Politicians can be inspiring. Take Newt and Mitt’s tax returns – you only wish! Mitt’s tax rate was about 15% in 2010 on his multi-million dollar income. Newt created a corporation to avoid paying 2.3% medicare taxes on his $3 million plus in income (saving about $70,000).
I am not particularly interested in President Obama’s taxes because he is just a simple wage earner with some taxpayer-paid fringes, like free rental on the White House and visiting great vacation sites on his Presidential trips here and abroad.
Let’s visit the tax world of Newt and Mitt to see how they do it. I am presuming all this is done legally, although in Newt’s case on the Medicare tax avoidance, I would enjoy being the IRS agent who audits his return. I also assume that Mitt’s far-flung international investment income is properly reported. His Cayman Island investments had me a little concerned, since that is a place notorious for hiding income from the IRS (somewhat more impenetrable than the Swiss bank accounts). I will give Mitt the benefit of the doubt on this one.
Without casting aspersions on the top 1% and hoping to avoid a suggestion of class warfare, I will open a window to their tax breaks.
Not all income is treated equally; some forms of income are taxed lower than others. If you invest in municipal bonds, the income is tax-free; your rate of return may be a little less than other investments, but tax-free looks pretty attractive. If you sell your stocks, bonds, and investment property at a gain, there is a maximum tax rate of 15% on any of your long-term capital gains (contrast this with the highest marginal tax rate of 35% for individuals).
Since the new “gold” standard for top executive pay appears to be $50 million, you would think that the IRS could come into a fair share of that. Not likely. These folks have good tax accountants and attorneys to structure their pay to minimize taxes. Much of this pay will be tax-deferred until they retire when presumably their income and tax rate will be less than during their peak earning years. Another portion will be allocated to company stock options, which, if they exercise their options and then sell the stock at a higher price, will create long-term capital gain.
What remains mostly untaxed are their fringe benefits, such as the private jet “business” trips, company paid vacations and meals, legal and investment advice, and Super Bowl tickets.
Fairness requires me to note that Mitt in particular was very charitable to his church and others; all the contributions are deductible. Now, if Mitt’s tax advisors are clever, they might suggest that he give stock, which has appreciated in value, to the charities rather than giving money, and then he can deduct the full value of the stock (rather than the amount he paid for it). Most of us just give cash from our after-tax income. If Newt’s ex-wives are receiving alimony, then he can deduct those payments; probably they deserve every penny.
I agree with billionaire Warren Buffet’s position on taxes; he encourages Congress to consider taxing his 1% group more. Paying a few more dollars in taxes on $50 million in compensation probably won’t put a crimp in a millionaire’s lifestyle. However, if I can get Buffet’s pay, then I might change my mind after all. Congress created all these loopholes for somebody to use.
Finally, all these tax loopholes are so porous and convoluted that they even confuse the best tax advisors. Mitt’s tax return shows an error that cost him $44,000.
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