Accidental Tax Break Saves Wealthiest Americans $100 Billion

http://www.bloomberg.com/news/2013-12-17/accidental-tax-break-saves-wealthiest-americans-100-billion.html

by apaprocki • 13 years ago

45 96 13 years ago

bloomberg.com

stupejr• 13 years ago

http://i.imgur.com/aYHte9Y.jpg

rookonaut• 13 years ago

"Accidental"? Classic!

dm22• 13 years ago

I assure you that it was NOT accidental.

This is nothing more than yet another case of legal treason by congress.

In my opinion, ALL loopholes for the super-wealthy and companies (Double Irish) should be closed.

Reducing taxes should not be an option. If you make huge amounts of money or want to transfer huge amounts of money in the United States then you should pay tax on it to the United States government. There shouldn't be the option to hire people to find sneaky ways to "legally" (but unethically) reduce that tax without any consequences.

sanswork2• 13 years ago

Allowing the government to change tax laws and demand retroactive payment is extremely dangerous.

yebyen• 13 years ago

Allowing the government to charge businesses that paid into an unemployment trust for the administrative failure of that trust is dangerous.

I can't find a link right now but it was on CBS nightly news yesterday. The New York State government is suing thousands of small-business owners because they failed to recognize early that one of the legal, state-sanctioned trusts that was in charge of collecting and paying into the state's unemployment fund was (committing fraud and) failing, went belly up.

thaumasiotes2• 13 years ago

Seconding sanswork. The ability to tax retroactively is the ability to jail anyone and confiscate everything they have for any or no reason. But I guess ignorance of the future is no excuse?

tomp2• 13 years ago

The ability to tax retroactively is the ability to jail anyone and confiscate everything they have for any or no reason.

Any arguments why?

rayiner3• 13 years ago

I assure you that it was NOT accidental.

Based on what?

If you read the link I posted, these particular tax shelters are the result of large spreads between the interest rates used in certain IRS calculations, which are at historical lows for reasons unrelated to tax policy, and the actual achievable investment returns.

chollida1• 13 years ago

In my opinion, ALL loopholes for the super-wealthy and companies (Double Irish) should be closed.

This is completely unrealistic. The biggest issue is that you can't compel other countries to follow along. Half the rules in the commercial tax code are geared towards allowing companies to compete in the international world.

I assure you that it was NOT accidental.

THis just seems foolish. No one person fully understands the tax code. If it was intended, why did people take so long to exploit it ? The law was passed in 1990, but no GRATS appeared anywhere near then. You are really, really stretching here.

gergles• 13 years ago

Yet the punitive AMT still exists and ensnares basically everyone making between 150-400K and who lives in a high-tax state (which, conveniently, are where most of the jobs paying that amount are.)

But don't worry, as usual, if you're rich enough, you play by a different set of rules and can hide your money in shell trusts and schemes and pay nothing. Disgusting - give us the FairTax already.

minikites• 13 years ago

10 times the U.S. median income isn't "rich enough"?

moron4hire2• 13 years ago

My wife and I together make $150k in the DC suburbs. I'm trying to convince her that we need to move so we could afford to live on one income and maybe have kids some day.

For sure, we aren't hurting. The only debt we have is the one-bedroom condo next to a highway and in the flight path of an airport we live in (well, and a car, but we could pay it off in cash tomorrow if need be, which would be stupid because the APR on the loan is less than 1%). But it's extremely frustrating that this condo would translate to a 5 bedroom house with an acre of land where I grew up a mere 3 hours from here.

And that's really only because, for the first 15 years of our careers we've lived within our means and have not had children. $150k is not what it's cracked up to be. If one of us lost our jobs, we would definitely have to move. Unfortunately, hers is tied to this area, so if it were me to lose the job, we'd be royally screwed.

anonymouscowar1• 13 years ago

Not if the tax bracket gets lower at 20-50x the median income. Tax brackets should be monotonically increasing.

er35826• 13 years ago

The gp isn't using the same definition of 'rich enough'. You're inferring that rich enough comment to mean "rich enough to live comfortably on and afford the things I need/want".

Instead the gp is talking about a threshold of "rich enough" where you can roll your money into these GRATs and other investment vehicles. It requires a far greater level of wealth, because you're living on the returns from investments and financial objects entirely, and in order for those returns to be enough to live on, you need a much bigger chunk of money than 150k a year.

Nursie3• 13 years ago

FairTax is totally unfair.

The rich pay less because they spend less as a proportion of their income than the middle classes.

The poor pay less because they are given exemptions, or a pay boost equivalent to the tax they pay.

The government needs the same amount of money and can you guess who gets to bear the brunt of that? That's right, the middle classes get to shoulder even more of the tax burden.

No thanks!

chaostheory4• 13 years ago

The rich pay less because they spend less as a proportion of their income than the middle classes.

Yes but this is already happening right? Isn't it far easier for them to keep lobbying for new tax loopholes as older ones get closed, than it is to avoid a flat tax? Am I missing something?

The poor pay less because they are given exemptions, or a pay boost equivalent to the tax they pay.

I've never heard about this. Can you give more details?

adrr• 13 years ago

Fair tax shifts the burden of taxes to the poor who spend majority of their income. AMT hits upper middle who end paying for everything as the non earned income people have lower tax burdens. A flat tax is the most fair on all incomes(capital gain, dividends, standard income,gift/estate).

eloff• 13 years ago

And the government remains powerless to close this loophole? They really do seem to be owned by the wealthy and corporate interests. That's sad. The wealthy are little more deserving of their wealth than the poor are deserving of their situation. In fact, if we really do have no free will as science seems to suggest, then the only thing separating the rich from the poor is luck. Then the current inequality is particularly sick.

rayiner3• 13 years ago

Relevant (Thomas Jefferson's explanation of the nature of inherited wealth): http://www.economist.com/blogs/lexington/2010/10/estate_tax_....

viggity4• 13 years ago

there is a pay-wall if you click directly on the link. If you google "Estate tax and the founding fathers You can't take it with you" it'll be the first link and it will bypass the paywall.

rschmitty• 13 years ago

Google is amazing, you are now the second result for that search term :)

rayiner3• 13 years ago

Better source for how these actually work instead of the handwaving in the article: http://taxprof.typepad.com/taxprof_blog/2013/09/wal-marts-wa....

jstalin• 13 years ago

Thank you. This article also points out that the recipients still pay income tax. The original Bloomberg link isn't very informative or accurate.

jere• 13 years ago

Covey studied the law and found an even bigger loophole. “The change that was made to stop what they thought was the abuse, made the matter worse,” he says.
Covey, 84, a Missouri native and former U.S. Marine Corps basketball player who earned a law degree from Columbia Law School in 1955, uses the words “romantic” and “beautiful” to describe the most elegant tax maneuvers.

This guy is a hacker.

lesterbuck• 13 years ago

Yes, it's a beautiful hack of the tax laws.

What I've always wondered is why people don't load the tax code into the automatic proof systems and let it do some goal seeking. The idea of putting money into a trust and then taking it out took a while to occur to Covey. All the "useless" edge cases would be explored by a goal seeking system. There are probably a large number of these hacks out there already discovered, but taking it all the way through to a tax court decision is the real trick. I also vaguely remember a legal principle that if a transaction was entered into soley for the purpose of lowering taxes, and with no other business goal, it can be disallowed unless that was the intent of Congress.

There have been a number of conferences over the years on the general topic of AI and the law. I once read in a general book on business strategy about how a contract can be either a sale or a lease, but that it is often extremely valuable to make a sale appear to be a lease, and vice versa. Lawyers will craft twenty pages of dense legalese to hide the facts from the casual reader. Someday a sophisticated text processing system will ingest a contract and give the answer, along with the chain of inferences from the obfuscated language (to show the judge).

amalag2• 13 years ago

The Republican party has become the party of the rich. They really want to get rid of the estate tax so they can build wealth across generations. $5 million is excluded from the estate tax, but they don't think that is enough to pass on when they die.

hnal943• 13 years ago

What claim does the government have on the wealth those people created? Why is the discussion always about how much the rich deserve to keep based on their own creation of wealth?

amalag2• 13 years ago

The estate tax extends the standard tax rate on that degree of income to the money left behind when they die, it is not currently a higher rate. Do you suggest there should be no estate tax?

swalkergibson17• 13 years ago

The government has the same claim on their wealth as any other level of income, as part of the social contract of living in the US. I am a little confused on what your point is. Should people making $50k/year be exempt from the government's claim on the wealth they created, too? What about people making $25k/year?

swalkergibson17• 13 years ago

<rant>

How much fucking money does someone need? Seriously. What is the difference between 7.9 billion (what he wants to leave) and 5.1 billion (less the existing estate tax of 2.8 billion)? Clearly, his ego is huge given that he watches the ranks of richest people closely. Honestly, what the fuck? Congratulations man, you got really fucking loaded. Good work. Now, please play fair.

</rant>

breischl4• 13 years ago

I see your point. The thing is, nobody trusts the government to spend their money well, or at least not as that person thinks it should be spent. Therefore everyone avoids taxes to the extent they can. I take every deduction I can, I bet you do too.

Even the rich folks that aren't trying to pass on a huge inheritance, such as Bill Gates and Warren Buffet, still aren't giving it to the government. They're giving it all to charity, which is undoubtedly generous of them but also lets them direct their wealth themselves rather than giving it to the tax man.

swalkergibson17• 13 years ago

Warren Buffet has frequently said that he is perfectly willing to pay more taxes, and that his secretary pays a higher percentage of her income than he does. There are numerous reasons for government inefficiency, but how could you run efficiently if there is always a target on your budget's back?

EDIT: You are absolutely right that the government spends money on stuff that I don't want, like bombs and wars, and I think it is extraordinarily generous that men like this give so very much to charity. However, I also believe that if we as a society have decided that there should be an estate tax, then there should be an estate tax and that the loophole should be closed.

viggity4• 13 years ago

Judging by the other responses, I'm probably a bit of a contrarian, but all in all: "meh". I honestly don't care.

Wealth is not a zero sum game, and all talk about the horrors of wealth inequality are completely ignorant of that fact. I think gift taxes are bullshit. If I earned and paid taxes on income/capital gains, I should be able to give the balance to whom ever I wish. Double taxation is bullshit.

swalkergibson17• 13 years ago

What if you earned the money through a company using the Double Irish Dutch Sandwich tax shelter and didn't pay your fair share when you earned it? That is why wealth inequality is a problem. Our government is owned by the people that can afford to make donations, which are the same people that benefit from these tax games.

viggity4• 13 years ago

If you have a problem with a double Dutch sandwich, then lobby for fixing that, but don't hose a hard working farmer and his family by nailing them with a 40% estate tax. There are a lot of millionaires who have paid taxes on every penny they've made.

lvh• 13 years ago

Why not fix circumvented corporate and income taxes so that everyone does pay a fair share, instead of taxing elsewhere where it would affect both those who did and did not previous pay their fair share?

mikeyouse3• 13 years ago

     I think gift taxes are bullshit.

Simply a mechanism to prevent people from calling salary (or estate tax avoidance) 'gifts'. The exemption level is $14,000/year/person, I think that's more than fair.

    If I earned and paid taxes on income/capital gains,
    I should be able to give the balance to whom ever I wish.

Follow me on a little thought experiment if you would;

1. It's spring 1997, life is good, you just got a huge bonus and decided to buy shares in a flailing tech company called Apple Computer.

2. With your $250,000 bonus, you buy 62,500 shares at $4/share.

3. You and your wife live a happy life and in 2013, you pass away, content with your impact on humanity. Fortunately your wife will be taken care of since you hadn't touched any of those Apple shares.

That stock is now worth $550/share, and your wife's 62,500 shares are worth $35 million. A gain of $34,750,000.

So your wife should get that $34mm without strings? Even though no tax was ever paid on it?

    Double taxation is bullshit.

It's a meaningless phrase. Are property taxes bullshit? You paid taxes on your income before you paid on the property... Sales tax? Same story. Money circulates through the economy, it's taxed at various places, every dollar is taxed a litany of times.

The number of times you're taxed should be irrelevant as long as it's fair and equitable.

viggity4• 13 years ago

1. you'd be paying income tax on the $250k bonus 2. if I understand correctly, you/your wife would have to pay capital gains on the stock when it is sold (the value realized).

driverdan• 13 years ago

There shouldn't be an estate tax. You're taxed on your income when you earn it. Why should there be a special tax just because you died? If anything those who inherit it should just have to file it as income and pay income / cap gains tax on it.

swalkergibson17• 13 years ago

It is exempt up to 5.25 million for individuals and 10.5 million for couples. Is between 5 and 10 million not enough? For hitting the sperm lottery? Large amounts of generational wealth is a net negative in a democratic society as it further exacerbates the income gap.

bedhead8• 13 years ago

I can assure you that meager transfer payments in the form of SS, Medicare, etc will do absolutely nothing to reduce the income gap. Do you really think that giving money to the government is going to magically make people wealthier?

While generational wealth of the magnitude we have today certainly isn't productive, it doesn't actually do anything to impede peoples' ability to earn more for themselves, and forcing the wealthy to fork over money when they die is basically purely symbolic, because even when taken cumulatively it has zero effect.

mh_yam• 13 years ago

Who are you to decide what is enough?

frogpelt3• 13 years ago

What do "income gaps" produce? If my neighbor makes $10 million a year and I make $100,000, how does that affect my life?

Many of the "poor" in our country are obese. That should tell you something. They aren't that poor. They have houses, cars, food, and clothing. Poor people can go to college for free (Pell Grant), eat for free (EBT), have housing for free (HUD), and get a check to pay for other living expenses (welfare). We have proven that providing all of these things to people with no strings attached does not lift them to a higher plane.

How will it help to take another billion dollars from a family who knows how to manage money and give it to a bunch of families who don't?

gnaritas• 13 years ago

If anything those who inherit it should just have to file it as income and pay income / cap gains tax on it.

That's pretty much what the estate tax is.

ForHackernews• 13 years ago

You're taxed on your income when you earn it. Why should there be a special tax just because you died?

Because your children didn't earn it. They just won the lucky sperm lotto.

As a society, our policies should be structured to discourage the formation of a hereditary elite.

hippich• 13 years ago

I do not see why these who inherit it should pay anything on it - income tax on this money was already paid.

powertower2• 13 years ago

Option A - Give money to your children (as much of it as you can).

Option B - Give money to a government who spends $5 to be able to spend $1. Then waistes that $1 (on polices that you don't agree with).

Option C - Give money to people who hate you for having money (a.k.a "trickle it down", "guaranteed minimal income", "anyone off the street can be a CEO", "lets retroactivly tax the rich", etc).

I know what I would do.

swalkergibson17• 13 years ago

Option D - Sign the giving pledge and stop being concerned that your children can't live on less than 8 billion dollars.

wavefunction• 13 years ago

Option D - Get merc'd when the rest of us have had enough.

Option E - Realize that we have enough food and resources so that noone should have to do without, and create a society that reflects that.

Funny how these last two options contain the one option that will solve this problem permanently, and the one option that humanity always ends up at.

powertower2• 13 years ago

So your options are to -

1. Murder them out of spite.

2. Make them shelter and feed the poor of the world, so the poor multiplies/reproduces geometrically, and requires geometrically more resources to shelter and feed.

frogpelt3• 13 years ago

"No one should have to do without"

Do without what? What are people not able to get right now that they really need?

joecurry• 13 years ago

For perspective - let's make them pay it all back, retroactively, from the year 2000 as the article suggest. Now we will have (roughly due to compounding) tackled 0.0058% of the current US deficit leaving us with $17,133,947,996,837 or 99.994%.

For those who prefer a visual perspective - http://demonocracy.info/infographics/usa/us_debt/us_debt.htm...

I'm not convinced focusing on these tiny (relatively) loopholes on the "world's richest", should be the focus of trying to fix the problem.

frogpelt3• 13 years ago

I guess I don't understand why people just LOVE, LOVE, LOVE the U.S. Government so much. They do not manage money, personnel, or any resources efficiently. The allocation of federal funds is subject to the whims of whatever lobbyist or political trend happens to be going on at the moment. If they want to use the 40% they take from your estate to fund NSA spying, deal with it.

I understand that some poor and middle class people think it's unfair for rich people to keep increasing in wealth but the government is many times more corrupt than the average multi-millionaire or billionaire. First-generation wealthy people got that way by innovation, hard work, and filling a necessary role in the marketplace.

In summary, I don't think the solution to "income inequality" is to let the government have half of our money. They have proven time and again that they do not have the right solutions.

001sky• 13 years ago

The people that "love the government", are the lobbysist and political donors. They are the ones that receive the benefit of from this tax dodge, from the cash left over.

Make sense now?

Accidental Tax Break Saves Wealthiest Americans $100 Billion

Related Stories