Wealth tax targets likely to find ways around new laws
Saturday, November 16, 2019
There's a saying that any tax law bill should be subtitled the Perpetual Employment for Accountants Act.
The thinking, in both the financial and political worlds, is that no matter what Congress does to the Internal Revenue Code, we'll need tax professionals to decipher at least some of it.
Or to help guide you, if you can afford it, through the legislative and legal maze that will allow you to avoid or at least reduce the effects of some of the tax laws.
That's the point of Paul Sullivan's analysis of proposed wealth taxes.
"Name a tax and there's a way to reduce it, delay it or not pay it. Financial advisers say a wealth tax would be no different," announced the sub-headline on Sullivan's article in today's New York Times.
Loopholes are legal: Yes, we're talking about tax loopholes.
But before we go any further let's clear up a couple of loophole misconceptions.
Despite public perceptions, loopholes in and of themselves are not inherently bad.
Some loopholes are created by lawmakers to reward certain constituents. Others are inadvertent because the tax law writing and legislating process is rushed or sloppy or both.
But regardless of how these often arcane tax breaks made it into the Internal Revenue Code, there is absolutely nothing wrong with sorting through tax law intricacies and finding a legal way to reduce or eliminate a tax obligation.
Note the word legal. That's the key.
And that's why folks who can afford it hire the best tax professionals they can to parse the tax code and perfect their returns so that they pay as little as legally possible.
Two main wealth tax proposals: Rather than focus on ways the rich now avoid current taxes, most of the Democratic presidential hopefuls simply want to on tax the rich more.
That's particularly true of Sen. Elizabeth Warren, the junior Democratic senator from Massachusetts, and Sen. Bernie Sanders, Independent-turned-temporary-Democrat from Vermont. Specifically, this duo is targeting the uber rich.
Warren's plan just two brackets. It starts at 2 percent for those with assets exceeding $50 million and tops out at 3 percent for more than $1 billion. The same tax rate would apply to both married and single taxpayers.
Sanders, who's Warren's most politically progressive competitor, has, fittingly, a more progressive proposal, at least from a tax standpoint.
His plan has more rates ranging from 1 percent to 8 percent and higher tax brackets that kick in at lower wealth thresholds. His starting threshold is $32 million for married joint filers (half that for single taxpayers) and it tops out at 8 percent on more than $10 billion ($5 billion for rich singles).
Realistic chances of enactment and effectiveness: Whether either wealth tax plan will ever be implemented is debatable. My position in this argument is that even if Warren or Sanders does win the election next year, neither plan will ever see the light of tax law day. At least not in their current forms.
And even if one of the plans somehow was put into place, it wouldn't matter to many of the targeted rich taxpayers, according to Sullivan.
"Lawyers and advisers to the wealthy say there is no way the wealth taxes would collect anything close to the estimates, and they cite ample evidence of taxes that are reduced or eliminated through extensive and sometimes aggressive strategies," Sullivan writes.
Interviews with tax experts show that, writes Sullivan, history is on the side of the tax minimizer.
"Name a tax and there’s a way to reduce it, delay it or not ever really pay it, if you have the right adviser," he writes
That every tax situation offers potential loopholes is not new or news.
But Sullivan's examination of this truism in light of Democratic campaign proposals is worth a read. That's why it earns this weekend's Saturday Shout Out.
Enjoy the creativity of tax professionals.
And if you want to read more about the rich and the taxes they do or don't pay, these other blog posts also might be of interest:
- The many ways to tax the rich
- Are you rich? This interactive tool tells you
- Warren's wealth tax could hit rich couples with a bigger marriage penalty
- Billionaires make literal wealth preservation moves to avoid state estate taxes
- Here's a HINT about Donald Trump and other rich taxpayers who pay Uncle Sam nothing
- Tax-efficient wealth building helped by 2020 inflation bumps for investment, estate and other taxes
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