Monday, December 12, 2011

Gift Taxes on the Fabulously Rich

Not only does this article touch on these tax breaks for the rich, but shows just the tip of the iceberg of how the biggest banks and corporations are so closely inter-connected.

When the Bush tax cuts were extended for two more years, it also dropped the estate tax due from wealthy families down below the bargain-basement estate tax rates in place during the Bush years. In 2011 and 2012, wealthy couples will be able to exempt from estate tax the entire first $10 million of their fortunes — and pay a tax no higher than 35 percent after various allowable deductions.

Newt Gingrich calls this "the death tax" and wants to end it permanently so Paris Hilton and others in the top 1% can continue hoarding the money supply.

But the tax deal’s ample generosity to America’s most financially favored went even further. The deal guts a federal tax levy on wealth most Americans don’t even know exists: the “gift tax.”

Wealthy Americans, ever since 1932, have been paying taxes on any substantial gifts they pass on to family and flunkies. Why a “gift tax”? Without a gift tax in effect, the wealthy could easily sidestep the estate tax by giving away the bulk of their fortunes before they die. (Read: A History of Federal Estate, Gift, and Generation-Skipping Taxes)

With a gift tax in effect, the wealthy can still give away whatever they want, whenever they want. But if they try to pass a huge chunk of change to junior before they die, they have to pay Uncle Sam a tax on that chunk.

This gift tax has always come with exemptions. Gifts to charities have never been subject to gift tax. And deep pockets have also enjoyed both a “lifetime” and an annual exemption on the gifts they make to individuals. Since 2002, the “lifetime” exemption has stood at $1 million.

But in 2010 and 2011, the tax deal's fine print stipulates that the lifetime gift tax exemption jumps from $2 million per couple to $10 million a couple.

Even better, the tax cut deal (in fine print) lets stand a complicated estate planning technique known as the “Walton grantor retained annuity trust” — named after the heirs of the Wal-Mart fortune — that allows America’s wealthy to undervalue the actual worth of the assets they give away.

With a higher new lifetime gift tax exemption and a wide-open Walton loophole, estate tax expert Stephan Leimberg recently explained to Forbes, the rich will be able to shift “an unbelievable amount of wealth” beyond the reach of the IRS.

Also the capital gains tax, a key rate for the very rich, remained at its historically low rate of 15%, while the top ordinary income tax rate stayed at 35% (of which only a small portion of the top .01% actually pays).

How much will all this “giving” (as in "gifts") cost the federal government in lost revenue? We have no real way of knowing. We do know that the rich have already — even before the new tax deal— been stashing staggering amounts of wealth in “trusts,” a gift category that minimizes “estate tax exposure.”

One new estimate of this stash, from a leading financial planning trade journal editor at Forbes, places the total value of assets currently sitting in personal trusts at $1.1 trillion.

One example of a "giver" might be James Dimon, who is the current chairman, president and CEO of JPMorgan Chase - and who previously served as a director of the New York Federal Reserve. Dimon was named to Time magazine's World's 100 most influential people. Dimon also ranked 112nd on the Forbes Executive Pay in 2011. He's worth about as much as Mitt Romney.

As CEO of the richest company in the world (ranked # 1 on Forbes Global 2,000), Dimon is railing against bashing the rich. "Acting like everyone who's been successful is bad and that everyone who is rich is bad — I just don't get it," said Dimon at the conference, which was organized by Goldman Sachs.

Dimon said he's worked on Wall Street for much of his life and contributed his fair share. "Most of us wage earners are paying 39.6 percent in taxes." Wages earners? Fair share? That was his big lie in defense of his fellow Wall Street bankers.

Dimon also said JPMorgan Chase has the authority to repurchase more of its shares. JPMorgan has repurchased about $8 billion in stock in 2011, the limit. Banks have been eager to buy back their own shares at depressed prices.

The value of Dimon's un-exercised stock-options that are currently exercisable is valued at $59 million; meaning he can sell for a "realized capital gain" and pay 15% in taxes, instead of the top marginal rate of 35%...his real "fair share". (Read: How the 1% Bilks the 99% with stock buy-backs, stock-options, off-shore bank accounts, low capital gains taxes, and "prepaid forward” deals)

Dimon is married to Judith Kent; they have three children: Julia, Laura, and Kara Leigh. But Dimon is only 55 years old, so his kids will have to wait for their inheritance before they'll have to worry about how to avoid inheritance taxes; but in the meantime they can still enjoy "gifts" from dad without worrying about the IRS.

Other notable members on JPMorgan Chase's board of directors include:

JPMorgan Chase's executive compensation list.

But James Dimon, as the CEO of JPMorgan Chase with only $59 million in reported exercisable shares in the bank, is small potatoes. One of his real bosses may be the CEO of the Vanguard Fund.

JPMorgan Chase currently has 3.8 billion in outstanding shares and the Vanguard Group is the largest institutional shareholder of JPMorgan Chase. With $1.3 trillion in assets, Vanguard is the nation's largest fund company. Here's what Vanguard owns in JPMorgan Chase:

  • Vanguard Total Stock Market Index 42.6 million shares
  • Vanguard 500 Index Investor 34.8 million shares
  • Vanguard Institutional Index Institutional 31.9 million shares
  • Vanguard Windsor II Investor 23.9 million shares
  • Vanguard Wellington Investor 20 million shares
    * Source: Morningstar

Vangaurd's CEO is F. William McNabb III. How much does he earn? "We don’t disclose the compensation earned by any crew member. We believe that compensation matters deserve the same privacy protections that we provide to shareholders and their account information."

But we're sure he also enjoys the lack of estate and gift taxes on the fabulously rich.

How the wealthy are faring:

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