Big Paychecks, Tiny Tax Burdens: How 21,000 Wealthy Americans Avoided Paying Income Tax
By Amy Bingham | ABC OTUS News
The richest woman in Wisconsin, Diane Hendricks, is worth an estimated $2.8 billion, but she did not pay a dime in state income tax in 2010, the Milwaukee Journal-Sentinel first reported. Because of a change in how her company, ABC Supply Inc., the country's largest distributor of roofing, windows and siding, is structured, Hendricks reduced her personal state income tax burden from $2.3 million in 2009 to zero in 2010, according to records the state Department of Revenue released to the Journal-Sentinel.
While a tweak in ABC's corporate structure allowed its CEO to get out of state income taxes, a complex web of deductions and exemptions in the federal tax code have allowed more than 20,000 wealthy tax filers get off the hook on paying federal income taxes. A recent IRS report showed that 20,752 households that reported earning more than $200,000 in 2009 paid no federal income taxes. About 1,500 of those tax-free Americans were millionaires.
So how does someone in the top 3 percent of America's income earners finagle their income tax burden down to zero? For the majority of them, it's all about donating to charity, investing in local and state governments, earning money overseas and writing off doctor bills.
In Hendricks' Wisconsin case, ABC Supply switched from an "S" corporation, which passes all of its profits and losses through its owner to be taxed under personal income, to a "C" corporation, which stands independently of its owner and whose income is subject to corporate taxes.
Scott Bianchini, ABC tax director, told the Journal-Sentinel that the switch was a "substantial part" of why Hendricks had no state income tax liability. Bianchini noted that while Hendricks' tax burden was minuscule this year, the billionaire has paid more than $10 million in taxes since 2005.
On the federal level, the nearly 21,000 high-income earners who aren't paying federal income tax represent only one half of one percent of the 4 million tax filers that make up the top 3 percent. They account for an even smaller fraction of the 59 million tax filers who did not pay income tax in 2009. The vast majority - 56 million - of the people who skipped out on these income taxes earned less than $50,000 per year.
"It's tiny," Williams said of number of wealthy Americans who are income tax-free. "But these are the ones people get upset about."
In 1969, Congress was so up in arms about a mere 155 individuals who earned more than $200,000 and paid no income tax that it passed the Alternative Minimum Tax, which aims to prevent wealthy people from claiming too many tax exemptions and deductions.
More than 40 years after the AMT went into effect, the number of wealthy, income-tax-free individuals has ballooned to 133 times as many as the 155 that inspired the new tax.
In the 2012 battle for the White House, President Obama has made taxing these wealthy Americans a cornerstone of his re-election campaign.
Under Obama's tax plan, the Bush tax cuts would expire, raising taxes for married couples earning more than $212,300 by 3 percentage points. Obama also plans to enact the "Buffett Rule," which creates a minimum tax rate of 30 percent for millionaires.
Mitt Romney takes a virtually opposite approach to tax reform for the wealthy.
His plan not only extends the Bush tax cuts, but further reduces tax rates at all income levels by 20 percent, which puts the tax rate for those making more than $200,000 at about 28 percent. Romney ardently opposes instituting a minimum tax for millionaires, such as the Buffett Rule.
Under Obama's plan, the top 1 percent of income earners would see their taxes go up about 5 percent. Under Romney's plan, they would go down by nearly 8 percent, according to an analysis by the Tax Policy Center.
And as for the 21,000 wealthy Americans who currently pay no income tax, Williams said, "Under Obama's plan, these people would almost certainly pay more. Under Romney's, they will almost certainly pay less."
http://news.yahoo.com/big-paychecks-tiny-tax-burdens-21-000-wealthy-100029578--abc-news-politics.html
Someone call EMSA and alert them to the potential bursting blood vessels in a local Italian attorney's head which are soon to appear.
Talk about Profiles in Courage, Romney affirms his committment to make sure that millionaires do not have to pay a minimum tax and the top 1% will actually get a tax reduction of 8%. What a guy.
Quote from: RecycleMichael on June 01, 2012, 08:01:40 AM
Big Paychecks, Tiny Tax Burdens: How 21,000 Wealthy Americans Avoided Paying Income Tax
By Amy Bingham | ABC OTUS News
And as for the 21,000 wealthy Americans who currently pay no income tax, Williams said, "Under Obama's plan, these people would almost certainly pay more. Under Romney's, they will almost certainly pay less."
Earned Income Credits?
All the various loopholes is the reason a package like the Fair Tax makes far more sense than our current tax code.
Quote from: Conan71 on June 01, 2012, 12:55:53 PM
All the various loopholes is the reason a package like the Fair Tax makes far more sense than our current tax code.
Except the Fair Tax is essentially one giant loophole for people who make enough money to sock away substantial savings or to hire attorneys to structure sales in a way that they don't look like sales, similar to how Boeing avoids much Washington tax by flying the planes they make out over the Pacific before transferring ownership. It also discourages consumption and investment, as all sales taxes do. I'm not quite sure why you're so invested in a flat tax of some form, anyway. The progressive tax dates back to ancient Greece, who instituted it after seeing their flat tax impoverish small farmers.
RA, more likely illegal tax shelters. The IRS rarely catches any rich folks because their enforcement budget is so low and most of that is focused on EITC abuse. Seriously, you're more likely to be audited if you're a twentysomething single mother making $20,000 a year and claiming the EITC than you are if you make $10 million a year. If you make income from a partnership, even better. For a time in the early to mid 2000s, the IRS did not audit partnership returns
at all. As you can imagine, hundreds of billions of dollars worth of income escaped taxation during those years.
Many of the richest folks in America are blatant tax evaders, yet even when they are caught using some obviously illegal tax shelter they are not punished. Why? Because they pay $50,000 for an opinion letter stating that whatever illegal thing they're doing is actually legal. For whatever reason, the IRS accepts them at face value no matter how obviously faulty the legal reasoning is and allows the taxpayer to only pay the amount owed plus interest. No penalties.
The rest of us don't get that kind of treatment.
Quote from: nathanm on June 01, 2012, 03:33:29 PM
Except the Fair Tax is essentially one giant loophole for people who make enough money to sock away substantial savings or to hire attorneys to structure sales in a way that they don't look like sales, similar to how Boeing avoids much Washington tax by flying the planes they make out over the Pacific before transferring ownership. It also discourages consumption and investment, as all sales taxes do. I'm not quite sure why you're so invested in a flat tax of some form, anyway. The progressive tax dates back to ancient Greece, who instituted it after seeing their flat tax impoverish small farmers.
RA, more likely illegal tax shelters. The IRS rarely catches any rich folks because their enforcement budget is so low and most of that is focused on EITC abuse. Seriously, you're more likely to be audited if you're a twentysomething single mother making $20,000 a year and claiming the EITC than you are if you make $10 million a year. If you make income from a partnership, even better. For a time in the early to mid 2000s, the IRS did not audit partnership returns at all. As you can imagine, hundreds of billions of dollars worth of income escaped taxation during those years.
Many of the richest folks in America are blatant tax evaders, yet even when they are caught using some obviously illegal tax shelter they are not punished. Why? Because they pay $50,000 for an opinion letter stating that whatever illegal thing they're doing is actually legal. For whatever reason, the IRS accepts them at face value no matter how obviously faulty the legal reasoning is and allows the taxpayer to only pay the amount owed plus interest. No penalties.
The rest of us don't get that kind of treatment.
Have you actually read the Fair Tax book? Big difference between that and a flat tax. Consumption taxes don't seem to be that big a disincentive. Otherwise, companies and people would not locate in states or cities with consumption taxes.
Here's a summary:
http://www.fairtax.org/PDF/PlainEnglishSummary_TheFairTaxAct2007.pdf
Quote from: Conan71 on June 01, 2012, 04:00:50 PM
Big difference between that and a flat tax.
Not really. If anything it's worse, because it allows people to store their income tax free. Those who can afford to not spend money will essentially escape taxation on their original income. Ask an estate planner. Delaying taxation for 20-30 years on a given bit of money is just as good as never paying tax on it. Not only will the tax be paid in debased dollars, but they get to earn interest on it in the interim. Secondly, not taxing capital gains, losing the estate tax, and all the rest basically ensures we will have what Jefferson called "dynastic wealth." I'm supposed to be happy about going back to the days when people got ahead based on the luck of their birth rather than their own effort?
Our income tax system would be fine if we simply removed the loopholes and most of the allowable deductions, tightened up the rules that allow CEOs to push the cost of flying around in the company jet off themselves and onto shareholders and taxpayers, and that sort of thing. (Legitimate business expenses should obviously be deductible, but flying the corporate jet halfway around the world and back to take the CEO's son on a ski trip is not a legitimate business expense)
All that said, I do applaud your desire to pay the highest proportion of your income in taxes of any of the income cohorts. People poorer than you will, of course, have their overall rate reduced by their exemption/refund/whatever. So will you, but not as much. You likely don't make enough to save all that much money, though. (Most people don't..have you seen the savings rate lately?) Folks higher up the ladder can just save it all until later, when it's grown in value untaxed, thus avoiding the largest part of the tax.
Quote from: nathanm on June 01, 2012, 04:17:47 PM
Not really. If anything it's worse, because it allows people to store their income tax free. Those who can afford to not spend money will essentially escape taxation on their original income. Ask an estate planner. Delaying taxation for 20-30 years on a given bit of money is just as good as never paying tax on it. Not only will the tax be paid in debased dollars, but they get to earn interest on it in the interim. Secondly, not taxing capital gains, losing the estate tax, and all the rest basically ensures we will have what Jefferson called "dynastic wealth." I'm supposed to be happy about going back to the days when people got ahead based on the luck of their birth rather than their own effort?
Our income tax system would be fine if we simply removed the loopholes and most of the allowable deductions, tightened up the rules that allow CEOs to push the cost of flying around in the company jet off themselves and onto shareholders and taxpayers, and that sort of thing. (Legitimate business expenses should obviously be deductible, but flying the corporate jet halfway around the world and back to take the CEO's son on a ski trip is not a legitimate business expense)
All that said, I do applaud your desire to pay the highest proportion of your income in taxes of any of the income cohorts. People poorer than you will, of course, have their overall rate reduced by their exemption/refund/whatever. So will you, but not as much. You likely don't make enough to save all that much money, though. (Most people don't..have you seen the savings rate lately?) Folks higher up the ladder can just save it all until later, when it's grown in value untaxed, thus avoiding the largest part of the tax.
Regardless of tax rates, people need and want to consume. Wealthy people will still buy larger houses, cars, planes, boats, beluga caviar, Dom Perignon, etc. The idea that they won't consume to simply keep from paying taxes is farcical.
You are fond of other European systems like healthcare, ever study up on their VAT?
Quote from: Conan71 on June 01, 2012, 05:55:21 PM
Regardless of tax rates, people need and want to consume. Wealthy people will still buy larger houses, cars, planes, boats, beluga caviar, Dom Perignon, etc. The idea that they won't consume to simply keep from paying taxes is farcical.
Of course they won't consume. Their
company will consume on their behalf, sticking shareholders with the bill. No different than today. Moreover, the really wealthy (of the sort we're talking about here) already don't consume with all of their income. They invest/save/whatever most of it.
VAT is completely different, btw, as it has no exemption for items used in the course of business. In fact, most states currently don't exempt such items from sales tax. Something you buy for resale, say an ingot of aluminum, is not a taxable sale for the purpose of sales tax. When you buy things like office equipment, paper, and what have you that you are not reselling, but are used in the course of business, that is currently considered a taxable sale. That is not how the Fair Tax works, making it even more of a giveaway to those who can shelter income in a business than the current tax code already is.
A very large amount of certain people's income will never be taxed thanks to seemingly innocent exemptions like that and its included repeal of the estate, gift, and corporate income taxes. Those of us stuck in the middle are the ones who get to foot the bill.
Quote from: nathanm on June 01, 2012, 03:33:29 PM
The progressive tax dates back to ancient Greece, who instituted it after seeing their flat tax impoverish small farmers.
Yep, I sure wish our economy was more like the Greek economy.
Quote from: nathanm on June 01, 2012, 04:17:47 PM
Not really. If anything it's worse, because it allows people to store their income tax free. Those who can afford to not spend money will essentially escape taxation on their original income. Ask an estate planner. Delaying taxation for 20-30 years on a given bit of money is just as good as never paying tax on it. Not only will the tax be paid in debased dollars, but they get to earn interest on it in the interim. Secondly, not taxing capital gains, losing the estate tax, and all the rest basically ensures we will have what Jefferson called "dynastic wealth." I'm supposed to be happy about going back to the days when people got ahead based on the luck of their birth rather than their own effort?
Our income tax system would be fine if we simply removed the loopholes and most of the allowable deductions, tightened up the rules that allow CEOs to push the cost of flying around in the company jet off themselves and onto shareholders and taxpayers, and that sort of thing. (Legitimate business expenses should obviously be deductible, but flying the corporate jet halfway around the world and back to take the CEO's son on a ski trip is not a legitimate business expense)
All that said, I do applaud your desire to pay the highest proportion of your income in taxes of any of the income cohorts. People poorer than you will, of course, have their overall rate reduced by their exemption/refund/whatever. So will you, but not as much. You likely don't make enough to save all that much money, though. (Most people don't..have you seen the savings rate lately?) Folks higher up the ladder can just save it all until later, when it's grown in value untaxed, thus avoiding the largest part of the tax.
So the purpose of taxes is not to buy needed/wanted goods and services. The purpose of taxes is to punish anyone not living Poverty. By the way, Poverty is not a town SW of OKC although there may be plenty of poor people there.
Quote from: Red Arrow on June 01, 2012, 09:33:02 PM
So the purpose of taxes is not to buy needed/wanted goods and services. The purpose of taxes is to punish anyone not living Poverty.
No, the purpose of (most) taxation is to pay for the things we ask our government to do. When one set of people escape taxation, that necessarily shifts the burden onto another set of people.
The purpose of the estate tax is to prevent dynastic wealth, which harms us all by locking up capital in what amounts to a permanent aristocracy. That it also raises revenue which then need not be raised through other taxes is a happy side effect. The purpose of the gift tax is to prevent simple estate tax avoidance.
Quote from: RecycleMichael on June 01, 2012, 08:01:40 AM
Big Paychecks, Tiny Tax Burdens: How 21,000 Wealthy Americans Avoided Paying Income Tax
Oh. NOW it's okay to b!tch about people not paying income tax. When I point out that 47% of American's don't pay it, we hear about how the "poor" don't make enough or that there are all those OTHER taxes the "poor" do pay like payroll blah blah blah. Not hearing that argument very much in this thread about the rich. More to the point, though, even the article points out the massive percentage disparity between the "rich" not paying and the millions that don't. Still, it's apparently newsworthy that in a country population by more than 300 million, 21,000 of them--roughly the population of freakin Bixby--are not paying income tax for whatever damned reason. Wow. If only they had paid their taxes maybe the UE number wouldn't have jumped today.
Now, where is that phone number for my accountant so I can start riding the gravy train....
Quote from: guido911 on June 01, 2012, 11:11:41 PM
Now, where is that phone number for my accountant so I can start riding the gravy train....
BR-549, ask for Junior.
:D
Quote from: nathanm on June 01, 2012, 10:49:16 PM
No, the purpose of (most) taxation is to pay for the things we ask our government to do.
Boy, you'd never know it from a lot of posts on TNF.
Quote
The purpose of the estate tax is to prevent dynastic wealth, which harms us all by locking up capital in what amounts to a permanent aristocracy. That it also raises revenue which then need not be raised through other taxes is a happy side effect. The purpose of the gift tax is to prevent simple estate tax avoidance.
The purpose of the estate tax is to tell people they have no say in their assets. It also insures that family farms and small businesses get sold to a large conglomerate or broken up and dismantled.
Quote from: Red Arrow on June 01, 2012, 11:37:51 PM
Boy, you'd never know it from a lot of posts on TNF.
The purpose of the estate tax is to tell people they have no say in their assets. It also insures that family farms and small businesses get sold to a large conglomerate or broken up and dismantled.
Quite insightful and accurate--except we don't need ALL people to pay for government services--only the rich and those selfish bastards that want to leave a legacy to their children.
As for estate tax avoidance, I always wondered if there was a spike in reported "break ins" into wealthy homes where loads of cash is stolen, sudden massive gambling losses ($10M bet and hitting on 20 while dealer stays on 19, same bet Generals over Globetrotters) or expensive illicit drug addictions near a rich persons' passing. Just sayin...
Quote from: Red Arrow on June 01, 2012, 11:37:51 PM
The purpose of the estate tax is to tell people they have no say in their assets. It also insures that family farms and small businesses get sold to a large conglomerate or broken up and dismantled.
You can go yell at Thomas Jefferson (and Adam Smith, if you like) about that first bit. That second bit is actually not verifiably true. No specific instances of family farms being sold to pay estate tax have been proffered in the debate, despite all the weasel worded rhetoric. Moreover, under current law small business owners and farmers can pass up to $9 million to heirs tax free, before even examining any tax shelter opportunities.
The advanced age of that particular right wing talking point does not make it any more true. It does score highly on truthiness, though.
Guido, each fifth of the income earners pay about 17.5%, quit your whining. You may also have noted Michael's earlier thread about the rich folks not paying any tax. Or if you are going to whine, at least whine about the folks above you in the income distribution shifting most of their tax burden onto you. Or the folks who evade at least $200 billion in tax every year but go unprosecuted because the IRS' enforcement budget is so small.
Quote from: nathanm on June 02, 2012, 01:01:30 AM
Guido, each fifth of the income earners pay about 17.5%, quit your whining. You may also have noted Michael's earlier thread about the rich folks not paying any tax. Or if you are going to whine, at least whine about the folks above you in the income distribution shifting most of their tax burden onto you. Or the folks who evade at least $200 billion in tax every year but go unprosecuted because the IRS' enforcement budget is so small.
Who's whining? I'm not the one b!tching that those wealthier than me are not paying enough or are somehow getting over so back off. And I read RM's post of that whopping 21K not paying income tax. Oh My God. I want to know how I can avoid paying income tax so I can b!tch about it like you.
Quote from: guido911 on June 02, 2012, 10:50:47 PM
Who's whining? I'm not the one b!tching that those wealthier than me are not paying enough or are somehow getting over so back off. And I read RM's post of that whopping 21K not paying income tax. Oh My God. I want to know how I can avoid paying income tax so I can b!tch about it like you.
You aren't b!tching? Good lord, I'd hate to see you upset over something. You complain about taxes more than anyone on here. You are like a little girl who dropped her ice cream cone the way you whine about taxes. Boo friggin hoo.
Quote from: guido911 on June 02, 2012, 10:50:47 PM
Who's whining? I'm not the one b!tching that those wealthier than me are not paying enough or are somehow getting over so back off.
You're constantly complaining about people who don't pay income tax despite the fact that if you take total tax burden into account everyone (with income) pays almost exactly the same rate. You constantly whine about wanting to raise their fscking taxes, so no, I won't back off.
Quote
I want to know how I can avoid paying income tax so I can b!tch about it like you.
It's pretty simple. Either become very, very poor, very, very rich, or a hedge fund manager. In the first case, you don't pay because you have nothing to take. In the second, you don't pay because the government showers you with tax breaks whether you ask for them or not. And if you aren't getting enough to zero out your tax burden, you can always ask for more (and likely get it). In the third you don't pay because you can wait to declare your income until whatever time you desire.
Quote from: nathanm on June 02, 2012, 11:04:19 PM
You're constantly complaining about people who don't pay income tax despite the fact that if you take total tax burden into account everyone (with income) pays almost exactly the same rate. You constantly whine about wanting to raise their fscking taxes, so no, I won't back off.
I won't back off about you failing to recognize/admit that 7-1/2% (15% counting your employer's contribution) goes directly to making sure you don't starve to death in your old age. You fail to understand cost/benefit.
Quote from: swake on June 02, 2012, 10:57:55 PM
You aren't b!tching? Good lord, I'd hate to see you upset over something. You complain about taxes more than anyone on here. You are like a little girl who dropped her ice cream cone the way you whine about taxes. Boo friggin hoo.
F off and your "little girl" crap. Punk.
Quote from: nathanm on June 02, 2012, 11:04:19 PM
You're constantly complaining about people who don't pay income tax despite the fact that if you take total tax burden into account everyone (with income) pays almost exactly the same rate. You constantly whine about wanting to raise their fscking taxes, so no, I won't back off.
It's pretty simple. Either become very, very poor, very, very rich, or a hedge fund manager. In the first case, you don't pay because you have nothing to take. In the second, you don't pay because the government showers you with tax breaks whether you ask for them or not. And if you aren't getting enough to zero out your tax burden, you can always ask for more (and likely get it). In the third you don't pay because you can wait to declare your income until whatever time you desire.
I was very very very poor once. I lived in a 350 sq. ft apt with my wife while we worked our @sses off through undergrad and grad school--after our military hitches were over. During all those years (from 93-99), we had nothing. But we NEVER demanded someone with more than us owed us anything or that they should pay more in taxes. Perhaps back then, instead of envying them we became inspired.
Quote from: guido911 on June 04, 2012, 12:59:50 AM
I was very very very poor once. I lived in a 350 sq. ft apt with my wife while we worked our @sses off through undergrad and grad school--after our military hitches were over. During all those years (from 93-99), we had nothing. But we NEVER demanded someone with more than us owed us anything or that they should pay more in taxes. Perhaps back then, instead of envying them we became inspired.
Between 93 and 99 the federal budget deficit was shrinking with surpluses forecast. There was no need to raise taxes on anyone. That is clearly not the case at the present time, largely, but by no means completely, due to tax cuts made since then. Combine that $400 billion a year with the $100 billion a year we're spending on Part D and a few hundred billion more for Homeland Security and the wars and somehow you've pretty much accounted for most of the deficit. So the question becomes what do we do about it?
Which programs do you want to cut? Are you OK with the sequestration plan written into current law?
Quote from: guido911 on June 04, 2012, 12:55:52 AM
F off and your "little girl" crap. Punk.
See, just like a little girl.
Quote from: swake on June 04, 2012, 08:36:44 AM
See, just like a little girl.
Master of the 'ad hominem'. He never fails to disappoint.