How the rich pay no taxes...

[ty]

How the rich pay no taxes

www.businessweek.com/magazine/content/11_16/b4224045265660.htm?chan=magazine+channel_11_16+-+how+to+pay+no+taxes_11_16+-+how+to+pay+no+taxes

For the well-off, this could be the best tax day since the early 1930s: Top tax rates on ordinary income, dividends, estates, and gifts will remain at or near historically low levels for at least the next two years. That's thanks in part to legislation passed in December 2010 by the 111th Congress and signed by President Barack Obama.



"This is clearly far and away the most generous tax situation that's existed," says Gregory D. Singer, a national managing director of the wealth management group at AllianceBernstein (AB) in New York. "It's a once-in-a-lifetime opportunity."



For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate -- what they actually pay -- fell from almost 30 percent in 1995 to just under 17 percent in 2007, according to the IRS. And for the approximately 1.4 million people who make up the top 1 percent of taxpayers, the effective federal income tax rate dropped from 29 percent to 23 percent in 2008. It may seem too fantastic to be true, but the top 400 end up paying a lower rate than the next 1,399,600 or so.

[RoadToRiches]

Well there are two options:

1. Which is my preferred option - become rich!

or

2. Keep bitching about how rich pay less taxes and do what I been doing for past years - be stupid with my money and be poor.


Edit: Forgot to put my fame suit on...lol

[formerexpat]

Doesn't your quoted statement show that the rich do pay taxes?

It sounds like the top 400 derive most of their income from capital gains. We should all aspire to move in that direction. We can all take advantage of that portion of the tax code.

Just to compare, the average tax rate for the bottom 50% is less than 3%, so the top 1% is paying nearly 8x the amount of the bottom 50% in terms of percentage.

[skubikky]

Apr 12, 2011 20:58:42 GMT -5 formerexpat said:

Doesn't your quoted statement show that the rich do pay taxes?

Just to compare, the average tax rate for the bottom 50% is less than 3%, so the top 1% is paying nearly 8x the amount of the bottom 50% in terms of percentage.

Well stated.

[Savoir Faire-Demogague in NJ]

I imagine the reired elderly living on savings and investments(ie: dividends and cap gains), will also be the group that benefits the most from the tax preferrenced treatment of these types of income streams.

[azphx1972]

Counterpoint: Nearly half of U.S. households escape federal income tax

www.usatoday.com/money/perfi/taxes/2010-04-07-income-taxes_N.htm

[thyme4change]

I think we are paying like $25,000 in taxes this year - so I must be poor.

[tskeeter]

According to the Tax Foundation, for tax year 2008, the IRS reported that the top1% paid 38.2% of all federal income taxes at an average 23.27% tax rate. That doesn't sound like "the rich pay no taxes" to me.

The same report showed that the bottom 50% paid only 2.7% of federal income taxes paid at an average tax rate of 2.59%.

What this story conveniently leaves out is that the tax contribution of the bottom 50% has been dropping steadily since 1984, when they contributed 7.35% of all federal income taxes. This is a 64.8% decrease in the portion of federal income taxes paid by the bottom 50%.

Over the same period, the top 1% have enjoyed a 27.1% increase in the portion of the federal taxes that they pay. In 1984, the top 1% paid 29.92% of all federal income taxes. By 2008, the top 1% were paying 38.02% of all federal income taxes.

Seems to me that the top 1% are paying more and more of the cost of running the country, while the proletariat masses are paying less and less. So who is taking advantage of who?

[lisaa]

I need to go back to college. I can't find an equation that makes 23% equal to 0.

[thyme4change]

According to the Tax Foundation, for tax year 2008, the IRS reported that the top1% paid 38.2% of all federal income taxes at an average 23.27% tax rate. That doesn't sound like "the rich pay no taxes" to me.

But isn't that the top 1% of tax payers paid 38.2% of taxes? They didn't say that the top 1% of wealth holders paid 38.2%.

I'm assuming they take every 1040/1040EZ in the country and sort them by the "total tax paid" entry and start analyzing. There might be very rich people who figured out a way to be in the middle or even bottom, but how would we know?

[tskeeter]

But isn't that the top 1% of tax payers paid 38.2% of taxes? They didn't say that the top 1% of wealth holders paid 38.2%.

Very true, these statistics are based on income, not wealth. Seems as our tax structure was created, the politicians at that time had unusual foresight, and decided not to punish citizens for saving and accumulating resources rather than spending every cent they got their hands on. One should consider, though, that at one time or another, every dollar of wealth passes through the income phase and is taxed.

Now, while I don't have any statistics, I just can't imagine that a person among the wealthiest 1% of the US population would be a low or middle income taxpayer. I'm sure the wealth is not tucked in the mattress. The wealth would generate too much rent, dividends, interest, etc. I expect that the list of the wealthiest 1% of US citizens and the list of the 1% with the highest incomes would be pretty much the same people.

[thyme4change]

tskeeter - I suspect you are correct with that - I just like to poke holes in everyone's arguments.

[Mad Dawg Wiccan]

<<According to the Tax Foundation, for tax year 2008, the IRS reported that the top1% paid 38.2% of all federal income taxes at an average 23.27% tax rate. That doesn't sound like "the rich pay no taxes" to me.>>


It's just a common quote from the envious class. Has no basis in truth but they love to spread it around.

[phil5185]

wealthiest 1% of the US population would be a low or middle income taxpayer. I'm sure the wealth is not tucked in the mattress. The wealth would generate too much rent, dividends, interest, etc.

Not always - If you put your wealth in an unmanaged index fund, almost all of the growth is tax-deferred - except for a small taxable dividend. The index could be appreciating at $100,000 per million and the tax bill would be only about $3000 per million.

Or maybe municipal (tax free) bonds? - they might generate $50,000 per million of tax free income.

[thyme4change]

The index could be appreciating at $100,000 per million and the tax bill would be only about $3000 per million.

But, wouldn't you have to pay taxes when you sell?

[phil5185]

But, wouldn't you have to pay taxes when you sell?

"IF" you sell. If you never sell and let your heirs inherit it, they get the stepped-up tax basis - ie, no tax. But yes, you are correct - if you have a $500k profit on your million dollar sale, you will owe about $75,000 in capital gains tax. But that is a one-time thing - not like paying income tax on a high salary every year.

[Deleted]

"if you have a $500k profit on your million dollar sale, you will owe about $75,000 in capital gains tax"

Only if your cost basis is 0. Let's not forget the most wonderful tax exemption: The $250k/$500k exemption on cap gains for a personal residence owned for 2 years or longer. ;D

I couldn't find a dollar amount for the minimum amount of NW for the 1% highest NW. Does anyone have a ready reference?

[Savoir Faire-Demogague in NJ]

Only if your cost basis is 0. Let's not forget the most wonderful tax exemption: The $250k/$500k exemption on cap gains for a personal residence owned for 2 years or longer.

I imagine with all the talk coming out of DC these days, exemptions, deductions and exclusions such as this will be phased out, or completely eliminated.

[Deleted]

"I imagine with all the talk coming out of DC these days, exemptions, deductions and exclusions such as this will be phased out, or completely eliminated."

They've already messed with it. Starting in 2009 you have to pro-rate your gain if you've rented out your house. That used to be a sweet deal. Do a 1031 exchange from an appreciated income property into a house suitable personal residence, rent it for 1 year, live in it for 2 years and then reap a $250k/$500 cap gain tax free.

The year before they changed the rule so you had to own a 1031 exchanged property which was converted into personal residence for 5 years.

Given what's happened over the last 3-4 years I don't know how lucrative closing this loop hole would be. I'm seeing a lot of property down to their 2003 levels. We'll be looking at no real estate cap gains for most folks for nearly a decade.