Tag: Estate Tax

Can We Make Billionaires Pay More Taxes?

The Daily Escape:

Sunrise, Cundy’s Harbor, ME – May 2024 photo by Eric Storm Photo

Economist Gabriel Zucman is a proponent of a global wealth tax. His column in the NYT explains what that is and how it would work:

“Until recently, it was hard to know just how good the superrich are at avoiding taxes. Public statistics are…quiet about their contributions to government coffers….Over the past few years…scholars have published studies…attempting to fix that problem. While we still have data for only a handful of countries, we’ve found that the ultrawealthy consistently avoid paying their fair share in taxes.”

The problem of billionaires paying very little in taxes is international. In the US, the problem is that billionaires rarely have any salaries to speak of:

”Why do the world’s most fortunate people pay among the least in taxes, relative to the amount of money they make? The simple answer is that while most of us live off our salaries, tycoons like Jeff Bezos live off their wealth. In 2019, when…Bezos was still Amazon’s chief executive, he took home an annual salary of just $81,840. But he owns roughly 10% of the company, which made a profit of $30 billion in 2023.

If Amazon gave its profits back to shareholders as dividends, which are subject to income tax, Mr. Bezos would face a hefty tax bill. But Amazon does not pay dividends to its shareholders. Neither does Berkshire Hathaway or Tesla. Instead, the companies keep their profits and reinvest them, making their shareholders even wealthier.

Unless…Bezos, Warren Buffett or Elon Musk sell their stock, their taxable income is relatively minuscule. But they can still make eye-popping purchases by borrowing against their assets. Mr. Musk, for example, used his shares in Tesla as collateral to borrow $13 billion to put toward his acquisition of Twitter.”

Slashing the corporate tax rate and getting rid of the estate tax have also had dire effects in terms of wealth distribution:

“Historically, the rich had to pay hefty taxes on corporate profits, the main source of their income. And the wealth they passed on to their heirs was subject to the estate tax. But both taxes have been gutted in recent decades.”

In 2018, under the Trump administration, the US cut its maximum corporate tax rate to 21% from 35%. And the estate tax has almost disappeared. Relative to the wealth of US households, it generates only a quarter of the tax revenues it raised in the 1970s.

The effective tax rate (the percentage of someone’s total income that they paid in taxes in all forms) is now lower for the 400 richest American billionaires than it is for the bottom 50% of income earners. Here’s the effective tax rate in 1960 and 2018 for these two groups respectively:

Source: NYT

The US national debt is $35 trillion, almost all of which we acquired during the same period as the reduction of taxes on the rich. That isn’t a coincidence. And since capital and people are both completely mobile, the problem of taxation of wealth doesn’t end at our borders. More from Zucman:

“There is a way to make tax dodging less attractive: a global minimum tax. In 2021, more than 130 countries agreed to apply a minimum tax rate of 15% on the profits of large multinational companies. So no matter where a company parks its profits, it still has to pay at least a baseline amount of tax under the agreement.”

Zucman is proposing we apply a similar minimum tax to billionaires:

“Critics might say…this is a wealth tax, the constitutionality of which is debated in the US. In reality, the proposal stays firmly in the realm of income taxation. Billionaires who already pay the baseline amount of income tax would have no extra tax to pay. The goal is that only those who dial down their income to dodge the income tax would be affected.”

Critics of a minimum tax say it would be hard to apply because wealth is difficult to value. But according to Zucman’s research, about 60% of US billionaires’ wealth is in stocks of publicly traded companies. The rest is mostly ownership stakes in private businesses, which can be assigned a value by comparing them to the value of similar firms.

But the big issue is how to get broad international participation in this billionaire’s minimum tax. In the current multinational company minimum tax agreement, participating countries are allowed to overtax companies from nations that haven’t signed on. This incentivizes every country to join the agreement or lose tax revenue.

The same mechanism could be used for billionaires. For example, if Switzerland refuses to tax the superrich who live there, other countries could tax them on its behalf. Countries such as Brazil, have shown leadership on the issue, and France, Germany, South Africa and Spain have recently expressed support for a minimum tax on billionaires.

This is far from a done deal, although Biden has proposed a billionaire tax with similar objectives. And Zucman’s proposed tax wouldn’t impact the ordinary rich. He says there are about 3,000 people who would be required to give a relatively small bit of their profits back to governments.

Zucman’s closing words:

“The idea that billionaires should pay a minimum amount of income tax is not a radical idea. What is radical is continuing to allow the wealthiest people in the world to pay a smaller percentage in income tax than nearly everybody else.”

Great idea, one that almost everyone agrees with, EXCEPT those who have the power to do something about it. We’re looking at you, Republicans! Also, when a significant percentage of the (relatively) poor in this country support Trump who is dedicated to cutting taxes for the rich, is there any hope that taxes will be raised on the wealthy?

That’s more than enough thinking for this week. It’s time for our Saturday Soother, where we attempt to ignore the latest about the campus protests, or whatever else Gov. Kristi Noem is training her gun at, and gear up for another week in the political and cultural wars.

Here on the Fields of Wrong, the crab apple trees are in full bloom along with our weeping cherries. There is still plenty to do if we are to finish our spring cleanup before summer.

But, before we start down that backbreaking path, let’s grab a mug of coffee and a seat outside. Now watch and listen to Luigi Boccherini’s “Guitar Quintet No. 4 in D major “Fandango”, G.448”, recorded in the Unser Lieben Frauen Church, in Bremen Germany in 2019. Boccherini was an Italian composer and cellist. He wrote a large amount of chamber music, including over one hundred string quintets for two violins, viola and two cellos:

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Biden Invites Sinema and Manchin to Talks

The Daily Escape:

Sunset, Cape Disappointment, WA – September 2021 photo by Rick Berk Photography. The lighthouse was built in 1856 and was the first in the Pacific Northwest.

In politics as in business, there’s theater, and then there’s the real work. Biden outlined his goal of raising taxes on the wealthy to strengthen the middle class and boost the economy in remarks on Thursday afternoon at the White House.

On Wednesday, Biden met with Sens. Joe Manchin (D-WVA) and Kristen Sinema (D-AZ), looking to find a path forward on the infrastructure bill, along with the big social spending package and Machin’s voting rights bill.

Democrats will use budget reconciliation for the social spending bill, bypassing Republican opposition. It allows them to win Senate passage with 51 votes, with VP Harris casting the tie breaking vote, rather than the 60 votes that would otherwise be required.

But that means Manchin and Sinema need to vote for the big bill, something they have said they won’t do. No one who was in the room when the talks took place came out and said that a deal was pending. But there’s still time for that to emerge.

The House Ways and Means Committee unveiled a tax proposal this week to pay for the $3.5 trillion package, which includes Democrats’ plans for universal pre-K, expanding Medicare, child and elder care, and the environment. The committee approved its portions of the big bill in a near party-line vote Wednesday, which included the new tax provisions.

Predictably, the WSJ’s editorial board weighed in on the proposed tax plan, saying:

“…this bill looks like a House Democratic suicide note.”

More from the WSJ: (Emphasis by Wrongo)

“If Americans are successful, Democrats want to tax more of their income. The top individual tax rate will rise to 39.6% from 37%, as Mr. Biden promised. But wait: The higher tax rate will kick in at a mere $400,000 for individuals and $450,000 for married couples. That’s down from $523,600 and $628,300 under current law.”

A mere $450,000. They trot out their “pity the poor rich” trope any time the possibility that tax rates might be raised shows up. Let’s unpack this:

This opens the possibility that there will be some families that are below the 99th percentile of household income and above the 98th threshold. Under the new law, they would be forced to pay about $700 more in taxes than they do now. That’s assuming the Democrats’ latest effort at socialism in America is enacted. This paltry tax increase might cut into the nanny’s Christmas bonus. Why are Democrats so cruel?

More from the WSJ:

“This is a steep rate increase on two-earner upper-middle-class families. They may reach these income levels after a long career, and only for a couple of years, but Democrats want more than 40% if you include the 1.45% Medicare payroll tax and the 3.8% Obamacare surcharge on investment income.

If you make more than $5 million, there will also be a three-percentage-point income-tax surcharge. That would take the top tax rate to something like 46.4%. Add California or New York taxes, and government will take about 60%. “

The put-upon high-income salaried professionals follow this mantra:

“Why do I consider myself successful? Because I am rich! Why am I rich? Well, I was successful! All the other Whites in our gated community are exactly like me, only they’re slightly less successful!”

Note that the WSJ’s editorial board treats these proposed marginal tax rates as if they were effective tax rates. Effective tax rates are notoriously lower. For the top 1% of US taxpayers, (average income of $1.16 million in 2018), all federal taxes: income, payroll, corporate, estate, and excise, averaged 29.6% last year.

More from the WSJ on the Democrats’ plans for the estate tax: (emphasis by Wrongo)

“The death tax exemption would also be cut in half to $5.5 million—which would also hit small businesses and savers who have built up a small nest egg.”

The way the estate tax works is that you also get the full benefit of your spouse’s exemption, should you outlive him/her. So, the proposed $5.5 million exemption means that married couples would still get to pass on their “first” $11 million tax-free to their heirs.

In what world is $11 Million a “small” nest egg?

Republicans (and their media enablers) are always against tax increases. Derailing taxes, while appointing more conservative Supreme Court Justices are their political red lines.

It’s time for Democrats, including Manchin and Sinema, to stand shoulder-to-shoulder and get tax reform done this year.

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Lobbyists Are Hiring Democrats to Kill Tax Reform

The Daily Escape:

Sunset, Acadia NP, ME – 2021 photo by Rick Berk Fine Art Photography

From the NYT:

“The wealthiest 1 percent of Americans are the nation’s most egregious tax evaders, failing to pay as much as $163 billion in owed taxes per year, according to a Treasury Department report released on Wednesday. The analysis comes as the Biden administration pushes lawmakers to embrace its ambitious proposal to beef up the Internal Revenue Service to narrow the “tax gap,” which it estimates amounts to $7 trillion in unpaid taxes over a decade.”

The Treasury Department estimates that its tax gap proposals could raise $700 billion over a decade.

This is crucial, since Democrats are counting on collecting unpaid taxes to help pay for the $3.5 trillion spending package they are drafting. The House is set this month to begin advancing the spending package, but liberal and moderate factions of DC Democrats are divided over how much to spend and how to offset the cost.

Republicans are unified in opposition to the legislation, and the US Chamber of Commerce has vowed to defeat it. Among the other players are the Business Roundtable and Americans for Tax Reform. And fronting for them is a former Democratic Senator, Heidi Heitkamp. They have unleashed a lobbying operation targeting a small number of moderate Democrats in Congress who hold the balance of power.

Democrats hold a fragile majority in both Houses of Congress. Any hope to enact an ambitious domestic reform program requires that all Dems be on board. Moreover, increasing taxes on corporations and the very rich will be heavy lifts, given the opposition.

From NY Magazine’s Jonathan Chait: (brackets by Wrongo)

“Last week, Democratic senator turned anti-tax lobbyist Heidi Heitkamp, who represented North Dakota for one term before losing in 2018, appeared on CNBC to make a surprisingly emotional appeal against President Biden’s plan to close a notorious loophole for the wealthy. The loophole, called “stepped-up basis”…[that] allows capital gains to escape any tax at all as long as the owners pass the asset on to their heirs before they sell it.”

It turns out that Heitkamp is one of several Democrats lobbying against the Biden tax plan. Chait cites former Democratic Congressman Nick Rahall, who published an op-ed in his hometown West Virginia newspaper advising Democrats that they:

“…can avoid alienating rural states by keeping family-owned businesses and farms in mind.”

Former Democratic Senator Max Baucus (MT) has also stepped forward to write an op-ed advising Democrats that their political fortunes hinge on maintaining low tax rates for wealthy heirs.

The NYT reported that Heitkamp was recruited to the anti-Biden side by superlobbyist John Breaux, a former Louisiana Democratic Senator and Congressman, who once confessed:

“My vote can’t be bought, but it can be rented.”

Washed up politicians all move on to their second act: Monetizing their influence.

Heitkamp told the NYT that she’s finding a receptive audience among potential swing voters in rural areas, especially owners of family farms, even though Democrats say those voters would never be affected by the proposed tax changes:

“This is very consistent with my concern about revitalizing the Democratic Party in rural America….You may want to do this…but understand there will be risk….”

Is her point that if Democrats don’t preserve the loophole that allows fabulous amounts of wealth to escape taxation when passed down to wealthy heirs, they might alienate hardscrabble rural voters?

Will Dems risk losing more of those voters if they put a crimp in the elites’ efforts to maintain entrenched and inherited privileges across generations? Whatever happened to the narrative that rural Real Americans™ voted for Trump to protest America’s rigged economy?

Rural people, like everybody else, want elected officials who will have their backs and fight for them.

We’ve had this kind of manipulation for the last 50 years. It’s how we got a society where some can buy $3 million weekend “cottages”, while so many other Americans line up at food banks or can’t get basic health care.

It’s true that enacting a big tax hike comes with risks: Corporations and the wealthy will fund a lot of Republican TV ads attacking Dems over it.

The risk is worth it. Otherwise, for every dollar in tax hikes Democrats concede to Republicans and the US Chamber of Commerce, they will have to give up a dollar in spending on programs like Medicare, Medicaid, or the child tax credit.

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Reagan’s Tax Cuts Are No Model for Today’s GOP

The Daily Escape:

Colima Volcano, Mexico, December 2015 – photo by Sergio Tapiro, National Geographic 2017 photographer of the year

Republicans are patting themselves on the back about their coming tax cuts, comparing it to the famous (infamous?) Regan tax cuts, known as the Tax Reform Act of 1986. From the Economist:

During the three decades since its passage, Democrats and Republicans alike have hailed the law not only for overhauling the country’s tax system…but also for doing so with bipartisan support in both houses of Congress.

Unlike the bi-partisan review of our tax system that occurred from 1984 to 1986, Donald Trump has promised to sign a bill by Christmas, just two months after the first legislative text was introduced.

Congressional Republicans originally promised that any reform would not reduce overall revenues. But they have flip-flopped: The current plan is expected to raise deficits by between $1.3 and $1.5 trillion over its 10-year life. And according to figures from the Joint Committee on Taxation, most of the benefits will go to the rich. Reagan’s reform did the opposite. The left hand chart below shows the Reagan tax cut in blue and the Trump tax cut in red. The x axis is annual income, while the y axis is the percentage of taxpayers receiving a tax cut:

Source: The Economist

The gaps in share of taxpayers receiving a cut are stunning. Between 35-55% of those under $40k in income will receive a benefit under the Trump plan, while between 70-80% of the same group received a cut under the Reagan tax plan.

It gets worse when we look at the right hand chart above. The x axis shows the percentage change in after-tax income by earnings level. Reagan’s cut gave those making between $10k-$50k an increase in take home pay by between 0.25% and 1.5%. Trump’s plan will leave them at ± 0% change in take-home income, while those who make from $50k to $200k will do significantly better under the Trump plan than under Reagan.

And an article of faith for the GOP is that the tax cut will stimulate the economy. Let’s unpack this a bit. The bill provides interim tax relief of about $1.38 trillion during 2018-2025 before the tax sunset provisions kick-in. That equals 4.2% of current tax revenue collections during the 8- year period, and only about 0.8% of GDP.

It’s hard to see how an 0.8% stimulus to GDP is going to bring on a growth tsunami, or add tons of new jobs.

Back to the Reagan tax cut, it had no measurable effect on the trend rate of economic growth, and when it was fully implemented, it amounted to 6.2% of GDP, not 0.8%, .

Finally, when the Tax Policy Center costed out the Senate Finance Committee bill, it showed that by year 10, not one of the 150 million individual filers will still be getting a tax benefit. And most importantly, the single tax cut item left in the statute, the 20% corporate rate, which stays in place permanently, costs America $171 billion in lost revenue in 2027. From David Stockman:

Likewise, the latest distributional analysis [probably from the Center on Budget and Policy Priorities] shows that in 2025, before the sunset,-the bottom 30 million tax filers would get an average “tax cut” which amounts to the grand sum of $1.15 per week….the next 30 million filers would only get $7 per week; and the middle quintile—-the 30 million tax filers between $55,000 and $95,000 per year and the heart of the middle class—– would get just $17 per week of tax relief in 2025.

Hardly seems worthy of Paul Ryan’s gloating about how he’s helping the middle class. The people know that they have no control over what happens, they just want to see how much more they will have to spend (pay?) when the dust settles.

And that’s why Paul Ryan and Donald Trump gloat. They show the rubes a dollar, and then send $1000 to their corporate benefactors.

This will be the GOP’s paradise after they enact the Trump tax plan:

 

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Here’s Who Benefits From Trump’s Tax Cuts

The Daily Escape:

Floating Village in Lan Ha Bay, North Vietnam – photo by Son Tong

Nobody knows what the final shape of the GOP tax plan will be, but we can see the financial implications of the current bill. Jill Schlesinger has a handy quick and dirty look at who benefits from the proposed cuts posted on her web site. Of the expected $1.5 trillion in tax cuts, only 15.2% will be for individuals. Schlesinger’s conclusion is that Republicans mainly want to help corporations:

  • $1 trillion will accrue to Corporations and Pass-through businesses
  • $228 billion accrues to Individuals
  • $172 billion accrues to Estates

Of the GOP’s $1.5 trillion government handout, corporations get two-thirds. Pass-through businesses are S-Corporations, LLCs, partnerships and sole proprietors. About 95% of businesses fall into this category. Many of these are professional service organizations (lawyers, doctors, accountants, consultants and architects) who otherwise are wealthy individuals, and those infamous hedge funds.

Estates will receive a Republican tax handout that is nearly as large as that provided to individuals. Today, roughly 5,000 people pay estate taxes under current law, but about 3,200 Americans would not have to pay the estate tax next year if the Republican tax bill is passed.

Think about that: 5000 individuals will split up $172 billion in tax relief due to Trump’s largesse!! In 2000, 52,000 estates had to pay the tax. Now it is down to 5,000.

Individuals include everyone who files a tax return. But even here, the WaPo says that the wealthy will do better:

Households with annual incomes over $1 million would see their after-tax incomes increase by 3.2%, 16 times the percentage increase for any income group in the bottom half of the income distribution. . . . (The disparity in average tax cuts measured in dollars would be even larger.)

About 45% of cost of the bill’s tax cuts would go to households with incomes above $500,000 (fewer than 1% of filers). About 38% of the bill’s cost would go to tax cuts for households with incomes over $1 million (about 3 out of every 1,000 filers).

What should the response of Democrats be? Democrats are correct in saying that the Republican plan is tilted too much toward the ultra-wealthy. They propose tilting it more toward the middle class.

Bruce Bartlett was a domestic policy adviser to Ronald Reagan and a Treasury official under George H. W. Bush. Bartlett says that Dems:

Should counter with a $1.5 trillion infrastructure plan and no tax cuts for anyone.

Bartlett points out that since the Clinton administration, Dems have tried to show fiscal responsibility, supporting tax increases and spending cuts. Meanwhile, Republicans abandoned any pretense of concern for the deficit, as their new budget shows.

Bartlett argues that a big infrastructure program will provide a payback for decades to come, just as Eisenhower’s highway program did. Importantly, he points out that building infrastructure will create vastly more jobs than any kind of tax cut, especially given the Republican proposal that largely benefits the wealthy, while providing no incentives for job creation or investment.

The Congressional Budget Office (CBO) has routinely provided estimates to Congress showing that direct spending by government on infrastructure has a bigger multiplier effect on economic growth than any tax cut. Their February 2015 report showed that purchases of goods and services by the federal government raises GDP by as much as $2.50 for every $1 spent.

The report also says that a temporary tax cut for the wealthy, such as Republicans are now proposing, would create at most 60 cents of GDP for every $1 of foregone revenue. Corporate tax cuts are the worst, creating 40 cents of GDP for every $1 of revenue loss.

Our government is starved for revenue. This is not the time to even consider a tax cut for the wealthiest.

A true conservative tax policy would raise taxes to balance the budget, reduce deficits and debt, while investing in basic infrastructure, education, job training, research, technology and other drivers of growth.

That is the kind of conservatism we should get behind.

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Trump’s Tax Proposal Silences the GOP’s Deficit Hawks

The Daily Escape:

African Elephants – photo from Nature Photography

African Elephants clearly are not deficit hawks. But, neither are most Republicans in Congress, despite all their complaining about spending that adds to the deficit. Trump’s tax proposal is out. It’s interesting that the administration decided it was a good idea to put a vague blueprint laying out big tax cuts on a single sheet of paper.

It could take some time to process Trump’s “proposal”, but as the NYT says, it will bring a reckoning for Republican deficit hawks:

As President Trump’s top economic advisers faced a barrage of questions on Wednesday about the tax plan they had just unfurled, there was one that they struggled most to answer: how to keep the “massive tax cuts” they proposed from ballooning the federal deficit…Republican budget hawks will need to decide whether they want to stick to the arguments of fiscal responsibility that they used to bludgeon Democrats during the Obama era.

More from the NYT: (emphasis by the Wrongologist)

Mick Mulvaney, director of the Office of Management and Budget, who was a fierce critic of deficits when he was a member of Congress, offered a glimpse of the rationale his former colleagues might embrace. “As a conservative, that bothers me a little bit,” he said Tuesday on CNN of the possibility that Mr. Trump’s tax plan would increase the deficit. “But we also look at deficits through sort of a different lens.”

While we haven’t yet seen definitive estimates of the cost of Trump’s one-pager, it will certainly add to the deficit, and the negative numbers range up to an additional $6 Trillion over the next 10 years.

And when Treasury Secretary Mnuchin says that Trump’s tax plan “will pay for itself,” he isn’t credible. He also told ABC News that he couldn’t guarantee that middle-class families wouldn’t pay more under the proposal:

I can’t make any guarantees until this thing is done and it’s on the president’s desk. But I can tell you, that’s our number one objective in this…

Word salad. Helping the middle class is the furthest thing from their minds. Trump, Mnuchin, Ryan and the rest want to give a targeted stimulus to the rich and corporations.

They disguise tax cuts by calling them “tax reform”. Whatever they call it, they want the biggest tax cut for rich people that they can push through the House and Senate. Calling it “tax reform” is useful because “yuuge tax cuts for the rich” won’t be all that popular politically.

It’s inevitable that “middle class families” will end up paying more. Somebody’s got to pay for that massive military buildup. And the GOP cries of deficit piety are a shell game. Here is Kevin Drum:

When does this nonsense stop? Republicans aren’t deficit hawks. They haven’t been since the Reagan era. Republicans used to be deficit hawks, but the whole point of the Reagan Revolution was that tax cuts were more important than deficits. Their only concern about the deficit these days is as a handy excuse for opposing any increase to social welfare programs.

Trump’s tax plan is the same old Republican orthodoxy that has been around for decades.

Wrongo recommends this article from Fortune Magazine in 1955: “How Top Executives Live”. The GOP constantly says that if the 1% are forced to pay high taxes, they won’t work as hard to innovate and create jobs. This article, from the time when personal tax rates went from 40%-75%, shows they didn’t need low taxes back then to work hard:

The successful American executive, for example, gets up early–about 7:00 A.M.–eats a large breakfast, and rushes to his office by train or auto. It is not unusual for him, after spending from 9:00 A.M. until 6:00 P.M. in his office, to hurry home, eat dinner, and crawl into bed with a briefcase full of homework. He is constantly pressed for time…

Wrongo is cranky about the GOP’s desire to always shift the tax burden downward, and about their success in doing it. What Trump will get passed is another round of debt-financed upper-class tax cuts.

That will suit Trump and Ryan just fine.

Let’s go out with some music that references the life and times of Jonathan Demme, director of “Silence of the Lambs” and “Philadelphia”, who died on Wednesday. Demme also directed the best Rock movie ever made, “Stop Making Sense” featuring the Talking Heads. Here is “Life in Wartime” live, and that’s Parliament – Funkadelic’s Bernie Worrell on keyboards. This isn’t the first time Wrongo has posted this video:

https://www.youtube.com/watch?v=obAtn6I5rbY

Those who read the Wrongologist in email can view the video here.

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Trump’s Same ‘Ol GOP Tax Plan

Neil Irwin at the NYT compared the Clinton and Trump tax plans. Hillary’s raises taxes on the rich, and adds ~$1.1 Trillion to federal tax revenues over the next 10 years. The Pant Load’s plan is under revision (again), but, his old plan reduced revenues by ~$9.5 Trillion over the same period, and while his new plan will probably cost less, it will still create red ink.

Jared Bernstein had a few points which you might not have picked up on:

…the plan is pure, old-fashioned, supply-side, trickle-down orthodoxy. How that squares with Trump’s play for disaffected working class voters hurt by globalization is left as an exercise for the reader.

Bernstein’s best point is about the “pass-through” income loophole Trump creates. His new plan sets the top income tax rate at 33% but creates “a much lower rate than 33% for a substantial number of very-high-income households by allowing people to pay a new low rate of 15 percent on “pass-through” income (business income claimed on individual tax returns). According to the Tax Foundation, pass-through businesses now earn more net income than traditional “C” corporations (like GE or Ford). So of course, Republicans want to lower their tax rates. More from Bernstein:

More than two-thirds of all pass-through business income flows to the top 1 percent of tax filers.

And it will probably get worse: When you can pay a lower rate on a particular type of income, you will visit with a tax lawyer and set up a Limited Liability Corporation (LLC). Then off you go to the boss and say, as Bernstein points out:

“I’m no longer Joe Paycheck, I’m Joe Paycheck, LLC. Pay me the same salary but call it a consultant’s fee for services provided by my limited liability corporation”. Joe then passes that income through from the business to the personal side of the tax code and pays 15% on it.

Where Joe might have formerly paid as much as 39.5%. This will allow the hedge fund and private equity guys to move from paying a mere 24% that they pay on earnings today to 15%, if Trump gets the GOP-led Congress to go along.

Trump also wants to repeal the estate tax. Like the prior “improvement”, this one will benefit the Donald personally. The estate size that must pay estate taxes today is $10.9 million. So if a couple has an estate smaller than that, they pay no estate tax. How many are paying it? Only 0.2% of estates (that’s 2 in a 1,000) pay it today.

So none of these are the “small family businesses” and “family farms” that Republicans whine about. If you have the better part of $11 million in assets, you ain’t that small.

A minute more on the LLC: LLCs were created by Congress to give owners of businesses the ability to avoid “double taxation” on taxable income they receive from their businesses. The theory is, business income from a C corporation is taxed twice: once at the corporate level and again at the personal level when dividends are paid to owners. Businessmen could have avoided double taxation by simply operating their businesses as proprietorships or general partnerships. But then they would lose the limited liability protection from creditors that C corporations and limited partnerships provide.

So Congress created the LLC hybrid to enable businessmen to have their limited liability cake and eat it too. But you don’t get the same deal: Wrongo and Ms. Right have paid into Social Security for over a combined one hundred years. Along the way, we could not deduct our yearly SS contributions, which means we paid income taxes on the income that we used to make our contributions. Now that we are receiving Social Security payments, we pay federal and state income taxes again on the payments we receive.

If we use some of our Social Security income to buy gas, we are taxed again in federal and state motor fuel taxes. Same when we buy goods and services, and pay state sales taxes.

Double, triple and quadruple taxation are pervasive throughout our economy, but it’s only the average Joes that pay them. So no tears for Mr. Trump, the Kochs and “job creators” who say they need a break from double taxation.

Or maybe ask your Congressperson for a similar break for you.

Trump is cutting taxes for the rich. If you think he is gonna help the middle class, he is hoodwinking you. You may see a few pennies in tax cuts while the rich take in extra millions to buy bigger, better penthouse apartments.

Meanwhile, the roads and bridges that you use to get to work will crumble even further, because he’s planning to give away the store. Paying your taxes is extremely important and new rules will mean a new way of getting this done, so before you worry, take a look at a tax planning Winnipeg lawyer or one in your state to discuss on how you can plan out your taxes better and keep up to date with any changes.

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Tax Day and the Estate Tax

Today is tax day, and most good American doobies will have filed their taxes by midnight tonight. It takes the temperament of an accountant who’s passed the relevant CPA exam parts to self-prepare your taxes, and Wrongo has that temperament for less than 2 hours a day, so doing the Wrong family taxes never gets easier.

You might like “Tax Rap” by Go Remy. It was a submission to a Turbo Tax contest. While it didn’t win, it is very funny:

For those who read The Wrongologist in email, you can find the song on YouTube here.

On Tax Day, we have to talk about the Estate Tax, or as the Republicans call it, the “Death Tax”. Why? Because House Republicans are going to repeal the Estate Tax this week. In their ham-handed way, they will link the two events to show Americans that Republicans are lowering taxes for the people.

But as Bloomberg points out, the Estate Tax is now paid by only 0.2% of US estates. That translates into about 5,500 households a year. The Hill reports that the Congressional Budget Office (CBO) estimates that repeal of the Estate Tax would add $269 billion to the federal deficit from here to 2025.

The Republican logic for repeal is that the tax unfairly steals the family jewels from ordinary hard-working Americans, but the current estate tax doesn’t kick in unless an individual has assets totaling more than $5.43 million. For married couples, the threshold for avoiding the tax is $10.86 million.

Not chump change.

Under the Republican plan, estates would pay no taxes. Furthermore, families would be able to pass assets across generations and avoid paying capital gains taxes on both real gains and so-called phantom income attributed to inflation, a loophole called “stepped up basis” in the tax code. Subsequent heirs could continue this strategy so that the gain is effectively never taxed.

Here are a few quotes from Republican supporters of Estate Tax repeal:

Rep. Paul Ryan (R-Wis.):

This tax doesn’t just hit the big guy, it hits the little guy — like the small business and the family farm.

Rep. Kevin Brady (R-TX) made the “double taxation” argument:

The death tax is the wrong tax at the wrong time, and it hurts the wrong people…They are double and triple taxed.

Sen. John Thune (R-SD):

The death tax imposes a tax rate as high as 40 % on family farms, ranches and small businesses, which hurts economic growth by discouraging savings and development.

But, the nonpartisan Tax Policy Center estimates that only 120 farms and small business, where at least half the assets are in farm or business assets, had to pay the estate tax in 2013. And double-taxation shouldn’t be so hard for Republicans to understand. No one claims that when a worker gets paid a wage, and pays a tax on that income, and who later spends some of that after-tax income paying someone to mow their lawn, that it is double-taxation for the lawn guy to pay income tax. This is really simple: Money moves from entity, to entity, to entity, and each time, tax applies.

So, the facts don’t support the case against the estate tax, but this does not matter to Republicans.

It has become an ideological issue, even if the data show that that relatively few small farms or businesses appear to be affected. Even if it’s only a handful, that’s apparently too many for Republicans.

The truth is that repealing the Estate Tax would mainly benefit the very wealthiest Americans. In 2016, the wealthiest 1,300 or so estates (those worth $20 million or more) would receive 73% of the benefit, with each receiving a tax windfall averaging roughly $10 million, according to the Joint Committee on Taxation’s analysis of the repeal proposal approved by the Ways and Means Committee.

This is a special kind of welfare. It is welfare for the rich. This will give multimillionaires, who are the only people we are talking about, an additional 40% of wealth transfer upon the death of a parent. This undresses Republicans as planning to create a permanent aristocracy based on inherited wealth.

And Republicans say they will address income inequality if only America votes for them in 2016?

The GOP proves again that they are not what they claim. They claim to be for balancing the budget and decreasing the deficit, but leap at the chance to lavish more $ billions on the rich, while increasing the deficit.

The facts mean nothing to President Nordquist, or to our right-wing friends when discussing taxes.

Happy Tax Day!

 

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