IRS Files Released of Super Rich

[Number Six]

https://www.propublica.org/article/the- ... income-tax

How big an issue is this? Many tax writers such as Pulitzer winning journalist David Cay Johnston has been covering this issue for years. It seems to me that the super rich are just a parallel of how large corporations pay little in taxes. Is the leak of private and confidential information like this upsetting to anyone?

[AnOwlCalledSage]

Funnily enough, I've just watched a CNN clip on this. Tax avoidance is legal. Tax evasion isn't. I'd say it's the duty of a citizen to not pay taxes they don't have to, and to pay all those that they do. I now have a nice pension because I spent the earlier part of my career avoiding taxes. There is nothing intrinsically wrong with it.

As Richard Quest said, if the tax avoidance lobbyists have succeeded in creating inequity, then the problem isn't the tax avoider, it's the legislature who do have the power to do something about it, but for "whatever reason" can't be arsed.

[Burnaby49]

As Richard Quest said, if the tax avoidance lobbyists have succeeded in creating inequity, then the problem isn't the tax avoider, it's the legislature who do have the power to do something about it, but for "whatever reason" can't be arsed.

While there's always political corruption, the powers that be taking care of their own, it's also more complicated than that. Canada has tried hard to establish specific legislation to end tax avoidance schemes but generally, as an overall goal, has failed. It was nothing more than Whack-A-Mole. As soon as one scheme was stopped a half-dozen more would pop up to replace it. The problem is the overwhelming complexity of tax laws. The best accounting and legal minds in the country are always avidly seeking legal ways to exploit the Income Tax Act to sail just within the law while avoiding legal consequences and the laws are so complex there are always unintended loopholes for the very, very, astute to uncover.

In the end, while still playing legislative catch-up, Canada established GAAR (the General Anti-Avoidance Rule). I won't go into detail, it's also complex. In very general terms if a series of transactions has no purpose other than to avoid tax it can be reassessed. If the series has an overall business purpose but there are steps that aren’t necessary to achieve that purpose which are included in the sequence solely to avoid tax it can be reassessed. However this doesn’t give the CRA unlimited arbitrary powers. The Tax Court must be convinced that the purpose of the transactions was to circumvent the spirit and intent of the Act and any doubt is judged in the taxpayer’s favour. So the CRA is careful about applying GAAR and even then a significant percentage of reassessments are reversed by Tax court.

[AnOwlCalledSage]

While there's always political corruption, the powers that be taking care of their own, it's also more complicated than that. Canada has tried hard to establish specific legislation to end tax avoidance schemes but generally, as an overall goal, has failed.

There is deliberate conflating of avoidance and evasion in the popular discourse.

The UK has a massive tax avoidance scheme. It is called paying gross income into a pension pot so that you can draw it down later when your tax liability will (if you have ever been a higher tax bracket payer) be lower. It is classic tax avoidance. It is not evasion.

The Government could easily end it by having one pay tax at source on one's gross income, but it benefits society for "savings" investment to be inflated (and also helps that pension schemes are also big investors in stocks which artificially boots the economy) so that the general taxation burden of keeping pensioners form starving and therefore having to be bailed out by the state as low as possible.

This is not a failing. It is a choice. It is not always wrong.

[JamesVincent]

So another person who can't tell the difference between wealth and income and somehow thinks the two should be treated as one.

[The Observer]

There is deliberate conflating of avoidance and evasion in the popular discourse.

Of course. It boils down to the subjective definition of what is fair in terms of taxation. And since everyone has their own definition, the pendulum will swing back and forth in the legislation that develops to address what the current legislative body thinks is "fair." And those who didn't see their favored plan adopted will scream "unfair."

But what is the really big news here, in my opinion, is the problem of an anonymous leaker who provided the IRS information in the first place. Data of this type and the size of it does not simply end up on the desk of any and all IRS employees. This kind of information is typically something only that the leadership of National HQ would see. So the implication is that someone there violated the privacy laws to get this information to the press, justifying it by believing that they were breaking the law for a greater good. (of course it is possible that the information came from a Congressperson's office since members have the right to see this kind of information if they belong to a tax committee.) IRS Commissioner Rettig commented today that internal and external investigations have started to determine how and by whom this information was secured. The chances for them tracing the information to an original database request is quite good, since a record trail exists for all requests that are submitted to the IDRS system. But if the information was secured legitimately and someone else purloined the printed or published report from a desk/filing cabinet, it may be harder to prove who actually leaked it.

[Number Six]

This leak IMO serves a useful purpose in letting the general public be aware of how gamed, corrupt and skewed for the wealthy the system is. I just don't buy legalistic rationales on a legal duty to avoid all taxes that according to the law are not absolutely required. It is a duty of a good citizen to push for fairness and justice in our country, and if the propagandists, lobbyists, accountants, lawyers, bought and paid for politicians are somehow immunized against consequences for creating such an unjust system, then how can change or reform take place? What would Ben Franklin say?

[The Observer]

I just don't buy legalistic rationales on a legal duty to avoid all taxes that according to the law are not absolutely required.

It is not a legalist rationale. It is, rather, what the law allows. Everyone in this country can pursue some form of legal tax avoidance.

...if the propagandists, lobbyists, accountants, lawyers, bought and paid for politicians are somehow immunized against consequences for creating such an unjust system,...

What consequences are there for someone who lobbies under the law for the legislators to enact a law that the individual wants? Whether you think the law is fair is not the issue. As I stated before, the term "fair" is subjective and will always leave someone feeling that they are being treated wrongly - regardless of the fact that the law was passed under our system.

Otherwise we would have a system that would punish anyone for enacting a law that the majority thinks unfair at some point in the future. The fact that you don't have specifics for how accountants, lawyers, and lobbyists are "immunized" and have to rely on the vague word "somehow" means you are overlooking the most obvious solution. If enough people are duly concerned about an "unfair" tax system, then they will vote out the rascals in place of people who will enact a system that is "fair."

But don't be surprised when a new group of people pop up and claim the system you favor is "rigged" and "unfair."

[Number Six]

Good luck getting tax reform passed, the majority of Americans just do not have many lobbyists advocating for their interests as major corporations and the super rich do.

Meanwhile a lot of working class Americans I know who make around $25K a year or less did not get their withholding back this year; most of them ended up paying more in taxes, why? Why isn't this story being reported how low income people are generally finding it harder to save money?

I'd recommend following David Cay Johnston, I was waiting for him to comment on Facebook on the Pro Publica story and see that he is doing so on Twitter: https://twitter.com/DavidCayJ?ref_src=t ... r%5Eauthor

[Burnaby49]

While there's always political corruption, the powers that be taking care of their own, it's also more complicated than that. Canada has tried hard to establish specific legislation to end tax avoidance schemes but generally, as an overall goal, has failed.

There is deliberate conflating of avoidance and evasion in the popular discourse.

The UK has a massive tax avoidance scheme. It is called paying gross income into a pension pot so that you can draw it down later when your tax liability will (if you have ever been a higher tax bracket payer) be lower. It is classic tax avoidance. It is not evasion.

The Government could easily end it by having one pay tax at source on one's gross income, but it benefits society for "savings" investment to be inflated (and also helps that pension schemes are also big investors in stocks which artificially boots the economy) so that the general taxation burden of keeping pensioners form starving and therefore having to be bailed out by the state as low as possible.

This is not a failing. It is a choice. It is not always wrong.

I've repeatedly pointed out the distinction between avoidance and evasion in my Porisky-Paradigm discussions regarding all of their tax evasion trials. Avoidance, even if it fails, is legal, tax evasion is criminal. Report your income to the CRA but refuse to pay the tax on it and it's avoidance. Hide your income and it's evasion. Even having spent 35 years as a tax auditor I have no problem with avoidance. People are minimizing their taxes within the law even if they are testing the boundaries. And I say that after spending the bulk of my last decade with the CRA actively involved in auditing and reassessing avoidance transactions.

We have a similar pension based 'avoidance' scheme here, Registered Retirement Savings Plans allow people to put money into administered investments and get the amount of principal they invested allowed as a tax deduction. I bought one in 1973 for $1,000 (big money for me then, I was making under $8,000 a year, and a big tax deduction). It is now worth about $30,000. The catch is that the entire $30,000 is taxable when I take it out. This is a social policy aspect of taxation, to encourage people to save for retirement by allowing long-term tax deferments. Another type of government approved avoidance is the government's constant tinkering with tax rules to encourage what the government sees as positive economic activity. An example is a 50% per year depreciation write-off on computer software. fighting tax avoidance schemes based on that one provision kept me employed for years. Then there's the specific provisions written into tax laws to favour influential individuals and industries. American and Canadian tax law is rife with them.

Political parties might talk about tax fairness but they are never going to relinquish control over tax legislation by authorizing a simple single tax on gross income. They enjoy the opportunities to forward party policies through tax legislation too much to voluntarily allow sensible, fair tax laws. The complexity of tax law is a feature, not a bug.

[Number Six]

We're seeing Op-eds by former Treasury heads in the US as well as many other articles by insiders. As expected The Wall Street Journal is reacting with outrage.

"The biggest culprit is the capital gains tax advantage. By taxing investment income at a maximum of 20% (plus the 3.8% NIIT), and excluding investment income from Social Security and Medicare taxes ("payroll taxes"), we shift a significant tax burden from the wealthy to all other tax payers. There are insane loopholes like carried interest, accelerated depreciation, passive losses & NOLs, and tremendous tax subsidies for real estate owners and investors. But those are a drop in the bucket when we look at the worst of the uneven tax treatment." https://www.nytimes.com/2021/06/08/opin ... sContainer

"By the grace of Congress, those billionaires get to take unlimited losses when they make losing stock investments while Jennifer and I – and you -- can deduct only $3,000 a year. So even if my wife and I live into our 90s, we will die with losses we never got to deduct. That's the kind of unfairness Professor Brown compellingly demonstrates.

"Until now, the Wealth Defense Industry tricked people by pointing to posted tax rates, not actual rates paid by the super-super-super rich, and asserting with cherry-picked data that the rich pay a lot.

"The granular data ProPublica obtained proves that the tax rates Congress puts in the law and the tax rates people pay only match up for working Americans in the bottom 99.5%.

"Congress taxes workers much more heavily than billionaire capitalists who, ProPublica showed, can live income tax-free.

"All of the people ProPublica wrote about are white men. Professor Dorothy A. Brown of Emory University, in her insightful and readable new book The Whiteness of Wealth, shows how our existing tax systems favors wealth above income and discriminates against Black Americans. The design of our tax system plays a significant role in the vast wealth disparities between white Americans and people of color.

"ProPublica's reporting backs her up. It showed that for most Americans, annual income taxes far exceed yearly increases in wealth.

"The Biden White House announced late Tuesday that law enforcement is hunting for the leaker, who faces up to a decade in prison.

"Whoever dared to do this should be hailed as a national hero on a par with Darnella Frazier, the fearless teenage girl with a steady hand who last summer recorded the slow, agonizing murder of George Floyd by Minneapolis Police.

"We should be building statues to honor this leaker, if he or she is ever identified, just as we should erect one to honor Remy Welling, the IRS corporate auditor whose leak to me 17 years ago proved how corrupt the Silicon Valley stock options system was."
https://www.rawstory.com/propublica-tax/

The intent and motive are what matters, so the letter of the law becomes a justification for absurd tax avoidance. Tax evasion is not necessarily "criminal", and tax evasion and fraud are such a big area it is hard to lump all instances into the same category. Over a certain percentage evasion becomes "criminal" but is seldom charged as such.

On the other side we have tax dodges, ruses, convoluted schemes promoted and followed by big income makers.

[JamesVincent]

Of course you don't mind, it's not your information being released illegally. If it was you'd be screaming to high heavens. But since it's the information of someone you obviously detest it's all right. That's not how the law works and that's a pretty disgusting attitude.

Beyond that this is, again, another article that makes following the law a bad thing. And it tells half truths to do it. Let's look at Warren Buffets numbers since they were first on the little chart:

Wealth growth: $24.3 billion
Total income reported: $125 million
Total taxes paid: $23.7 million
And then there's a entry called “True tax rate: 0.10%”

To be perfectly clear I dislike Warren Buffet. Immensely. He's been a hypocritical ass on several different subjects so I am in no way going to defend him. Personal feelings aside this “true tax rate” is horseshit. His actual income tax rate looks to be somewhere around 20%, not really feeling like working out the exact numbers. Even with that rough number it's still wrong. What part of his “income” is actually income? What part is dividends? What part is capital gains? What did he write off? What other countries did he pay taxes in? Since, for some reason, the author didn't want to deal with the whole story the numbers aren't there. Since Buffet has investments in at least Canada that I know of what taxes did he pay there? He could have paid another few million in taxes overseas and you have no clue since that didn't matter to the person fudging numbers to make a point.

There is plenty to be irritated by with the IRS and our tax code. Following the law as it is written is not one of them.

[The Observer]

Good luck getting tax reform passed, the majority of Americans just do not have many lobbyists advocating for their interests as major corporations and the super rich do

But lobbyists do not have more votes than the majority of the electorate. Every single American that is eligible to vote can vote for candidates that support reforming the tax system in the manner that they favor. No lobbyist can overcome that - unless the electorate is apathetic about employing their vote wisely. In other words, we, as citizens, get the government we deserve.

Meanwhile a lot of working class Americans I know who make around $25K a year or less did not get their withholding back this year; most of them ended up paying more in taxes, why? Why isn't this story being reported how low income people are generally finding it harder to save money?

Could you point me to some evidence of this actually happening? I quickly searched the internet for something that reported this amazing claim and nothing popped out. The fact that "a lot" of working class Americans didn't get their withholding back and it just doesn't appear anywhere seems rather strange - especially in a period of time where these same people would have received several stimulus payments - if they filed their income returns timely and accurately. And I am not sure how to interpret "ended up paying more in taxes." Did they pay more in taxes simply because they did not get their withholding back? Or because somehow the tax tables increased for their income bracket? (It didn't - the income bracket for 25Kers was 12% for 2019 and 2020) Or is there some other cause for why they paid more in taxes? And if any of these 25Kers were eligible for the earned income tax credit, why didn't they benefit from that? Given the lack of any real details in your claim, it makes very hard to answer your question of "why?" given the known facts of the tax system.

Tax evasion is not necessarily "criminal",...

Yes, it is necessarily criminal, that is why we have laws that punish those who evade taxes.

The intent and motive are what matters, so the letter of the law becomes a justification for absurd tax avoidance.

No, the letter of the law is what the courts have to administer and rule on. If the tax law permits a person to avoid the tax, then they are within the protection of the law, despite how you and I might feel about the intent of the law or the motive of the taxpayer in question. And again, if the law is "unfair" according to those people, then they should be voting for candidates who will address this legislation and enact "fair" laws to correct it. I have seen this issue raised time and time again over the years from my youth to my golden years and as Mark Twain once said about the weather, everyone complains about the tax system, but nobody does anything about it. Both sides of the aisle in Congress has and will always pass tax legislation that is going to win them votes in Congress. And vocal critics have complained mightily about it being "unfair" since the income tax system has been enacted. But here we are generations later, with essentially the same system in place.

Finally, the focus of much of these complaints give me reason to believe that people do not understand the basis of the income tax system. The various articles get caught up in the net worth of the "abusers" and stress that issue rather than what the law focuses on: income. Eisner vs. Macomber established that the 16th amendment allowed Congress to tax income, and that could only happen when income was received. Net worth has nothing to do with it, but people get upset when they think that Jeff Bezo's reported net worth means he should be paying millions more in taxes than he has.

As Mark Cuban pointed out in an interview I read today, taxing net worth as income would open a can of worms for society as a whole. He stated he keeps very little liquid cash on hand (since he puts his money to work by investing and that if he was taxed on his net worth, he would have to sell assets in order to meet the tax bill. For the little guy who reaps a windfall when his 2 bedroom condo suddenly appreciates in value, he would be forced to sell or borrow on that condo in order to pay the taxes. How is a net worth tax then fair to the little guy?

And I am even more confident that articles don't want to acknowledge this and instead rely on anything else, including now critical race theory, to criticize the "unfairness" of the tax system.

[Number Six]

Personally, I don't envy or hate the wealthy, just want to see a more just system.

How do European countries and Canada address inequities in the system, what do their wealthy pay? Maybe we should adopt some of the recommendations that former top government officials are making. https://www.nytimes.com/2021/06/09/opin ... e=Homepage

[Burnaby49]

Tax evasion is not necessarily "criminal",...

In Canada tax evasion is always a criminal offense. That's the distinction between evasion and avoidance.

[JamesVincent]

Personally, I don't envy or hate the wealthy, just want to see a more just system.

If the chart is to be believed Buffet paid $23.7 million in taxes over the time period mentioned. That means he paid more than probably 70% of the US population. Combined. And you somehow think that increasing that is "just"? Or is it "fair" this time? If you really wanted either you would be advocating for a flat tax rate, which you aren't. And every time that someone proposes a flat tax they're made fun of. Know why? Because right now a good chunk of the population (last number I saw was 51%, don't feel like finding out if it changed) has no tax liability. A flat tax would make them liable. All those writeoffs you rail against apply to the poor as well as the rich and there are specific ones that the rich cannot claim, ones that are limited by income level. So even though we have a relatively balanced tax code, albeit extremely complicated, you don't like it because you think people who are successful should pay a higher percentage. That's what it boils down to, not "just" or "fair", the people that have the temerity of investing their money into stocks and not having a normal income should pay more.

I just don't buy legalistic rationales on a legal duty to avoid all taxes that according to the law are not absolutely required.

Really.

Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes.

Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)

Over and over again courts have said that there is nothing sinister in so arranging one's affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) - dissenting opinion

Both of those quotes came from the Second Circuit and both are from Judge Learned Hand. Probably one of the greatest legal scholars who never served on the Supreme Court. I think I'll take his interpretation of law over your opinion.

[JamesVincent]

As Mark Cuban pointed out in an interview I read today, taxing net worth as income would open a can of worms for society as a whole. He stated he keeps very little liquid cash on hand (since he puts his money to work by investing and that if he was taxed on his net worth, he would have to sell assets in order to meet the tax bill. For the little guy who reaps a windfall when his 2 bedroom condo suddenly appreciates in value, he would be forced to sell or borrow on that condo in order to pay the taxes. How is a net worth tax then fair to the little guy?

I'll give you an even better example I was thinking about earlier. Remember when UPS stock split? A lot of employees got UPS stock options and suddenly became worth a great deal of money. Friend of mine worked there for like 7 years and had maxed out what he could get in options while he was there. Overnight he gained about $120k in net worth. People who had been there for 20 or more years became stock millionaires overnight. What would have happened to all of them? They were blue collar workers for the most part, making a decent living at UPS.

[NYGman]

It isn't just the Musks, Bezos's, Gates, Buffets, etc. I worked for years in Real Estate Tax covering RE Partnerships and REITs. The combination of losses via interest/depreciation and tax credits often offset or paid all income tax for the partners. However, It takes capital to fund Real Estate, and the rules just deferred things for the most part, but with like kind exchange, loans, or additional capital infused, this could also be managed well too on the tax side. Most of the large RE Partnerships I worked on were Cash Positive, income negative. Loans often were used to extract capital. I had one client, a NYC developer, who had not paid tax in over 10 years. Ultimately money was plumped back into the properties, building new one, improving older ones, adding more deductions over time, but requiring capital expenditures (and loans which also need paying at some point too and do charge interest). Not sure if there really is anything wrong with this, it encourages RE development. The current Div/CG rules also encourage investment. All that money has to go somewhere, I doubt it all sits in banks collecting interest, it is at work for them.

I have often thought about a wealth tax for Ultra High Net Wort Individuals (100M+) which would be a small percentage, but could be used as a credit/offset against tax due on future gap gains, that expires upon death. but doubt we would ever implement a wealth tax.

[notorial dissent]

I have to say that I am in two phases shocked by this, firstly that it happened, and secondly that it hasn't happened before now. In light of the data breaches at places like the State Dept and the Pentagon for example, I can't for a moment believe that the IRS is any more bullet proof and in fact is most likely not magnitudes more vulnerable. That being said, I will be very interested in seeing how this plays out as to the who and how and why.

[The Observer]

I'll give you an even better example I was thinking about earlier.

It is a great example. My example was based on one of my former employees, who bought a simple condo in Orange County, CA back in the 80s with her savings (savings, that I might add, she had already paid taxes on). She is now 72 years old and single and, given the rapid rise in real estate prices across the US over the last couple of years, that condo is probably worth 3-5 times more than what she paid for it. If we taxed wealth as Number 6 wants us to, there would be no way this senior citizen would be able to afford the tax and she would have to sell it. Selling it would gain her some money but she would not be able to buy any other home in the area due to being priced out of the market. So in addition to losing her house, if she wanted a replacement home, she now would have to move out of state away from her relatives, she would lose any familial support if she needed it due to the distance, and be in a strange new place without friends or connections that she has in the OC.

Otherwise she would have to rent a home, and use up any gains in paying rent for the rest of her life instead of owning her home without debt. A home without debt gives her the ability to leverage the equity through a reverse mortgage, if needed, as supplemental income to her meager pension and Social Security Income. She would lose that advantage.

And proposals of wealth tax never take into account the fact there are millions of people in the country that have these or similar situations. For example, Congress enacted laws that allowed people to establish 401(k) and IRA plans to encourage or incentivize saving for the future. These plans defer the income tax being assessed on monies deposited into these plans, to be assessed as income once they are withdrawn (with mandatory withdrawals starting at 70 1/2 or 72 based on your birthdate). If the appreciation on these accounts are anything like mine, there would be mass outrage at being hit with a wealth tax, which would wipe out a significant amount of the gains realized over the years. It would undercut the reason in the first place for deferring the income tax, which is to make people more self-sufficient in their golden years and not become a burden for government and taxpayers. The lesson that these "rich" people would learn by being taxed "fairly" is that they should not have saved but spent the money up front at a lower tax rate, and then wait for the government to take care of them by taxing Number 6 and the rest of us at a higher rate so that they could be kept fed, clothed, housed and doctored for the rest of their lives. And we won't even bother mentioning what happens to the economy when all of those potential millions of dollars that would have been invested in the businesses and ventures are not available.

A "fair" wealth tax is just another version of the fable about the man who killed the goose that laid the golden egg.