Thursday, December 1, 2011

How the 1% bilks the 99%

We already know how they gouge us with high prices, excessive interest rates, the cap on their Social Security taxes, taxpayer subsidies, hidden charges, low wages, etc. But there's other ways they bilk us too...by dodging income taxes. But don't "raise" taxes on the rich, just make them pay what they should have been paying all along...ever since 1921.

Besides hiring lobbyists to have Congress rig the tax code in their favor, the ultra-wealthy can also hire expensive tax attorneys to find "loopholes" - - and that's why our tax code is so complicated, and how the rich get off paying their fair share of taxes.

* The middle-class was actually doing their very best when taxes on the rich and corporations were at their highest levels ever (and the wealthy still prospered). Read my post: Tax Rates during the Fabulous Fifties (Remember when mom didn't have to go to work to help dad pay the mortgage?)

The current debate over payroll taxes:

The GOP wants to freeze federal wages and/or lay off more government workers to "pay" for extending the payroll tax cut, instead of taxing people who EARN $1 million annually to help offset the cost.

The Republicans have argued against that - - - they argued against taxing private and corporate jets (or cutting oil subsidies), and that even if we did tax the rich an additional 3.25%, it wouldn't be enough...and that's their argument, "It's not enough". So in other words, they don't want to tax them any more, at all, for any reason.

If a starving man needed a whole loaf of bread to cure his hunger pangs, but the GOP only had a single slice, they wouldn't give the starving man any bread at all!

If that's the GOP's best argument ("It's not enough"), then tax them more! Read: Tax the Rich! In Fact, Let's Double Their Taxes!!! by Richard (RJ) Eskow, Consultant, writer and Senior Fellow, Campaign for America's Future

They ultra-wealthy have already had their tax breaks for a decade now, and they haven't created more jobs. Just the opposite. They have either outsourced, cut wages and benefits, or laid off and downsized - - - but not created enough jobs; and all while they've been earning record profits and salaries. But yet, the Republicans still INSIST on calling them "job creators", when all they've created was more personal wealth for themselves.

And the GOP has also used all the other tired old arguments too...like "punishing success" or "waging class war" on people earning over $1 million a year (not millionaires per se, just those who "earn" that much annually).

Most people who earn an income of over $1 million a year are:

  1. Not small business owners
  2. Earn the bulk of their earnings with capital gains. This includes bankers, hedge-fund mangers, CEOs, and investors like Warren Buffett.

How the 1% Bilks the 99%

Stock buy-backs, stock-options, off-shore bank accounts, low capital gains taxes, and "prepaid forward” deals.

People who earn over $1 million a year aren't just paid a salary or weekly paycheck (if at all), but have stock-options and "variable prepaid forward contracts" (see the gray box at the end of this post).

The tax rates are currently at historical lows, but I would suggest, don't "raise" taxes on the rich, but rather just tax them according to their current marginal rate (over $1 million a year in personal earnings would put them in the top income bracket with a tax rate of 35%).

The top 1% pays 70% of all capital gains taxes. Instead of slapping a 3.25% "surtax" on incomes above $1 million, just tax capital gains as “regular” income (which is 35% for the top marginal income earners). Right now they're only paying 15% for capital gains taxes (a rate they have not seen since 1921, when capital gains were once taxed at 12.5%). 

Before 1921, capital gains were taxed as "regular" income. Why did that change? That is money going into people's pockets, not into a corporate treasury for expansion and business growth (and creating more jobs).

CEOs only “earn” bonuses when their company “performs.” One measure of that performance: “earnings per share,” or company income divided by outstanding shares of stock. Execs have figured out that they don't have to actually boost earnings to hit their per-share targets. They simply reduce the number of company shares — by having their companies “buy back” shares of their own stock off the open market. U.S. corporations overall have so far this year authorized $445 billion worth of buybacks.

The CEO and board of directors puts this cash into a bonus pool and pays themselves with stock options and pays a capital gains tax of only 15% after they're vested and sells after one year.

Herman Cain's want to lower the capital gain tax that these CEOs pay on those stock options from 15% to 9%. Newt Gingrich and others wants it to be 0%. That's how they escape paying the top marginal rate of 35% over $376,000.

That's why Warren Buffett's secretary pays more in taxes as a percentage of her earnings than Warren does. And with corporations only paying an average effective corporate tax of 18% (and NOT 35%) they can afford to back more stocks from their profits and pay themselves more, and pays a less effective income tax rate than the rest of us.

* See these links to learn more on how CEO's stock-options work and how hedge-fund mangers benefit from this preferential tax treatment for the rich.

U.S. Obtains Data From 10 Swiss Banks In Tax-Dodging Probe 

(September 10, 2011) - Switzerland, a noted tax haven that is the global capital of offshore private banking, has been under attack from U.S. Justice Department and Internal Revenue Service officials conducting a broad criminal investigation into private banking services that U.S. authorities say enabled wealthy Americans to evade billions of dollars in taxes.

http://www.huffingtonpost.com/2011/09/10/us-tax-dodgers-switzerland-probe_n_956693.html

More GOP Propaganda

[Fox News] pollster Frank Luntz giving advice to the Republican Governor’s Association:

Luntz told Republicans to re-frame the concept of the bonus payment — which bailed-out Wall Street doles out to its employees during holidays — as “pay for performance” instead.

– Don’t Mention The Middle Class Because Americans Don’t Trust Republicans To Defend It: “They cannot win if the fight is on hardworking taxpayers,” Luntz instructed the audience. “We can say we defend the ‘middle class’ and the public will say, I’m not sure about that. But defending ‘hardworking taxpayers’ and Republicans have the advantage.”

– Don’t Talk About Taxing The Rich: Luntz reminded Republicans that Americans actually do want to tax the rich, so he recommended they instead say that the government “takes from the rich.”

Also see my post: Republicans Use Psychology to Promote Fear

Another Way the Rich Dodge Taxes

From TooMuch: The rich can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all. Today's super rich can't turn tin into gold, but they can get Uncle Sam to loan them free money. At the expense, of course, of the bottom 99%

How much money is pouring into the pockets of America's richest 1 percent? How much of this income are America's richest paying in taxes?

Major media outlets have been asking questions like these ever since the Occupy Wall Street movement first started gaining traction earlier this fall. But the numbers in their answers, suggests a groundbreaking new analysis from Bloomberg reporter Jesse Drucker, aren't telling the full story.

America’s mega rich are actually taking in much more in income, Drucker shows, than their tax returns indicate. Hundreds of millions more. And this hidden income has reduced their effective tax rate — a figure already lower than the rate average Americans pay (15% for capital gains) — even lower.

We’re not talking patently illegal tax evasion here. We’re talking complex financial transactions that would do medieval alchemists proud.

Those alchemists long ago struggled mightily to turn common metals into gold. Lawyers and money managers for today’s mega rich can routinely pull off a trick almost as lucrative: They can make money off of unrealized capital gains.

This trick carries various arcane labels like “variable prepaid forward contracts.” But the goal always remains simple and straightforward: to grab as much tax-free cash as possible out of assets that have increased in value.

How does the trick work? Imagine yourself a major corporate CEO. You hold a huge stash of stock in your company. That stock has appreciated. If you sold your shares, you could clear a quarter billion dollars in personal profit. But you would also immediately face a capital gains tax on that quarter billion.

Now that prospect shouldn’t leave you particularly upset. The capital gains tax you face, after all, only runs 15 percent. That’s less than half the 35 percent you would be paying if capital gains were taxed at the same rate as ordinary income.

Some super rich in this situation do indeed just take their capital gain, pay Uncle Sam his 15 percent, and buy a bigger yacht. Others get creative. They don’t pay Uncle Sam. They get Uncle Sam to pay them.

These super rich go ahead and sell their shares — for colossal sums — but don’t deliver them to the buyer until a few years after they cut the deal.

At delivery time, these mega rich do report the income from the sale on their tax returns and pay the capital gains tax upon it. But in the meantime they’ve enjoyed what amounts to an interest-free loan from Uncle Sam.

Setting these deals up can cost the super rich millions in dollars in fees. But the returns make that outlay to accountants and tax lawyers well worth the expense. The rich, observes former New York State Bar Association tax section chair David Miller, “can use complex transactions not available to most Americans to get cash from their appreciated stock without paying any taxes at all.”

Dole Food chairman David Murdock, notes Bloomberg’s Jesse Drucker, played this game in 2009 when he pocketed $228.6 million for his Dole shares. He won’t “deliver” them until next November. Hank Greenberg, the former CEO at insurance giant AIG, parlayed a “prepaid forward agreement” into $278.2 million. Clear Channel Communications founder Red McCombs grabbed $259 million.

“Prepaid forward” deals first became all the rage for the wealthy about a decade ago, the New York Times reports. The IRS is still playing catch-up. An IRS crackdown of sorts did start in 2008. But the super rich haven't flinched much.

One reason: The odds of getting audited remain low. Another: Even if wealthy taxpayers do get challenged on prepaid forwards, notes New York tax analyst Robert Willens, they can count on a tax court settlement that lets them keep a hefty chunk of whatever the prepaid forward helped them make.

“Who wouldn’t want that?” asks Willens.

Maybe the 99 percent. And what could protect the 99 percent from the continuing super-rich drive to exploit appreciated assets? David Miller, the New York State Bar Association tax expert, wants the super rich to have to pay a tax on the annual increase in the value of their immense stock holdings.

Such a tax, even if only levied on America’s richest 0.1 percent, could raise as much as three-quarters of a trillion dollars over a decade’s time. At that prospect, even the super rich might have to flinch.

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2 comments:

  1. From the desk of Charles Payne today:

    "One of the best days in the history of the stock market follows the best ever Monday after a Thanksgiving holiday week and there could still be a ton of upside from here."

    Nice to know THEY are doing so well!

    ReplyDelete
  2. I also believe the push to save defense spending is really a plan to save corporate profits for defense contractors. A good article below, followed by two of my own posts.

    One Nation, Under Arms

    http://www.vanityfair.com/politics/2012/01/Todd-Purdum-on-National-Security

    Defense Spending, Bogus Parts, Transnational Mergers, Outsourcing & Budget Cuts

    http://bud-meyers.blogspot.com/2011/11/defense-spending-bogus-parts.html

    Defense Industry Launches Propaganda Campaign

    http://bud-meyers.blogspot.com/2011/11/defense-industry-launches-propaganda.html

    ReplyDelete