Bud Meyers

Friday, November 25, 2011

The Laffer Curve & Capital Gains Taxes

Low Corporate Taxes = Excessive CEO Salaries

It doesn't matter what a corporation pays in taxes as compared to GDP, or how it's compared to any other index of measure (to skew the numbers), it's what they actually pay to the U.S. Treasury after loopholes (aka "deductions") that matters most. And for the last 25 years corporations have actually paid historically low taxes.

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

The same can be said for their CEOs and other high-income earners. While although the top bracket is also almost historically low (at 35%, when it was once over 90%), what they actually pay is nearer to 15% because the majority of their income is earned through capital gains.

And because corporations have been paying a low effective corporate tax rate for decades, that didn't keep them from outsourcing jobs overseas for cheap labor, but rather, it did enable them to pay very excessive CEO salaries...who only mostly pay 15% in federal income taxes on their capital gains.

Two researchers using the Laffer Curve have just calculated a tax rate on the rich that would maximize revenue to the government. If you assume a broad base and no deductions, they peg the revenue maximizing-rate for top earners at 76%. That's for federal income tax only. (In reality, the very top earners today only pay 15% on capital gains.)

The Laffer Curve shows that if both a 0% rate and 100% rate of taxation generate no revenue, it follows from the extreme value theorem that there must exist at least one rate in between where tax revenue would be a maximum. The Laffer Curve is typically represented as a graph which starts at 0% tax, zero revenue, rises to a maximum rate of revenue raised at an intermediate rate of taxation and then falls again to zero revenue at a 100% tax rate.

Economist Paul Pecorino presented a model in 1995 that predicted the peak of the Laffer Curve occurred at tax rates around 65%.

A 1996 study by Dr. Y. Hsing of the United States economy between 1959 and 1991 placed the revenue-maximizing tax rate (the point at which another marginal tax rate increase would decrease tax revenue) between 33% and 36%.

A 1981 paper published in the Journal of Political Economy presented a model integrating empirical data that indicated that the point of maximum tax revenue in Sweden in the 1970s would have been 70%.

A recent paper by Trabandt and Uhlig of the National Bureau of Economic Research presented a model that predicted that the U.S. and most European economies are on the left of the Laffer Curve (in other words, that raising taxes would raise further revenue).

The New Palgrave Dictionary of Economics reports that for academic studies, the mid-range for the revenue maximizing rate is around 70%.

A study by Teather and Young of the conservative Adam Smith Institute has suggested that the optimal rate for capital gains tax, as opposed to income tax, may be around 20% (today it's only 15%), but this is at least partly due to savvy taxpayers holding onto assets in anticipation of tax rates being lowered in the future.

A 2007 study by the conservative think tank, the American Enterprise Institute, found that the revenue maximizing rate for corporate taxes in OECD countries, such as the U.S. (Organization for Economic Co-operation and Development) was about 26%, down from about 34% in the 1980s. But even if you agreed with this assessment, for the past 25 years corporations have actually only been paying an "effective" tax rate of 14% to 18%).

In 2005, the Congressional Budget Office (CBO) released a paper called "Analyzing the Economic and Budgetary Effects of a 10 Percent Cut in Income Tax Rates". In the paper's most generous estimated growth scenario, only 28% of the projected lower tax revenue would be recouped over a 10-year period after a 10% across-the-board reduction in all individual income tax rates. The paper points out that these projected shortfalls in revenue would have to be made up by federal borrowing. And what have we been forced to do since the Bush tax cuts?

Supply-side economics is a school of macroeconomic thought that argues that overall economic well-being is maximized by lowering the barriers to producing goods and services (the "Supply Side" of the economy). By lowering such "barriers" ( as in: reasonable environmental and financial regulations, fair taxes, and fair wages), consumers are thought to benefit from a greater supply of goods and services at lower prices. (As in goods made in China like iPods and cheap Chinese-made goods sold at Wal-Mart).

Typical supply-side policy would advocate generally lower income tax and capital gains tax rates (to increase the supply of labor and capital), "smaller government" (as in Social Security, Medicare, and unemployment insurance) and a lower regulatory "burden" on enterprises (to lower costs). Although tax policy is often mentioned in relation to supply-side economics, supply-side economists are concerned with all impediments to the supply of goods and services and not just taxation.

Supply-side advocates have argued for lower taxes on the basis of supply-side benefits while citing the Laffer curve as a reason that such cuts would also raise revenue. However, the objective of supply-side theory is to maximize the supply of goods and services, and to achieve this one should, in theory, always lower taxes. In contrast, the Laffer curve would suggest that a tax cut would raise tax revenues only if current tax rates were in the right-hand region of the curve.

The Laffer curve and supply-side economics inspired Reaganomics ("trickle-down") and the Kemp-Roth Tax Cut of 1981. Supply-side advocates of tax cuts claimed that lower tax rates would generate more tax revenue because the United States government's marginal income tax rates prior to the legislation were on the right-hand side of the curve.

David Stockman, Ronald Reagan's budget director during his first administration and one of the early proponents of supply-side economics, was concerned that the administration did not pay enough attention to cutting government spending. Stockman said that "Laffer wasn't wrong, he just didn't go far enough" (in paying attention to government spending).

Some have criticized elements of Reaganomics on the basis of equity. For example, economist John Kenneth Galbraith believed that the Reagan administration actively used the Laffer Curve "to lower taxes on the affluent." Critics also point out that since the Reagan tax cuts, income has not significantly increased for the rest of the population.

Former Labor Secretary and economist Paul Krugman contended that supply-side adherents did not fully believe that the United States income tax rate was on the "backwards-sloping" side of the curve and yet they still advocated lowering taxes.

Political authorities saw that other national governments fared better by having tax collectors claim a medium share of a rapidly growing economy (a low marginal tax) rather than trying to extract a large share of a stagnant economy (a high average tax). Another explanation might be that a higher tax rate also increases the risk of tax evasion towards tax havens, which leads governments to lose revenue. (But even with the Bush tax cuts, people were still moving money to off-shore accounts. They prefer to pay NO taxes.)

A new report Peter Diamond and Emmanuel Saez calculated the tax rate on the rich that would maximize revenue to the government as 76%. Paul Krugman summarizes:

"In the first part of the paper, D&S analyze the optimal tax rate on top earners. And they argue that this should be the rate that maximizes the revenue collected from these top earners—full stop. Why? Because if you're trying to maximize any sort of aggregate welfare measure, it's clear that a marginal dollar of income makes very little difference to the welfare of the wealthy, as compared with the difference it makes to the welfare of the poor and middle class. So to a first approximation policy should soak the rich for the maximum amount—not out of envy or a desire to punish, but simply to raise as much money as possible for other purposes.

Now, this doesn't imply a 100% tax rate, because there are going to be behavioral responses—high earners will generate at least somewhat less taxable income in the face of a high tax rate, either by actually working less or by pushing their earnings underground. Using parameters based on the literature, D&S suggest that the optimal tax rate on the highest earners is in the vicinity of 70%."

Today the highest income bracket's tax rate is only half that, at 35%; but that rate doesn't kick in until one earns a "wage" of $379,000 a year; but even doctors are rarely paid this much (members of congress earn $174,000).

It's usually the CEO's of large banks, major defense contractors, oil barons, hedge-fund mangers, lobbyists, and corporate executives who fall into this higher income range. But the bulk of their earnings are usually not in the form of paid wages.

Those people (the top 1%) earn most of their money with capital gains earned through stock incentives and bonuses that are only taxed at 15%, not the upper marginal income tax rate of 35% (Regular working people earning over $35,000 a year pay 25%)

Rather than change the tax rates, just eliminate loopholes for corporations to collect the "full effective rate" of 35%, and tax capital gains as "regular income" and then tax them according to the current income tax bracket. If CEOs earn $5 million in stock options, rather than tax them at 15% for capital gains, tax them at 35% for regular income.

It would be half as less than the proposed 70% rate (as suggested by the new data), and it would also bring in a lot more revenue for the U.S. Treasury.

Because corporations have been paying a low effective corporate tax rate for decades, that didn't keep them from outsourcing jobs overseas for cheap labor, but rather, it did enable them to pay very excessive CEO salaries...who only pay 15% in federal incomes for capital gains.

But Republicans, bankers, the Tea Party, and corporate CEOs are still crying about high taxes!

Ronald Reagan

Ronald Reagan's first tax bill was enacted in August 1981. It included a sweeping cut in marginal income tax rates, lowering the top rate from 70% to 50% (a whopping 20 percentage points) - and lowered the lowest rate to 11% from 14% (only a stingy 3 percentage points).

The House vote was 238 to 195, with 48 Democrats on the winning side and only one Republican with the losers. The Senate vote was 89 to 11, with 37 Democrats voting aye and only one Republican voting nay. Reaganomics had officially begun.

Wisconsin Republican Rep. Bill Steiger and Wyoming Republican Sen. Clifford Hansen, were two main sponsors of an important capital gains tax cut in 1978.

The highest tax rate on "unearned" (i.e., non-wage or capital gains and dividends) income dropped from 70% to 28%. The corporate tax rate also fell to 34% from 46%. And tax brackets were pushed out, so that taxpayers wouldn't cross the threshold until their incomes were far higher ($379,000).

The Wall Street Journal claimed that the highest 1% of income earners paid more in taxes as a share of GDP in 1988 at lower tax rates than they had in 1980 at higher tax rates.

To Ronald Reagan, what's been called the Laffer Curve was pure common sense. (There was no increase in the minimum wage over his full eight years in office).

Reagan also repealed the excess profits tax on oil companies (Windfall Profits Tax) who are today earning record profits, and like ExxonMobil, are dodging taxes as well.

The negotiations for what would become the North American Free Trade Agreement began in Reagan's second term, but it was President Clinton who pushed the agreement through Congress in 1993 over the objections of the unions and many in his own party. (New data now reports that 56,000 factories closed and 8.2 million jobs were lost from 2000 to 2010 due to outsourcing.)

President Clinton also signed into law a capital gains tax cut with the Taxpayer Relief Act of 1997 which lowered the top capital gains rate further, from 28% to 20%.

Conservatives claim that nothing other than Reaganomics created over 21 million jobs during Reagan's 8-year- term as President. The stock market went through the roof (as though "bubbles" were a good thing), and that low capital gains taxes drove the economy.

But little is said about starving the government of necessary revenues are needed to fund Social Security, Medicare, and infrastructure. Only defense spending is considered a priority by the Republicans and corporate America, because profits "defense" generates profits.

Then we had the Bush tax cuts which lowered capital gains taxes further still, to an historically low 15% (the lowest since they were first not taxed as regular income in 1921.

My Related Posts:

Other Related Articles:

It's not Class Warfare - it's just "Business"

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

What makes a grown man cry?

When Congress voted earlier this year on whether or not to end taxpayer-paid entitlements for big oil companies, ConocoPhillips CEO James Mulva (a Republican) cried, saying ending the tax breaks for the big oil companies would be "un-American", then he refused to apologize to the American people.

Republicans (who represent CEOs of large corporations) cry all the time too. When we asked large profitable corporations to pay their fair share of taxes, they cried, "You can't tax us, we're the job creators!" When we asked Fox News millionaires like Bill O'Reilly for a little more, they cried, "If you raise my taxes, I'll have to quit my job!" When we asked that the Bush tax cuts be allowed to expire so that we could balance the national budget, they cried, "That's class warfare!" or "Why do you want to punish the rich for their success?"

When a CEO (or Republican or Fox News commentator) cries about paying too much taxes, they're usually lying. It's almost as though they were all suffering horribly! They're like big cry babies! They're like sniveling rich spoiled brats, the privileged ones, who always feel entitled!

Does taxing these supposed "job creators" really cause unemployment? It seems more likely that by NOT taxing them has caused 30 million people to lose jobs since the Bush tax cuts from 2001 to the present.

America's middle-class peaked in 1979. As of 2010 50% of all American workers earned less than $27,000 a year when the poverty line for a family of four was $22,314. Of the total work force, 16% are unemployed and earned ZERO dollars last year (of those, 50% collected unemployment benefits at some time). The top 1% earns $1 million or more a year.

Because of the many loopholes in the U.S. tax code, on average, for the past 25 years the largest U.S. multi-national corporations and banks have paid a lower effective tax rate in corporate taxes (14% to 18%) than they would have in China (25%).

High taxes is not why U.S. companies outsource jobs, it's because China has very few (if any) environmental regulations and they offer very cheap labor. (Read: America's Race to the Bottom and Apple Inc. is Rotten to the Core)

The effective corporate tax rate has been steadily declining for decades. Corporations paid more than 50% of their profits in federal taxes in the 1950s, 38% in the 1960s, 33% in the 1970s and 25% in the 1980s. All the while, U.S. wages have been stagnant for years - - even as worker productivity has risen.

U.S. corporations are sitting on a huge and growing pile of cash. It just crossed the $2 trillion threshold, according to new Fed data. The Federal Reserve figures don't even include the substantial amount of cash held at many U.S. companies' foreign subsidiaries, which would be subject to taxation if the companies repatriated it.

And they're still bringing up the same old tired argument about "double taxation".

Double taxation is defined as the systematic imposition of two or more taxes on the same income (in the case of income taxes), asset (in the case of capital taxes), or financial transaction (in the case of sales taxes)

The IRS states: "The profit of a corporation is taxed to the corporation when earned, and then is taxed to the shareholders when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation."

Those who argue that capital gains taxes are a "double tax" are just full of crap.

If you work for a corporation and they pay you an hourly wage, is that a tax to them? If a corporation issues stock options to their CEOs in lieu of a cash salary, and after those stocks are sold and taxed as capital gains, is that a "double tax" on the corporation, or just another form of a wage that's paid to an employee from the corporate treasury?

When I get a paycheck, it has federal taxes and FICA deducted. Shouldn't the CEOs also have to pay their share of federal income taxes and FICA from their personal incomes?

Their argument of "double taxation" would be the same as if I took my paycheck and went to buy tires for my car and was charged a federal excise tax; wouldn't that also be a "double tax"? After all, the corporation that paid me an hourly wage also paid corporate taxes and I already paid federal income taxes before I received my paycheck

If I had earned $16.59 an hour ($35,501 a year) in that CEO's factory, I'd be in the 25% tax bracket. The CEO who pays me from the corporate treasury, and also pays himself with stocks options, would only pay 15% in capital gains taxes (and have their Social Security taxes capped).

Corporations have already been paying a declining "effective" corporate tax rate for decades (peaking in the 1950s), just as the CEOs have also been paying a declining capital gains tax rate too...hence, the record profits and record bonuses we've been hearing so much about.

These people NEVER think they earn money, because the greed for wealth is an addiction..."Wealth is like sea water; the more we drink, the thirstier we become." - Schopenhauer

The CEOs are already earning record profits and their corporations have been earning record profits. They've already over-worked us, under-paid us, over-charged us, and out-sourced us while under-paying us in tax revenues. It's time to tax.

A corporation by it's very nature won't go away and die if we tax them and their CEOs more. No matter what we do, they'll always over-work us, under-pay us, over-charge us, and out-source us more in their ever-ending quest for more profits...but at least we can keep them from under-paying their taxes.

Most of the corporate monsters we have today started out small when tax rates were much higher. That didn't inhibit their growth; they grew and grew, gobbling up smaller ones along the way, until they became giants (or "too big to fail"). They almost become an entity onto themselves. CEOs are expendable, and if you chopped off the head of a corporation, another one will grow back to take its place.

But I can sympathize with the people who run these multi-billion-dollar multi-national corporate conglomerates....about as much as they do for me. I'm tired of feeling sorry for the ultra-rich.

And I just hate to see a grown man (or woman) cry. Especially millionaires like Bill O'Reilly, Paul Ryan, Sean Hannity, Eric Cantor, Glenn Beck, Rick Santorum, Rupert Murdoch, the Koch bothers, Paul Rand, Karl Rove, Grover Norquist, Rush Limbaugh, Newt Gingrich, Herman Cain, Mitt Romney, and all the big bankers and CEOs.

But while they were crying all the way to the bank, I was standing in line waiting for food stamps. So we need to tax them, because if they won't hire and pay people, they can a least pay for their food stamps.

"Class warfare" by ass, it's just "business".

Ronald Reagan

Then we had the Bush tax cuts which lowered capital gains taxes further to an historically low 15%, not seen since before 1921 when capital gains were taxed as regular income.

My Related Posts:

Other Related Articles:

Click photo to enlarge.

Thursday, November 24, 2011

Happy Thanksgiving to the Top 1%

The rich are settling in for a nice Thanksgiving feast at their mansions today, while millions are struggling just to eat.

Now our politicians are looking at ways to stimulate the economy and balance the federal budget with a proposed $4.2 billion cut for the food stamp program that currently assists 45 million Americans, rather that cut $4.2 billion in defense spending. (See the report at YouTube)

Happy Thanksgiving to the top 1%!

Taxes: The Poor Man's Revenge

I know how we can get revenge for all the income inequality and the vast disparity in wealth over the last 40 years...just tax the big banks and large corporations to death!
I know how we can get even with the bankers that charged exorbitant interest and foreclosed on millions of homes with robo-signing...just tax them to death!
I know how we can get even with the CEOs that closed 56,000 factories and sent 8.2 million jobs overseas from 2000 to 2010 (for cheaper labor, not lower taxes) and all the other subsequent layoffs during the recession to cut costs...just tax them to death!
I know how we can get even with all those rich, smug, and lying snobs on Fox News too...just tax them to death!

Taxes. That would be my weapon of choice in a "class war". Like at any other time in history, they won't fold, they'll still make money...they just won't have as much to stuff in their own pockets.

Big banks & big businesses own Congress? So tell me something new.

But if the big banks and big corporations own Congress, how can we get our "elected" leaders to change the tax laws?

First, we have to try to find some honest people in Congress...a near impossible task these days. We need people that aren't just beholden to the big banks and big corporations - - - the powers that get them elected and re-elected.

And that's also why we need publicly-funded elections, like we used to have. Or else how can we get a current millionaire in congress to tax themselves?

In the meantime, we have to put up with their arrogance, indifference, apathy, and false accusations.

When CEOs lay us off and we apply for jobless benefits, they call that a "hand out."
When politicians cut our entitlements, they call that "a shared sacrifice".
When we ask the rich to pay their share, they call that "punishing the job creators".
When corporations lie, cheat, steal and dodge taxes, they call that "doing business".
When we speak up to complain, they call that "class warfare".
When we're ignored and protest the injustice, they call that "anarchy".

Even though Abraham Lincoln once said, "To sin by silence, when they should protest, makes cowards of men.”

What is tyranny and corruption when half of congress are already millionaires, but yet they write no law that says they can't benefit from insider trading in the stock market? Do our lawmakers need a law to tell them? Over the last three years they have exponentially increased their personal wealth by doing just that.

Members of Congress benefit the same way as CEOs in the defense industry do, or like investment bankers and hedge-fund mangers on Wall Street. When they sell their stocks after one year, they only pay 15% in capital gains taxes (and it's the same for dividends paid on those stocks).

By doing this, they all escape the top marginal income tax rate of 35%, and they pay the same effective tax rate as someone who's only earning $8,500 a year from hourly wages (15%).

This is a rip off by our government for government revenues. Also: Members of congress, CEOs and other executives on the boards of large corporations (e.g. bankers, private investors, and hedge fund mangers) all benefit from the $106,000 cap on Social Security taxes.

Again, someone who is only earning $8,500 a year pays Social Security taxes on 100% of their gross earnings, while a CEO earning $8.5 million a year only pays 1.24% of their earnings in Social Security taxes because of the cap.

But if CEOs pay lobbyists big money to have congress rig the tax code in favor of the wealthy (including themselves), how can we change this inequity in our tax collections? Why can't capital gains and dividends be taxed as regular income like they once were before 1921?

Why are all the personal and corporate taxes written to mostly favor the rich? Because rich people (Congress) write the laws. An senior members get junior members to follow their lead with promises of promotions to lucrative and powerful congressional committees. Companies that lobby Congress the most usually pay less in taxes.

An article at the Huffington Post (Tax the Rich! In Fact, Let's Double Their Taxes!) explains how we could go back to the tax rates of the 1950s, but even going back to the Clinton-era would be better than the current tax code after the Bush tax cuts. But I would still prefer that all tax capital gains and dividends be taxes as normal income because after all, it really is just an income stream that's going into someone's pants pockets. It's not cash sitting in an off-shore bank account of a corporate treasury waiting to be invested in another factory to hire people. Read: "Wealthy corporations with a trillion dollars stashed offshore lobby for a 'holiday' from U.S. taxes"

And after their CEOs cash out their millions of dollars in vested stock options after one year, that money is taxed at 15%, not at the higher top marginal rate of 35% if they had been paid a weekly paycheck like you.

I wrote an article called You Pay Hidden Entitlements for the Rich that has a link to an article called Tax breaks for billionaires: Loophole for hedge fund managers that explains in a lot more detail.

From the CBO: "The payroll tax rate is lower in the highest quintile because much of the wages in that quintile are above the maximum income subject to Social Security taxes [$106,800] because capital income [capital gains] is a larger share of income at the top. Social insurance taxes [Social Security and Medicare taxes] also accounts for the largest share of taxes paid by households in all but the top quintile. The impact of the corporate income tax also rises with income, as the CBO assumes that the tax is borne by capital income, and capital income is a larger share of income at the top of the distribution. The impact of excise taxes, relative to income, is highest for lower-income households."

This tax scam has been going on for 90 years. Because of Citizens United, we can't get money out of politics, so the wealthy and large corporations can continue to get those elected who will always pass laws that favor them and the rich. It's an infinite circle. How can we find and break the weakest link if the people want to take their country back from corporate America?

And how can we get our leaders in Congress and the Supreme Court to be held accountable to a law of ethics? It seems nearly impossible, considering our limited options on election day.

In case you forgot:

- BANK OF AMERICA: In 2009, Bank of America didn’t pay a single penny in federal income taxes, exploiting the tax code so as to avoid paying its fair share. “Oh, yeah, this happens all the time,” said Robert Willens, a tax accounting expert interviewed by McClatchy. “If you go out and try to make money and you don’t do it, why should the government pay you for your losses?” asked Bob McIntyre of Citizens for Tax Justice. The same year, the mega-bank’s top executives received pay “ranging from $6 million to nearly $30 million.”

- BOEING: Despite receiving billions of dollars from the federal government every single year in taxpayer subsidies from the U.S. government, Boeing didn’t “pay a dime of U.S. federal corporate income taxes” between 2008 and 2010.

- CITIGROUP: Citigroup’s deferred income taxes for the third quarter of 2010 amounted to a grand total of $0.00. At the same time, Citigroup has continued to pay its staff lavishly. “John Havens, the head of Citigroup’s investment bank, is expected to be the bank’s highest paid executive for the second year in a row, with a compensation package worth $9.5 million.”

- EXXON-MOBIL: The oil giant uses offshore subsidiaries in the Caribbean to avoid paying taxes in the United States. Although Exxon-Mobil paid $15 billion in taxes in 2009, not a penny of those taxes went to the American Treasury. This was the same year that the company overtook Wal-Mart in the Fortune 500. Meanwhile the total compensation of Exxon-Mobil’s CEO the same year was over $29,000,000.

- GENERAL ELECTRIC: In 2009, General Electric — the world’s largest corporation — filed more than 7,000 tax returns and still paid nothing to U.S. government. They managed to do this by a tax code that essentially subsidizes companies for losing profits and allows them to set up tax havens overseas. That same year GE CEO Jeffery Immelt — who recently scored a spot on a White House economic advisory board — “earned total compensation of $9.89 million.” In 2002, Immelt displayed his lack of economic patriotism, saying, “When I am talking to GE managers, I talk China, China, China, China, China….I am a nut on China. Outsourcing from China is going to grow to 5 billion.”

- WELLS FARGO: Despite being the fourth largest bank in the country, Wells Fargo was able to escape paying federal taxes by writing all of its losses off after its acquisition of Wachovia. Yet in 2009 the chief executive of Wells Fargo also saw his compensation “more than double” as he earned “a salary of $5.6 million paid in cash and stock and stock awards of more than $13 million.”

Why hasn't this been dealt with yet?

"The regulation of derivatives transactions that are privately negotiated by professionals is unnecessary. Regulation that serves no useful purpose hinders the efficiency of markets to enlarge standards of living." - Alan Greenspan, chairman, Federal Reserve, 1987-2006

Investigate: The Commodity Futures Trading Commission and the Federal Office of Thrift Supervision (regulators) and their relationship with the Securities and Exchange Commission (overseers), the relationship between the Federal Reserve (our central bank and U.S. Treasury) and commercial banks (e.g. Goldman Sachs), and their relationship to members congress (e.g. Republican Senator Phil Gramm's bill, the Glass–Steagall Act, that de-regulated banks), and all those who serve on the Senate Banking Committee. And the Justice Department, who hasn't prosecuted a single wrong-doer of the financial collapse.

From the documentary, Inside Job: The Film that Cost Over $20 Trillion to Make.

Inside Job: "So what you're saying is, you helped to blow the world up."
Financial regulator: "You could say that."

The Justice Department could not cite any federal regulator that it had named in the prosecution of IndyMac (or any other banks) related to the financial crisis.

Those who benefited the most from the financial meltdown and who paid a low "effective" corporate tax rate (or paid none at all) were the banks.

And the people who sat on their board of directors (e.g. CEOs) who were paid with capital gains, and only paid 15% in capital gains taxes, were the bankers and con-artists (oxymoron?) who received money from taxpayers (TARP) at near 0% interest from the Federal Reserve.

They paid the same "effective" tax rate as a single mom with 2 kids who only earned $8,500 a year. The banks did not pay 35% in corporate taxes and the banking executives did not pay the top marginal rate of 35% on their personal salaries and bonuses as "regular income".

Congress writes the tax laws and the banks OWN Congress.

When Republicans Taxed, and the Democrats Didn't

New York Times: During the flush years of the 1950s and 1960s, Republican leadership was reluctant to advocate tax cuts. In 1953, for example, Dwight Eisenhower said the country “cannot afford to reduce taxes, reduce income, until we have in sight a program of expenditures that shows that the factors of income and of outgo will be balanced.”

And when his successor, John F. Kennedy, proposed sharp tax cuts in 1963, the more conservative Republicans in Congress opposed them because the cuts would expand the deficit.

"10 Things We Want"

A Proposal for Occupy Wall Street - Submitted by Michael Moore

1. Eradicate the Bush tax cuts for the rich and institute new taxes on the wealthiest Americans and on corporations, including a tax on all trading on Wall Street (where they currently pay 0%).

2. Assess a penalty tax on any corporation that moves American jobs to other countries when that company is already making profits in America. Our jobs are the most important national treasure and they cannot be removed from the country simply because someone wants to make more money.

3. Require that all Americans pay the same Social Security tax on all of their earnings (normally, the middle class pays about 6% of their income to Social Security; someone making $1 million a year pays about 0.6% (or 90% less than the average person). This law would simply make the rich pay what everyone else pays.

4. Reinstate the Glass-Steagall Act, placing serious regulations on how business is conducted by Wall Street and the banks.

5. Investigate the Crash of 2008, and bring to justice those who committed any crimes.

6. Reorder our nation's spending priorities (including the ending of all foreign wars and their cost of over $2 billion a week). This will re-open libraries, reinstate band and art and civics classes in our schools, fix our roads and bridges and infrastructure, wire the entire country for 21st century internet, and support scientific research that improves our lives.

7. Join the rest of the free world [by doing as they do] and create a single-payer, free and universal health care system that covers all Americans all of the time.

8. Immediately reduce carbon emissions that are destroying the planet and discover ways to live without the oil that will be depleted and gone by the end of this century. (This blogger believes this issue is too complicated of an issue to be included as a "demand" in this list.)

9. Require corporations with more than 10,000 employees to restructure their board of directors so that 50% of its members are elected by the company’s workers. We can never have a real democracy as long as most people have no say in what happens at the place they spend most of their time: their job. (For any U.S. businesspeople freaking out at this idea because you think workers can't run a successful company: Germany has a law like this and it has helped to make Germany the world’s leading manufacturing exporter.)

10. We, the people, must pass three constitutional amendments that will go a long way toward fixing the core problems we now have. These include:

a) A constitutional amendment that fixes our broken electoral system by 1) completely removing campaign contributions from the political process; 2) requiring all elections to be publicly financed; 3) moving election day to the weekend to increase voter turnout; 4) making all Americans registered voters at the moment of their birth; 5) banning computerized voting and requiring that all elections take place on paper ballots. (This blogger has issues with #5 for various reasons, and believes a more secure and honest method can be done from home on our computers like we do our banking.)

b) A constitutional amendment declaring that corporations are not people and do not have the constitutional rights of citizens. This amendment should also state that the interests of the general public and society must always come before the interests of corporations.

c) A constitutional amendment that will act as a "second bill of rights" as proposed by President Franklin D. Roosevelt: that every American has a human right to employment, to health care, to a free and full education, to breathe clean air, drink clean water and eat safe food, and to be cared for with dignity and respect in their old age.

Low Corporate Taxes = Excessive CEO Salaries

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

My Related Posts:

Other Related Articles:

Wednesday, November 23, 2011

Mom Pays More Taxes Than Bankers!

Why does this single mom with two children who is working at a local diner in Oklahoma, and only earning $7.25 an hour ($15,000 a year) pay the same effective tax rate as this CEO of a New York City investment bank who's earning $15 million a year in capital gains from stock options he receives in his executive compensation package?

CEOs and other corporate executives, bankers, private investors, and hedge fund mangers pay 15% in capital gains taxes, and the waitress pay 15% in federal income taxes that's deducted from her paycheck.

Also, because Social Security taxes are capped at $106,800 the waitress pays Social Security taxes on 100% of her wages ($15,000), whereas the CEO only pays 0.07% in Social Security taxes on his $15 million income.

So the Oklahoma waitress is actually paying more in taxes as a percentage of her annual earnings than that of the CEO of a big bank on Wall Street in Manhattan.

In 1977 the capital gains tax rate was once set at 40%. But under Bill Clinton they were lowered to 28%, and then later he lowered them more, to 20%. After George W. Bush took office he lowered them again from 20% to 15% in 2003...the same effective tax rate as those earning between $18,500 and $34,500 a year. Why? Aren't the wealthy supposed to be paying the upper bracket tax rate of 35% on their total annual income, and not just on a small fraction of their base salary?

The wealthy are also paying less as a percentage of their incomes than teachers, police, and firemen who generally earn slightly over $34,000 a year for annual wages, and that puts them in the 25% tax bracket. But CEOs and other corporate executives, bankers, private investors, and hedge fund mangers are only paying 15% for taxes on their capital gains.

Who's waging a "class war" on who? It must be congress, because they are the ones who write and pass the tax laws (and half of them are millionaires themselves).

99% of all Americans have an income level in the first 4 tiers of the income tax brackets. Even most small business owners, doctors, and members of congress fall into this category.

The 5th tier might include trial lawyers, lobbyists, or the owners of very successful mid-size businesses.

The 6th and top most tier would be CEOs and other executives on the board of large corporations, as well as bankers, private investors, and hedge fund mangers. But the majority of their wages rarely reach the $379,150 level and taxed at the maximum rate of 35%. The majority of their pay is from capital gains and taxed at only 15%.

For any tax benefit that an average taxpayer might receive from any deduction, exemptions, deferment, allowance, depreciation, etc., you can bet that someone who's majority of annual earnings is derived from capital gains as their primary income, will benefit massively more...that's why the U.S. tax code is so complicated.

For more information on how the average American taxpayer has been fleeced by this tax preference for the wealthy, see my post You Pay Hidden Entitlements for the Rich to better understand how capital gains taxes benefits the rich at the expense of the middle-class and poor. I also give a brief history of the tax code and a time-line of the changes that were made dating back to 1921...when capital gains were no longer taxed as regular income.

And the only reason corporations and banks can afford to pay their CEOs record bonuses is because they have been making record profits. And the only reason corporations and banks are making record profits is because they haven't been paying enough in taxes either...it true! Read my post: Record Profits + Record Bonuses = Zero Jobs

Raise the capital gains tax rate back to 28% (and on stock dividends too) and eliminate the "cap" on Social Security taxes for wealthy CEOs and other corporate executives, bankers, private investors, and hedge fund mangers. Make them pay this tax on 100% on their total personal income like everybody else must.

Also read: Tax breaks for billionaires: Loopholes for hedge fund managers by the Economic Policy Institute (a non-profit and non-partisan think tank).

When Republicans cut our entitlements, they call that "a shared sacrifice".
When CEOs rip us off and dodge taxes, they call that "doing business".
When we speak up to complain, they call that "class warfare".

Low Corporate Taxes = Excessive CEO Salaries

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

My Related Posts:

Other Related Articles

Record Profits + Record Bonuses = Zero Jobs

When Republicans cut our entitlements, they call that "a shared sacrifice".
When CEOs rip us off and dodge taxes, they call that "doing business".
When we speak up to complain, they call that "class warfare".

It doesn't take a genius to know that with such high unemployment, more and more people are losing their jobless benefits, and more and more people are being forced into taking what few low-paying jobs there are left.

We know that "demand" for goods and services will remain very low for a very long time, until such a time when the large corporations will decide whether or not they will hire people, and pay them a "living wage" - - - to make things that no one can afford - - - or until we can tax them.

Otherwise their overseas profits will continue to accumulate in off-shore bank accounts.

Because of the many loopholes in the U.S. tax code, on average, the largest U.S. multi-national corporations and banks already pay a lower effective tax rate in corporate taxes (14% to 18%) than they would in China (25%).

Corporations and government contractors in the defense industry have spent millions to lobby congress for all kinds of tax breaks and loopholes.

That's why, despite a severe recession in the U.S., they've still been earning record profits. And that's also why these same companies have also been able to pay their CEOs record salaries and bonuses year after year. If corporations can hoard an un-taxed $2.2 trillion overseas, they can also afford to pay their CEOs.

And the CEOs of these same companies are also paying historically low capital gains taxes, executive compensation that they are paid as stock options. So all around, the corporations are earning high profits and paying low taxes in the U.S., while paying for cheap labor overseas as they pay their CEOs huge salaries, who are also paying low income taxes too. What a sweet deal!!!

For ever dollar saved in corporate taxes, a dollar can go into the bonus pool for corporate executives, and they'll pay the same effective income tax rate as their secretaries. What Warren Buffett said is true. Read: Loopholes for hedge fund managers

Lowering corporate taxes, or capital gains taxes for their CEOs, won't create jobs. If history tells us anything, that's HIGHLY unlikely.

And as of 2011, they have the best of all worlds....so what exactly have the Republicans been complaining about? The GOP already tried strangling the government with too few taxes when they passed the Bush tax cuts. Now they want LOWER taxes?

Oh, and did I mention that the cap on Social Security contributions is another benefit they enjoy?

Before the next presidential election I would like to warn the Republican voters what Albert Einstein once said: "Insanity is doing the same thing over and over again and expecting different results."

Please....tell all your friends: "Friends don't let friend vote Republican."

Low Corporate Taxes = Excessive CEO Salaries

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

My Related Posts:

Other Related Articles

Tuesday, November 22, 2011

You Pay Hidden Entitlements for the Rich

When the rich rob from the poor, it's called "business". When they fight back, it's called "class war". When the rich dodge taxes, it's called a "loophole". When the poor dodge taxes it's called "tax evasion."

Taxes. It's a boring subject, unless you're a tax attorney, economist, mathematician, or a member of the top 1%.

Tax rates, deductions, exemptions, deferments, allowances, depreciations, and all those numbers and percentages can be mind-numbing.

But because we have such a complicated tax code that's written in legalese, most of us can't understand it, even though there's one thing we all know for certain...and that's that we all want to pay less in taxes.

Most people don't feel they earn enough as it is. We know we need to pay taxes, but we also want to pay as little as we can, and yet still get the biggest bang for our buck. We realize, when we're rational, that we need taxes to run government. We need highways, a power grid, a standing army, clean water, and all those other things that we want to make us feel comfortable and safe.

And we certainly don't want to pay any more than we have to, and only want to pay our fair share. But the average taxpayer, who only earns between $25,000 to $35,000 a year, needs to at least have some basic understanding of how the tax code works - - so they'll know if they're being fleeced by their elected officials - - those who write and pass the tax laws.

The research and time I put into writing this post wasn't fun, but it was a challenge, and I enjoy challenges. But the most difficult part wasn't researching the tax code so that I might better understand it...but to write a post so that average people like myself could understand. I know, a near impossible task.

But look at the bright side is, this post is not 50 volumes thick and over 200,000 pages long., as is our current tax code. So I'll begin here...

Capital Gains Taxes: Hidden Entitlements

Unlike regular working people, the very affluent (the ultra-wealthy) aren't paid a wage or salary, who is then obligated to pay 35% of their earnings in federal income taxes (the highest marginal rate). The ultra-wealthy primarily earn their most of their money with stocks and bonds, and then they pay a capital gains tax of only 15% - - the same exact tax rate as someone who only earns $8,500 a year (which equates to $4.09 an hour if they work 40 hours a week).

If a hedge-fund manger or a CEO of a large bank or corporation were compensated with $8.5 million in stock options one year, they would pay the same exact percentage of their total personal earnings in taxes as would a 16-year-old teenager working 20 hours a week for a whole year at Wal-Mart...15%.

If you earned $34,500 in profits from selling stocks in a railroad company that you had held for one year, you'd pay just as much in taxes to the IRS as someone else who earned $34,500 a year in wages ($16.58 a hour) who had actually been going to work every day and building that railroad - - 15% in federal income taxes, as opposed to 15% in capital gains taxes

One man had to get up and put on his shoes every morning for a whole year and swing a pick-axe or shovel, the other man just had to call his stock broker and say, "Sell."

Here's why the ultra-wealthy need tax attorneys and we don't. If everybody paid the same "effective" tax rate on ALL the personal income they earned every year (enter your ___% here), the U.S. tax code could be very simple. You'd earn so much in wages (or profits), then you'd pay so much in taxes. Simple.

But the tax rates are not simple at all (and are constantly changing) because the ultra-wealthy have always felt entitled to pay LESS in taxes than ordinary working Americans; so all throughout the history of the IRS they have petitioned (lobbied) Congress for special provisions in the tax code (deductions, exemptions, deferments, allowances, depreciations, etc.) to have themselves pay less (as a percentage of their personal income) in taxes than we do.

That's why this post deals primarily with just "capital gains", because this is how, for the past 90 years, the rich (the top 1%) have kept getting exponentially richer - - - while the rest of us (the 99%) have kept getting poorer.

Our very complicated tax laws are written by lawyers (and so probably, deliberately obtuse). But generally speaking, most common folks don't understand the U.S. tax code. It contains over 50 volumes and is over 200,000 pages long. Attempting to read just one page can give someone such as myself a massive headache. Besides, most of us just use the 1040-EZ form or we'll go to H&R Block.

How Capital Gains Taxes are Entitlements for the Ultra-Wealthy

Capital gains taxes should really be called "loopholes for the rich and famous".

Capital gains (excluding a one-time exclusion of your principal home) are profits reflecting increased values of stocks, bonds, investment real estate, and other "capital assets." Capital gains are treated much more favorably than other types of income, especially for the very high income people.

Capital gains are not taxed at all unless and until they are "realized"--generally upon sale of an appreciated asset. And when gains are realized, top-bracket individuals pay lower tax rates on capital gains than on so-called "ordinary" income.

As a result, investment markets that primarily service the very well off are often designed to maximize the share of profits that are in the form of capital gains--both realized and unrealized. Indeed, on individual tax returns, total realized capital gains (such as the buying, holding, and selling of stocks) far exceeds dividends earned on stocks (dividends, being the quarterly income paid by a company who issues the stock) by 73%.

For the highest income people-- making more than $200,000 a year--realized capital gains exceed the total amount of dividends and interest combined. Almost two-thirds of total capital gains reported on individual tax returns go to people whose incomes exceed $200,000.

Only 8% of the total capital gains are reported by the three-quarters of tax filers with incomes of $50,000 or less (such as those who live in, then sell their homes for a higher price). Thus, more than any other type of income, capital gains are concentrated at the very top of the income scale.

Because the taxation of capital gains is more important to the rich and politically powerful than the treatment of any other type of income, capital gains taxation has been extremely controversial over the years. At the onset of the income tax, "realized gains" were taxed at the same rates as other income--up to 77% during the World War I period.

That's how hedge-fund managers, bankers, and CEOs keep getting exponentially richer than the rest of us...they're paying less taxes! Read: Tax breaks for billionaires: Loophole for hedge fund managers by the Economic Policy Institute (a non-profit and non-partisan think tank).

Capital Gains Taxes are Historically Low in 2011

The top marginal tax rate in 1945 was 94% (on all income over $200,000). Top marginal tax rates stayed near or above 90% until 1964 when the top marginal tax rate was lowered to 70%. The top marginal tax rate was again lowered to 50% in 1982 -- and eventually to 28% in 1988.

However, in the intervening years Congress had subsequently increased the top marginal tax rate to 35% (the rate it is today in 2011). But with the bulk of earnings being made by hedge-fund mangers, bankers, and CEOs coming from stock trades (capital gains that are taxed at 15%), the wealthiest individuals in the U.S. are now paying historically low income taxes.

PolitFact: The top income tax rates on ordinary income (e.g. hourly wages, salaries, commissions) were lower between 1988 and 1992 than they are today, but otherwise, they have been higher for the every other year since the 1950s. And the "effective tax rates" for high-income earners were either at their lowest since 1960 or very close to their lowest ever. Meanwhile, the capital gains tax rates that are used to tax hedge-fund managers, bankers, and CEOs have been at historical lows since 2003 with the Bush tax cuts. They also pay much less as a percentage of their total personal earnings in Medicare and Social Security taxes because of a "cap".

Now the question becomes, "how do we get our leaders in Congress (especially the Republicans) to change the tax code so that capital gains are taxed as ordinary income?" (Especially since half the members in Congress are millionaires themselves AND they use insider trading to earn money with stocks.)

Income tax and capital gains tax rates from 1916 to 1993 - Chart below prepared by Citizens for Tax Justice (click to enlarge).

How the rich robbed the poor for the past century

A Short History of Capital Gains Taxes

From 1913 to 1921 capital gains were taxed as ordinary income until 8 years before the stock market crash of 1929 when the Revenue Act of 1921 was introduced during the Roaring Twenties. The new Secretary of the Treasury Andrew Mellon (a Republican and also owner of Mellon Bank) argued that significant tax reduction was necessary in order to spur economic expansion and restore prosperity. It was the first Republican tax reduction in history, and was enacted on November 23, 1921 under the Republican President Warren G. Harding.

Mellon also obtained a repeal of the wartime excess profits tax. The top marginal rate on individuals with ordinary income fell from 73% to 58% by 1922, and preferential treatment for capital gains was introduced at a rate of 12.5%. Secretary of the Treasury Andrew Mellon had hoped for more significant tax reduction. Read my post: Mellon: The Banker Who Rigged the U.S. Tax Code

Between 1921 and 1932 the maximum capital gains tax rate was 12.5% (half the tax rate of 25% for ordinary income) from 1925 to 1931. The top tax rate for ordinary income rose to 63% in 1932, but the 12.5% top capital gains rate was retained. Example: If you earned $1 on a railroad stock, you'd pay half as much in taxes to the IRS as someone else who earned $1 in wages who was actually building the railroad.

The vast majority of a wealthy person's earnings is almost always accrued through capital holdings - held and accumulated as "investments" (stocks, bonds, real estate, etc). They are not paid a regular hourly or salaried wage, so they pay the lower tax rate (capital gains taxes) and not the higher tax rate in regular federal income taxes. (You've heard the saying, "It takes money to make money.")

The onset of the Great Depression and public disillusionment with stock speculation of the Roaring Twenties led to increased capital gains tax rates in the 1930s. For a short period, realized gains were taxed under a complicated schedule. This system was widely criticized as unwieldy and complex, and in the early 1940s it was scrapped.

For the next 25 years taxpayers had the option of excluding half of their capital gains or paying a maximum rate of 25% (useful to those whose regular tax brackets exceeded 50%).

In the late 1960s, the special 25% maximum rate was repealed. In conjunction with other tax changes, the top capital gains rate rose to about 39% by the mid-1970s.

Tax Codes as they Pertain to Capital Gains Taxes (1969 to the Present)

The Tax Reform Act of 1969 lowered the maximum tax rate on ordinary income from 70% to 50%. The explanation of the tax act prepared by Congress's Staff of the Joint Committee on Internal Revenue Taxation explains the Alternative capital gains tax rate and the Alternative Minimum Tax.

From 1969 capital gains taxes went from 27% to 32% in 1970, to 39% in 1971, to 45% in 1972, to 49% in 1976, then back down a notch to 48% in 1978.

Then in 1978, congressional Republicans joined by a substantial minority of Democrats pushed through a major capital gains tax cut. Reluctantly signed by President Carter, it lowered the top rate from 48% to 28%, by excluding 60% of realized capital gains from tax.

President Ronald Reagan's 1981 cut in the top regular tax rate on unearned income reduced the maximum capital gains rate even further, this time to only 24%, then 20% in 1982- - its lowest level since President Hoover's administration.

Reagan’s signature policy was a cut of the top tax rate for ordinary income from 50% to 28%.

In conjunction with sharply increased depreciation write-offs in 1981, Carter's 1978 and Reagan's 1981 capital gains tax cuts caused a proliferation of tax shelters (helping set the stage for the savings and loan crisis later in the decade). The goal of most of the tax shelters was not only to defer taxes, but to convert ordinary income into lower-taxed capital gains.

The Deficit Reduction Act of 1984 reduced long-term capital gains holding period from one year to six months.

In 1988 and 1989 the capital gains tax rate was 33%.

One of the greatest achievements of the 1986 Tax Reform Act (the second of Reagan's two tax cuts) was to tax " realized capital gains" at the same tax rate as regular wages, dividends or other income... as ordinary income. Previously, realized capital gains had been preferentially treated as 60% tax-exempt.

But in 1990, Congress reinstated the capital gains preference, by capping the capital gains rate at 28% while setting the top regular income tax rate at 31%.

In the 1993 budget bill, the capital gains preference was greatly expanded to provide what amounts to a 30% capital gains exclusion for top-bracket taxpayers (the difference between the new 39.6% top regular tax rate and the continuing 28% maximum capital gains rate). The 1993 act provided an additional 50% capital gains exclusion for profits from certain "risky" investments that are considered likely to fail - - - 97% of the tax savings from the current special maximum capital gains tax rate for individuals goes to the top 1%.

The Taxpayer Relief Act of 1997 signed by Bill Clinton reduced the capital gains tax rate from 28% to 20%.

In 1999 Bill Clinton signed the Republican-sponsored Gramm-Leach-Bliley Act which de-regulated the banks. Then four years later in 2003 we had the infamous Bush tax cuts that lowered capital gains tax rate to the near historically low* tax rate of 15% while the top marginal federal income rate for people earning over $311,950 a year in wages was 35%.

* The historically low capital gains tax was 14.5% in 1921 when it was first initiated - - and top marginal federal income tax rate at that time was 73% on the most wealthy before it was lowered to 58%.

Capital Gains Taxes AND Loopholes

Here's where most of us might need a tax attorney.

NOTE: Capital gains are not taxed until assets are actually sold. As a result, investors can put off tax on their gains indefinitely. They can also avoid paying taxes on "realized gains" by selective "realized losses" on other investments in the same year. This deferral is unavailable to other kinds of income such as savings account interest, or even if the money is left in the bank.

EXAMPLE: Multi-billionaire Warren Buffett has structured his investment company so that it hasn't paid a dividend since 1966. Instead, as the 2nd richest man in the world, Warren Buffett's $39 billion+ in accrued capital gains remains "unrealized" and thus not taxed.

Capital gains tax breaks for gifts and inheritances: Currently, heirs can sell inherited property and pay no tax on capital gains that accrued prior to the time they inherit. In other words, capital gains taxes on inherited property are completely forgiven.

In the case of gifts, the recipient takes over the giver's "basis" in the donated property--generally the cost when the property was first acquired. That carryover of basis--instead of taxing the gain--allows a continued deferral of unrealized capital gains.

Special additional industry-specific capital gains tax breaks: Historically, favorable capital gains treatment has normally been limited to profits from the sale of investments (stocks, bonds, etc.). But several industries have succeeded in getting part of their normal business profits treated as capital gains. Special capital gains treatment is currently available for sales of timber, coal, and iron ore and for certain agricultural income.

Other special capital gains loopholes include:

Indefinite tax deferral for so-called "like-kind exchanges" of real estate. Normally, when someone sells appreciated property he or she must pay tax on the capital gain. But someone who sells rental real estate and purchases other rental property can put off paying capital gains taxes on the sale indefinitely by pretending to have "exchanged" the properties with another investor.
The refinancing loophole. Owners of investment assets that have gone up in value can cash in their capital gains without tax by borrowing against the appreciation. This is an enormous tax shelter for, among others, wealthy real estate speculators (although it doesn't make the official tax expenditure lists).
An exception from the normal $3,000 annual limit on capital loss deductions, for losses on the sale of certain "small business corporate stock." Except for a $3,000 a year de minimis rule, realized capital losses can only be used to offset realized capital gains. Otherwise, investors with a portfolio of winners and losers could realize losses to wipe out taxes on their wages and other income, even though their total capital gains position (realized and unrealized) was positive. But for certain "small business corporate stock" investments, up to $100,000 in losses can be deducted. This subsidy is presumably designed to ease the pain of backing money-losing operations, and thereby encourage wealthy investors to invest in businesses that are unlikely to succeed.

Low Corporate Taxes = Excessive CEO Salaries

While today some corporations may have paid the maximum rate of 35% (when it was over 50% in the 1950s), many others paid ZERO, with the average being only 18%.

Addition sources other than the hyperlinks within this post:

My Related Posts:

Pages

Friday, November 25, 2011

The Laffer Curve & Capital Gains Taxes

It's not Class Warfare - it's just "Business"

Thursday, November 24, 2011

Happy Thanksgiving to the Top 1%

Wednesday, November 23, 2011

Mom Pays More Taxes Than Bankers!

Record Profits + Record Bonuses = Zero Jobs

Tuesday, November 22, 2011

You Pay Hidden Entitlements for the Rich

Blogster-at-Large

FYI: I'm paid pennies on the dollar for every book sold on Amazon..

Blog Archive

About Me