in a prior year they had lost $250,000 and they had the loss suspended. Tax professionals are expecting a lot of this in 2003. Our clients have significant stock market losses that they are carrying forward. They will not have to pay taxes on stock market gains until they exhaust their carryforward losses. Other than that I imagine this KY man's story is a legend.

2. Everbody hates Enron, but go here to see their 2000 financial statement Enron financial statement. If you go to page 42 you will see that they paid $227,000,000 in taxes in 2000. In other words, just a little bit more than zero.

3. I love the mythical "loophole" theories. I've been an accountant since 1989. Please find for me a loophole that is unfair to the non-rich. A lot of tax provisions are phased out for people who make over $100,000.

4. You are correct about deductions. In order to benefit from deductions you basically have to own a home. If you do not you probably have to take the standard deduction and receive no benefit from your own deductions. Sorry, but that is a fact of life. The tax code benefits homeowners.

5. A rich person will never pay a lower percentage than a middle class person. Even if some strange occurance would happen the rich person would be subject to the alternative minimum tax which would remedy the situation. Once again, please peruse the tax foundation link from my previos post. There is a lot of good data there.

 

Snook

Perhaps some things I have been wrong on, I'll admit, but about enron, check this link http://www.chron.com/cs/CDA/story.hts/business/1776941

Also, here is a good link on how much taxes in some states are much harder on the poor and middle class than the rich http://www.tompaine.com/feature2.cfm/ID/7083

And also while the rich does shoulder the burden for "certain" taxes, once again it is mostly the poor and middle class that have to deal with other taxes (like payroll taxes) http://www.cbpp.org/4-16-02tax.htm

Again, I'm not saying that well off people aren't paying taxes, they are, but that there are tons of loopholes that need to be closed (Im not talking about only federal, state also is even worse) but I cannot understand what is so fearful to so many people about a flat tax rate with no loopholes or even a national sales tax to help, that way, the more you spend, the more you are taxed, nice and fair, and only allow true groceries to not be taxed. But since something like that would be fair, it will never happen.

 

See, I don't get this part of what you said. A national sales tax would be a regressive tax. The sites you linked arrived at their numbers by including a sales tax.

Here is how the complaint works:

Woker A makes $10,000 and worker B makes $1,000,000. Well, Worker A spends her money on certain things that have a sales tax and thus is taxed a certain amount of money. Worker B spends her money on the exact same things. However, while they both bought the same things and were taxed identically Worker A paid a higher percentage of her income in sales taxes. This is how the numbers to the site you listed are derived - a percentage of income. This is what the sites you linked would term an unfair and regressive tax. So, I'm not sure why you think it would be a fair tax when you link as support sites that say these type of taxes are a big portion of the problem.

Likewise, a primary obstacle to a flat tax is that people would view it as unfair to the poor and middle class. What number do you pick? Want to make a flat tax of 15% then you'll have the rich everywhere jumping on board and saying 'yeah flat tax!' but plenty of advocates for the poor will be saying, 'hey, that's a tax hike on us and a huge break for the rich!' Picking a higher number more in line with what the 'rich' pay now only makes things worse on the 'poor.' I mean, there is a reason the most well known advocate for a flat tax in the US was Steve Forbes - he's not exactly a crusader. So, how do you offset this?

The entire notion behind a progressive tax structure is that the 'rich' should pay more since they have more and, I'd argue, the system has helped them get to that point.

There is wide latitude in interpreting 'fair.'

A lot of the so called 'tax loopholes' are technical and confusing because it is a technical and confusing subject - what is income? How do you determine what is and what isn't income? It may seem simple enough but it's really complex and there can never be a simple 'nice and fair' tax system because economic activity is entirely too diverse to classify it all neatly.

 

But on sales tax, a worker who makes 10,000 a year does not buy the same things as he who makes 1,000,000. Worker a buys a 90.00 television for christmas. Worker B pays 10,000 for a flat screen plasma HDTV with surround sound. And as I am exempting groceries, they aren't hit very hard for the essentials.

 

Even exempting things like groceries the 'poor' would still pay a higher % of their income in sales taxes. What about gasoline? Exempting it from taxes would really be a hard policy decision. Then there are plenty of non-grocery items that the 'poor' spen their money on. The 'rich' on the other hand invest that money in stocks etc and don't have a sales tax so are taxed at a lower % by sales taxes.

Edit - that isn't very clear. I'll try again. Suppose the 'rich' guy goes out and buys the super duper computer for $5000. Then the 'poor' guy wants a computer for his kids and goes out and buys one for $500. Well, that's 0.5% of the rich guys income and 5% of the poor guys income. So, the 'poor' guy is taxed more than the 'rich' guy - at least, that's the way the argument works on the sites you linked. Computers are becoming more and more a necessity but can we leave them untaxed? How about clothes? How about...

Then, after the rich guy has bought everything he couls want, top of the line stuff, he still may have a lot of income left over (particularly since he bought all that stuff last year, and the year before and owns his house etc. and you only need so many plasma t.v.'s). So, he ends up with all this money and has bought what he wants. The poor guy though continues to use a higher percentage of his income for necessities than the rich guy.

That's why the sales tax is seen as a regressive tax - the poor have to use a higher percentage of their income than the rich to buy things. Of course, the rich are still paying a higher absolute value but then none of the linked sites ever denied that.

Of course - combining state and local sales taxes with federal income taxes to talk about relative tax burden may blur the overall topic since, of course, what is done in Washington D.C. has nothing to do with what the state of Washington chooses to do with a sales tax or property tax or state income tax or...

[ October 15, 2003, 15:02: Message edited by: Laches ]

 

Read a newspaper article today. Just some numbers to think about if your an tax-payer. here

Total FY02 Federal Fund Outlays = $1,469 billion.

Total: Spending for Military Activities ===========
$587 billion

So, every third taxed-dollar goes into military spending. The GPD is about 10 Trillion. Military spending compared to GPD is 5%. AInterestingly, the numbers on the CIA-Factbook haven't been updadted since 1999, while the rest of the side was updadet 2003. Still partying like it's 1999 ? The British numbers have been updated 2002. 2.32% (2002). The Danish numbers are 1.4% (FY99/00)

OK, ok, ok. I must confess, accounting is a very special art. And I only have a random clue.

Have a nice day.

 

Am I reading that site right? The Quaker group just decided that they would not include things like Social Security, Medicare, and highway funds in determining the total amount. Yet at the same time they just decided that they would include things like the cost of retirement of military folks etc and then a huge number for interest on public debt that they estimate is a result of things like World War II debt for determining the cost of "military activities."

Given the stated purpose of the group is to "Promote a more peaceful and equitable world by shifting federal budget priorities away from military spending and toward funding basic human needs at home and abroad" I'm not sure that their decisions on what gets counted as what is necessarily the most... impartial accounting around.

*shrug, that's my initial impression.

That military spending is up seems really logical to me given the current circumstances too. (Please note that I can say that without saying - 'I'm for war with Iraq.' I argued against going to war with Iraq but not because it would cost money -- I'm just saying military spending should be up right now and, I guess, imo that shouldn't determine whether that is right or wrong).

I'm not really sure either exactly how it's related to "tax breaks for the rich" or determining how the tax burden should be distributed. Seems more like a new topic on, "should the US spend a certain amount of money on the military."

 

Yeah, the article in the paper I was reading while driving home was about how our statistics suddenly say, that our fiscal quote looks suddenly better, because we have adapted our accounting principles to OECD-European standard.

Then it occured to me, that this threat in the first was about taxes and who pays taxes. And that only 50% of the Americans pay federal income taxes.

Well, as your assessment shows, federal income taxes are peanuts compared to the whole taxes the usual American pays. You have to include Social Security, Medicare and Highway funds and then you talk about the taxes the federal budget actually consists of.