The Tax Update is in Sheldon, in the Northwest Iowa, helping out at the Iowa State University Center for Agricultural Law and Taxation Farm and Urban Tax School today.
Two schools are left: Red Oak and Ames. Register today!
How easy is it for rich folks to avoid higher rates? Florida Senator and potential presidential candidate Marco Rubio said that tax rate increases would be largely futile. From Huffington Post:
WASHINGTON — Sen. Marco Rubio (R-Fla.) said Thursday there isn’t much point in raising tax rates on the wealthy, because they also have the money to hire people who will help them get out of paying taxes.
“The billionaires and millionaires that are going to be impacted by higher rates, they can afford to hire the best lawyers, lobbyists and accountants in America to figure out how not to pay those higher rates,” Rubio told National Journal’s Major Garrett at The Atlantic Washington Ideas Forum. “The people that are going to get stuck by that bill are the small businesses, the partnerships, the S corporations, that cannot hire the lawyers to get them out of it.”
Is it really possible for “billionaires and millionaires” to get out of taxes through the best efforts of their lawyers? To some extent. Greg Mankiw explains how Warren Buffett does it:
1. His company Berkshire Hathaway never pays a dividend but instead retains all earnings. So the return on this investment is entirely in the form of capital gains. By not paying dividends, he saves his investors (including himself) from having to immediately pay income tax on this income.
2. Mr Buffett is a long-term investor, so he rarely sells and realizes a capital gain. His unrealized capital gains are untaxed.
3. He is giving away much of his wealth to charity. He gets a deduction at the full market value of the stock he donates, most of which is unrealized (and therefore untaxed) capital gains.
All of these are useful only to people who don’t need their cash right away. If you want to use your cash, these aren’t very useful. And many of these items are fraught with danger for taxpayers with less pull than Warren. For example, a closely-held C corporation that pays no dividends runs the risk of being hit with the Accumulated Earnings Tax. Many other tax-sheltering opportunities have been shut down through various crackdowns on tax shelters over the years, like the passive loss rules.
The real futility of taxing the rich is that it does so little to address the government’s insolvency. Letting the tax cuts for “the rich” expire only covers about $80 billion of the $1,200 billion annual budget deficit. The big attempt to tax “the rich” is just a distraction; the rich guy isn’t buying.
Joseph Henchman, Chambliss, Others Distance Themselves from ATR Tax Pledge (Tax Policy Blog)
Patrick Temple-West, Consensus on increasing tax revenue, a wide gulf on how to do it, and more (Tax Break)
Daniel Shaviro, Broadening the base versus raising the rate
TaxGrrrl, Tax Breaks For Medical Expenses Under ObamaCare. Hint: they are fewer and smaller.
Paul Neiffer, 2012 May Be Last Year for Section 179 Flexibility. “What many farmers do not know about is the ability to go back and amend their tax return to change their Section 179 deduction.”
Trish McIntire, Document Your Holiday Giving. If you give over $250, no receipt=no deduction.
William Perez, Tax Tips for Charitable Giving During the Holidays
Anthony Nitti, Could Tax Savings Expedite Free Agent Baseball Signings?
Jack Townsend, Swiss Bank Pictet & Cie On DOJ Tax Radar Screen
Robert D. Flach didn’t let Thanksgiving weekend stop his Buzz!
Howard Gleckman, How Can 98 Percent of Us be Middle-Class? (TaxVox)
News you can use: Tax Dodger Alert: Your Friend in the Senate (Robert Goulder, Tax.com)
Tags: Accumulated Earnings Tax, Angus King, Angus Young, Anthony Nitti, CALT, Daniel Shaviro, greg mankiw, Howard Gleckman, Huffington Post, identity theft, Jack Townsend, Jeremy Scott, Joseph Henchman, Kay Bell, Marco Rubio, Patrick Temple-West, Paul Neiffer, Robert D Flach, Robert Goulder, Russ Fox, TaxGrrrl, TaxProf, Trish McIntire, Warren Buffett, William Perez