9 ms·

Accidental Tax Break Saves Wealthiest Americans $100 Billion

45 points by apaprocki 13y ago

stupejr 13y ago
http://i.imgur.com/aYHte9Y.jpg http://i.imgur.com/aYHte9Y.jpg
rookonaut 13y ago
"Accidental"? Classic!
dm2 13y ago
I assure you that it was NOT accidental. This is nothing more than yet another case of legal treason by congress. In my opinion, ALL loopholes for the super-wealthy and companies (Double Irish) should be closed. Reducing taxes should not be an option. If you make huge amounts of money or want to transfer huge amounts of money in the United States then you should pay tax on it to the United States government. There shouldn't be the option to hire people to find sneaky ways to "legally" (but unethically) reduce that tax without any consequences.
- sanswork 13y ago
  Allowing the government to change tax laws and demand retroactive payment is extremely dangerous.
  - yebyen 13y ago
    Allowing the government to charge businesses that paid into an unemployment trust for the administrative failure of that trust is dangerous. I can't find a link right now but it was on CBS nightly news yesterday. The New York State government is suing thousands of small-business owners because they failed to recognize early that one of the legal, state-sanctioned trusts that was in charge of collecting and paying into the state's unemployment fund was (committing fraud and) failing, went belly up.
- thaumasiotes 13y ago
  Seconding sanswork. The ability to tax retroactively is the ability to jail anyone and confiscate everything they have for any or no reason. But I guess ignorance of the future is no excuse?
  - deleted 13y ago
    [deleted]
    - thaumasiotes 13y ago
      I guess all I can really say to this is I hope you get burned alive for daring to express such an idea. Better throw your immediate family in there too, to be safe. EDIT: I'm responding to this: ----- I don't expect it to ever happen. Sometimes proposing an unreasonably extreme option will make other options (such as at least being proactive in closing the loopholes) seem tame. I pay my taxes, but people who can afford the best financial planners and accountants get to avoid them, that just rubs me the wrong way. Some of the more dirty tricks such as funneling income through other countries have zero consequences though.
  - tomp 13y ago
    > The ability to tax retroactively is the ability to jail anyone and confiscate everything they have for any or no reason. Any arguments why?
    - breischl 13y ago
      1. Decide who you don't like. 2. Create a massive, retroactive tax on something they did. Make sure it's big enough that they can't possibly pay it. 3. Why stop at retroactive taxes? Add in retroactive penalties and fees for late payment. 4. Confiscate whatever they have to pay the tax bill. 5. Charge them with tax avoidance for not paying those taxes, then throw them in jail. It's pretty insane, but if you're going to allow laws to be changed retroactively then you're already into that territory.
      - dm2 13y ago
- rayiner 13y ago
  > I assure you that it was NOT accidental. Based on what? If you read the link I posted, these particular tax shelters are the result of large spreads between the interest rates used in certain IRS calculations, which are at historical lows for reasons unrelated to tax policy, and the actual achievable investment returns.
  - deleted 13y ago
    [deleted]
    - hnal943 13y ago
      This is just overblown rhetoric. I don't have as much faith as you do that the IRS is as capable as the most elite financial planners and accountants in the country. Also, why would the IRS lobby congress? Their job is to enforce the laws, not to dictate what the laws should be.
- chollida1 13y ago
  > In my opinion, ALL loopholes for the super-wealthy and companies (Double Irish) should be closed. This is completely unrealistic. The biggest issue is that you can't compel other countries to follow along. Half the rules in the commercial tax code are geared towards allowing companies to compete in the international world. > I assure you that it was NOT accidental. THis just seems foolish. No one person fully understands the tax code. If it was intended, why did people take so long to exploit it ? The law was passed in 1990, but no GRATS appeared anywhere near then. You are really, really stretching here.
gergles 13y ago
Yet the punitive AMT still exists and ensnares basically everyone making between 150-400K and who lives in a high-tax state (which, conveniently, are where most of the jobs paying that amount are.) But don't worry, as usual, if you're rich enough, you play by a different set of rules and can hide your money in shell trusts and schemes and pay nothing. Disgusting - give us the FairTax already.
- minikites 13y ago
  10 times the U.S. median income isn't "rich enough"?
  - moron4hire 13y ago
    My wife and I together make $150k in the DC suburbs. I'm trying to convince her that we need to move so we could afford to live on one income and maybe have kids some day. For sure, we aren't hurting. The only debt we have is the one-bedroom condo next to a highway and in the flight path of an airport we live in (well, and a car, but we could pay it off in cash tomorrow if need be, which would be stupid because the APR on the loan is less than 1%). But it's extremely frustrating that this condo would translate to a 5 bedroom house with an acre of land where I grew up a mere 3 hours from here. And that's really only because, for the first 15 years of our careers we've lived within our means and have not had children. $150k is not what it's cracked up to be. If one of us lost our jobs, we would definitely have to move. Unfortunately, hers is tied to this area, so if it were me to lose the job, we'd be royally screwed.
    - justinsteele 13y ago
      I don't think "royally screwed" is the phrase you are looking for. There may not be comparably nice homes for cheaper in the area near your wife's work, but there are millions living on < 150k near you.
      - moron4hire 13y ago
        Yes, quite near me, as there is a Section 8 housing zone just two blocks from us. And you have to define your terms here. What do you mean by "living"? If you mean, "able to feed themselves and live under a roof", that's not living, that's subsisting. I'm talking about being more than just a serf and actually making forward progress in life. Sure, the bartender at the insanely overpriced place a few blocks from us probably only makes $60k, but he also probably lives with a roommate in a tiny apartment, still owes money on a 7 year old car, has no assets, has no savings, has no health insurance, has no chance of retiring at ANY age. At this point, I don't think there is anything within our current distance to her job (20 minutes) that A) we would be eligible for, and B) would be cheaper. I telecommute. If we both had to drive an hour to work, then we'd have to buy a second car and the increased transportation costs would certainly eclipse any savings in housing. Mind you, an hour away in DC is 15 miles on a good day. There are people who work here for half of what we make, and they commute 2 hours to work every morning. I hope you're not suggesting that that is a livable scenario. "Well, it is for them." Maybe for them (I'd argue they are sending themselves to an early grave, but I digress), but not for society as a whole. At that point, if we're living 2 hours away, we might as well be working for less where we lived. Thus my point: we can't live and work here for much less than we're already making.
eloff 13y ago
And the government remains powerless to close this loophole? They really do seem to be owned by the wealthy and corporate interests. That's sad. The wealthy are little more deserving of their wealth than the poor are deserving of their situation. In fact, if we really do have no free will as science seems to suggest, then the only thing separating the rich from the poor is luck. Then the current inequality is particularly sick.
rayiner 13y ago
Relevant (Thomas Jefferson's explanation of the nature of inherited wealth): http://www.economist.com/blogs/lexington/2010/10/estate_tax_and_founding_fathers http://www.economist.com/blogs/lexington/2010/10/estate_tax_....
- viggity 13y ago
  there is a pay-wall if you click directly on the link. If you google "Estate tax and the founding fathers You can't take it with you" it'll be the first link and it will bypass the paywall.
  - rschmitty 13y ago
    Google is amazing, you are now the second result for that search term :)
rayiner 13y ago
Better source for how these actually work instead of the handwaving in the article: http://taxprof.typepad.com/taxprof_blog/2013/09/wal-marts-waltons-.html http://taxprof.typepad.com/taxprof_blog/2013/09/wal-marts-wa....
- jstalin 13y ago
  Thank you. This article also points out that the recipients still pay income tax. The original Bloomberg link isn't very informative or accurate.
jere 13y ago
>Covey studied the law and found an even bigger loophole. “The change that was made to stop what they thought was the abuse, made the matter worse,” he says. >Covey, 84, a Missouri native and former U.S. Marine Corps basketball player who earned a law degree from Columbia Law School in 1955, uses the words “romantic” and “beautiful” to describe the most elegant tax maneuvers. This guy is a hacker.
- lesterbuck 13y ago
  Yes, it's a beautiful hack of the tax laws. What I've always wondered is why people don't load the tax code into the automatic proof systems and let it do some goal seeking. The idea of putting money into a trust and then taking it out took a while to occur to Covey. All the "useless" edge cases would be explored by a goal seeking system. There are probably a large number of these hacks out there already discovered, but taking it all the way through to a tax court decision is the real trick. I also vaguely remember a legal principle that if a transaction was entered into soley for the purpose of lowering taxes, and with no other business goal, it can be disallowed unless that was the intent of Congress. There have been a number of conferences over the years on the general topic of AI and the law. I once read in a general book on business strategy about how a contract can be either a sale or a lease, but that it is often extremely valuable to make a sale appear to be a lease, and vice versa. Lawyers will craft twenty pages of dense legalese to hide the facts from the casual reader. Someday a sophisticated text processing system will ingest a contract and give the answer, along with the chain of inferences from the obfuscated language (to show the judge).
amalag 13y ago
The Republican party has become the party of the rich. They really want to get rid of the estate tax so they can build wealth across generations. $5 million is excluded from the estate tax, but they don't think that is enough to pass on when they die.
- hnal943 13y ago
  What claim does the government have on the wealth those people created? Why is the discussion always about how much the rich deserve to keep based on their own creation of wealth?
  - amalag 13y ago
    The estate tax extends the standard tax rate on that degree of income to the money left behind when they die, it is not currently a higher rate. Do you suggest there should be no estate tax?
  - swalkergibson 13y ago
    The government has the same claim on their wealth as any other level of income, as part of the social contract of living in the US. I am a little confused on what your point is. Should people making $50k/year be exempt from the government's claim on the wealth they created, too? What about people making $25k/year?
swalkergibson 13y ago
<rant> How much fucking money does someone need? Seriously. What is the difference between 7.9 billion (what he wants to leave) and 5.1 billion (less the existing estate tax of 2.8 billion)? Clearly, his ego is huge given that he watches the ranks of richest people closely. Honestly, what the fuck? Congratulations man, you got really fucking loaded. Good work. Now, please play fair. </rant>
- breischl 13y ago
  I see your point. The thing is, nobody trusts the government to spend their money well, or at least not as that person thinks it should be spent. Therefore everyone avoids taxes to the extent they can. I take every deduction I can, I bet you do too. Even the rich folks that aren't trying to pass on a huge inheritance, such as Bill Gates and Warren Buffet, still aren't giving it to the government. They're giving it all to charity, which is undoubtedly generous of them but also lets them direct their wealth themselves rather than giving it to the tax man.
  - swalkergibson 13y ago
    Warren Buffet has frequently said that he is perfectly willing to pay more taxes, and that his secretary pays a higher percentage of her income than he does. There are numerous reasons for government inefficiency, but how could you run efficiently if there is always a target on your budget's back? EDIT: You are absolutely right that the government spends money on stuff that I don't want, like bombs and wars, and I think it is extraordinarily generous that men like this give so very much to charity. However, I also believe that if we as a society have decided that there should be an estate tax, then there should be an estate tax and that the loophole should be closed.
    - breischl 13y ago
      The IRS does accept voluntary donations, but despite the rhetoric Mr Buffett has not actually given more to the government than he has to. So I'm a little skeptical of his claims. Also, part of the reason his secretary pays more is because he has gone out of his way to avoid paying taxes (euphemistically, to structure his businesses in a tax-efficient manner). I'm not arguing that there shouldn't be an estate tax, or that people shouldn't pay it. Just that I fully understand why they try to avoid it. I would probably do the same thing in their situation, and I suspect many others would as well.
viggity 13y ago
Judging by the other responses, I'm probably a bit of a contrarian, but all in all: "meh". I honestly don't care. Wealth is not a zero sum game, and all talk about the horrors of wealth inequality are completely ignorant of that fact. I think gift taxes are bullshit. If I earned and paid taxes on income/capital gains, I should be able to give the balance to whom ever I wish. Double taxation is bullshit.
- swalkergibson 13y ago
  What if you earned the money through a company using the Double Irish Dutch Sandwich tax shelter and didn't pay your fair share when you earned it? That is why wealth inequality is a problem. Our government is owned by the people that can afford to make donations, which are the same people that benefit from these tax games.
  - viggity 13y ago
    If you have a problem with a double Dutch sandwich, then lobby for fixing that, but don't hose a hard working farmer and his family by nailing them with a 40% estate tax. There are a lot of millionaires who have paid taxes on every penny they've made.
    - swalkergibson 13y ago
      I have a problem with all of these tax loopholes. The tax code already has a rule in it about estate tax, which means that estate tax should be collected. To not close this loophole is unfair, that is what I am saying. Finally, how many hardworking farmers do you know that would just straight-up hand their kids something for nothing? If we are going to work with stereotypes like that, I would be willing to bet that the farmer would be happy to sell his successful farm to his kids for fair market value so they could work as hard as he did to make a living for their families.
    - mikeyouse 13y ago
      but don't hose a hard working farmer and his family by nailing them with a 40% estate tax. Cute, but the estate tax has exemptions for both farms and family-owned businesses. The Tax Policy Center found 20 (!) farms in the country that would have to pay any sort of estate tax, and the average tax paid by those 20 (out of several thousand farms) would be under 5%.[1] - See Myth 5 - http://www.cbpp.org/cms/?fa=view&id=2655 http://www.cbpp.org/cms/?fa=view&id=2655
driverdan 13y ago
There shouldn't be an estate tax. You're taxed on your income when you earn it. Why should there be a special tax just because you died? If anything those who inherit it should just have to file it as income and pay income / cap gains tax on it.
- swalkergibson 13y ago
  It is exempt up to 5.25 million for individuals and 10.5 million for couples. Is between 5 and 10 million not enough? For hitting the sperm lottery? Large amounts of generational wealth is a net negative in a democratic society as it further exacerbates the income gap.
  - bedhead 13y ago
    I can assure you that meager transfer payments in the form of SS, Medicare, etc will do absolutely nothing to reduce the income gap. Do you really think that giving money to the government is going to magically make people wealthier? While generational wealth of the magnitude we have today certainly isn't productive, it doesn't actually do anything to impede peoples' ability to earn more for themselves, and forcing the wealthy to fork over money when they die is basically purely symbolic, because even when taken cumulatively it has zero effect.
    - swalkergibson 13y ago
      I disagree that it doesn't actually do anything to impede peoples' ability to earn more for themselves. If someone handed you $50 million of tax-free money, you wouldn't go volunteer somewhere or travel or whatever instead of going into the office? Maybe ever again?
      - bedhead 13y ago
        Something is getting lost in translation here. How does some kid inheriting a bunch of money adversely effect my or anyone else's ability to earn a better living? As distasteful as it may be that someone can win the genetic lottery, the reality is it doesn't preclude others from creating more wealth for themselves. This is one of the biggest economic misconceptions in the world...it's not a zero-sum game.
powertower 13y ago
Option A - Give money to your children (as much of it as you can). Option B - Give money to a government who spends $5 to be able to spend $1. Then waistes that $1 (on polices that you don't agree with). Option C - Give money to people who hate you for having money (a.k.a "trickle it down", "guaranteed minimal income", "anyone off the street can be a CEO", "lets retroactivly tax the rich", etc). I know what I would do.
- swalkergibson 13y ago
  Option D - Sign the giving pledge and stop being concerned that your children can't live on less than 8 billion dollars.
  - deleted 13y ago
    [deleted]
- wavefunction 13y ago
  Option D - Get merc'd when the rest of us have had enough. Option E - Realize that we have enough food and resources so that noone should have to do without, and create a society that reflects that. Funny how these last two options contain the one option that will solve this problem permanently, and the one option that humanity always ends up at.
  - powertower 13y ago
    So your options are to - 1. Murder them out of spite. 2. Make them shelter and feed the poor of the world, so the poor multiplies/reproduces geometrically, and requires geometrically more resources to shelter and feed.
    - lukeschlather 13y ago
      No, they need to educate, shelter, and feed the poor of the world. Experience shows us that educated and healthy populations actually start to shrink as time goes on without intervention. You're making the mistake of assuming malice, while we're just talking about cold hard fact: people who amass a lot of power always lose it, if not by choice or natural death, then violently.
joecurry 13y ago
For perspective - let's make them pay it all back, retroactively, from the year 2000 as the article suggest. Now we will have (roughly due to compounding) tackled 0.0058% of the current US deficit leaving us with $17,133,947,996,837 or 99.994%. For those who prefer a visual perspective - http://demonocracy.info/infographics/usa/us_debt/us_debt.html http://demonocracy.info/infographics/usa/us_debt/us_debt.htm... I'm not convinced focusing on these tiny (relatively) loopholes on the "world's richest", should be the focus of trying to fix the problem.
frogpelt 13y ago
I guess I don't understand why people just LOVE, LOVE, LOVE the U.S. Government so much. They do not manage money, personnel, or any resources efficiently. The allocation of federal funds is subject to the whims of whatever lobbyist or political trend happens to be going on at the moment. If they want to use the 40% they take from your estate to fund NSA spying, deal with it. I understand that some poor and middle class people think it's unfair for rich people to keep increasing in wealth but the government is many times more corrupt than the average multi-millionaire or billionaire. First-generation wealthy people got that way by innovation, hard work, and filling a necessary role in the marketplace. In summary, I don't think the solution to "income inequality" is to let the government have half of our money. They have proven time and again that they do not have the right solutions.
- 001sky 13y ago
  The people that "love the government", are the lobbysist and political donors. They are the ones that receive the benefit of from this tax dodge, from the cash left over. Make sense now?

45 points by apaprocki 13y ago

stupejr 13y ago

http://i.imgur.com/aYHte9Y.jpg http://i.imgur.com/aYHte9Y.jpg

rookonaut 13y ago

"Accidental"? Classic!

dm2 13y ago

I assure you that it was NOT accidental. This is nothing more than yet another case of legal treason by congress. In my opinion, ALL loopholes for the super-wealthy and companies (Double Irish) should be closed. Reducing taxes should not be an option. If you make huge amounts of money or want to transfer huge amounts of money in the United States then you should pay tax on it to the United States government. There shouldn't be the option to hire people to find sneaky ways to "legally" (but unethically) reduce that tax without any consequences.

sanswork 13y ago
Allowing the government to change tax laws and demand retroactive payment is extremely dangerous.
- yebyen 13y ago
  Allowing the government to charge businesses that paid into an unemployment trust for the administrative failure of that trust is dangerous. I can't find a link right now but it was on CBS nightly news yesterday. The New York State government is suing thousands of small-business owners because they failed to recognize early that one of the legal, state-sanctioned trusts that was in charge of collecting and paying into the state's unemployment fund was (committing fraud and) failing, went belly up.
thaumasiotes 13y ago
Seconding sanswork. The ability to tax retroactively is the ability to jail anyone and confiscate everything they have for any or no reason. But I guess ignorance of the future is no excuse?
- deleted 13y ago
  [deleted]
  - thaumasiotes 13y ago
    I guess all I can really say to this is I hope you get burned alive for daring to express such an idea. Better throw your immediate family in there too, to be safe. EDIT: I'm responding to this: ----- I don't expect it to ever happen. Sometimes proposing an unreasonably extreme option will make other options (such as at least being proactive in closing the loopholes) seem tame. I pay my taxes, but people who can afford the best financial planners and accountants get to avoid them, that just rubs me the wrong way. Some of the more dirty tricks such as funneling income through other countries have zero consequences though.
- tomp 13y ago
  > The ability to tax retroactively is the ability to jail anyone and confiscate everything they have for any or no reason. Any arguments why?
  - breischl 13y ago
    1. Decide who you don't like. 2. Create a massive, retroactive tax on something they did. Make sure it's big enough that they can't possibly pay it. 3. Why stop at retroactive taxes? Add in retroactive penalties and fees for late payment. 4. Confiscate whatever they have to pay the tax bill. 5. Charge them with tax avoidance for not paying those taxes, then throw them in jail. It's pretty insane, but if you're going to allow laws to be changed retroactively then you're already into that territory.
    - dm2 13y ago
rayiner 13y ago
> I assure you that it was NOT accidental. Based on what? If you read the link I posted, these particular tax shelters are the result of large spreads between the interest rates used in certain IRS calculations, which are at historical lows for reasons unrelated to tax policy, and the actual achievable investment returns.
- deleted 13y ago
  [deleted]
  - hnal943 13y ago
    This is just overblown rhetoric. I don't have as much faith as you do that the IRS is as capable as the most elite financial planners and accountants in the country. Also, why would the IRS lobby congress? Their job is to enforce the laws, not to dictate what the laws should be.
chollida1 13y ago
> In my opinion, ALL loopholes for the super-wealthy and companies (Double Irish) should be closed. This is completely unrealistic. The biggest issue is that you can't compel other countries to follow along. Half the rules in the commercial tax code are geared towards allowing companies to compete in the international world. > I assure you that it was NOT accidental. THis just seems foolish. No one person fully understands the tax code. If it was intended, why did people take so long to exploit it ? The law was passed in 1990, but no GRATS appeared anywhere near then. You are really, really stretching here.

gergles 13y ago

Yet the punitive AMT still exists and ensnares basically everyone making between 150-400K and who lives in a high-tax state (which, conveniently, are where most of the jobs paying that amount are.) But don't worry, as usual, if you're rich enough, you play by a different set of rules and can hide your money in shell trusts and schemes and pay nothing. Disgusting - give us the FairTax already.

minikites 13y ago
10 times the U.S. median income isn't "rich enough"?
- moron4hire 13y ago
  My wife and I together make $150k in the DC suburbs. I'm trying to convince her that we need to move so we could afford to live on one income and maybe have kids some day. For sure, we aren't hurting. The only debt we have is the one-bedroom condo next to a highway and in the flight path of an airport we live in (well, and a car, but we could pay it off in cash tomorrow if need be, which would be stupid because the APR on the loan is less than 1%). But it's extremely frustrating that this condo would translate to a 5 bedroom house with an acre of land where I grew up a mere 3 hours from here. And that's really only because, for the first 15 years of our careers we've lived within our means and have not had children. $150k is not what it's cracked up to be. If one of us lost our jobs, we would definitely have to move. Unfortunately, hers is tied to this area, so if it were me to lose the job, we'd be royally screwed.
  - justinsteele 13y ago
    I don't think "royally screwed" is the phrase you are looking for. There may not be comparably nice homes for cheaper in the area near your wife's work, but there are millions living on < 150k near you.
    - moron4hire 13y ago
      Yes, quite near me, as there is a Section 8 housing zone just two blocks from us. And you have to define your terms here. What do you mean by "living"? If you mean, "able to feed themselves and live under a roof", that's not living, that's subsisting. I'm talking about being more than just a serf and actually making forward progress in life. Sure, the bartender at the insanely overpriced place a few blocks from us probably only makes $60k, but he also probably lives with a roommate in a tiny apartment, still owes money on a 7 year old car, has no assets, has no savings, has no health insurance, has no chance of retiring at ANY age. At this point, I don't think there is anything within our current distance to her job (20 minutes) that A) we would be eligible for, and B) would be cheaper. I telecommute. If we both had to drive an hour to work, then we'd have to buy a second car and the increased transportation costs would certainly eclipse any savings in housing. Mind you, an hour away in DC is 15 miles on a good day. There are people who work here for half of what we make, and they commute 2 hours to work every morning. I hope you're not suggesting that that is a livable scenario. "Well, it is for them." Maybe for them (I'd argue they are sending themselves to an early grave, but I digress), but not for society as a whole. At that point, if we're living 2 hours away, we might as well be working for less where we lived. Thus my point: we can't live and work here for much less than we're already making.

eloff 13y ago

And the government remains powerless to close this loophole? They really do seem to be owned by the wealthy and corporate interests. That's sad. The wealthy are little more deserving of their wealth than the poor are deserving of their situation. In fact, if we really do have no free will as science seems to suggest, then the only thing separating the rich from the poor is luck. Then the current inequality is particularly sick.

rayiner 13y ago

Relevant (Thomas Jefferson's explanation of the nature of inherited wealth): http://www.economist.com/blogs/lexington/2010/10/estate_tax_and_founding_fathers http://www.economist.com/blogs/lexington/2010/10/estate_tax_....

viggity 13y ago
there is a pay-wall if you click directly on the link. If you google "Estate tax and the founding fathers You can't take it with you" it'll be the first link and it will bypass the paywall.
- rschmitty 13y ago
  Google is amazing, you are now the second result for that search term :)

rayiner 13y ago

Better source for how these actually work instead of the handwaving in the article: http://taxprof.typepad.com/taxprof_blog/2013/09/wal-marts-waltons-.html http://taxprof.typepad.com/taxprof_blog/2013/09/wal-marts-wa....

jstalin 13y ago
Thank you. This article also points out that the recipients still pay income tax. The original Bloomberg link isn't very informative or accurate.

jere 13y ago

>Covey studied the law and found an even bigger loophole. “The change that was made to stop what they thought was the abuse, made the matter worse,” he says. >Covey, 84, a Missouri native and former U.S. Marine Corps basketball player who earned a law degree from Columbia Law School in 1955, uses the words “romantic” and “beautiful” to describe the most elegant tax maneuvers. This guy is a hacker.

lesterbuck 13y ago
Yes, it's a beautiful hack of the tax laws. What I've always wondered is why people don't load the tax code into the automatic proof systems and let it do some goal seeking. The idea of putting money into a trust and then taking it out took a while to occur to Covey. All the "useless" edge cases would be explored by a goal seeking system. There are probably a large number of these hacks out there already discovered, but taking it all the way through to a tax court decision is the real trick. I also vaguely remember a legal principle that if a transaction was entered into soley for the purpose of lowering taxes, and with no other business goal, it can be disallowed unless that was the intent of Congress. There have been a number of conferences over the years on the general topic of AI and the law. I once read in a general book on business strategy about how a contract can be either a sale or a lease, but that it is often extremely valuable to make a sale appear to be a lease, and vice versa. Lawyers will craft twenty pages of dense legalese to hide the facts from the casual reader. Someday a sophisticated text processing system will ingest a contract and give the answer, along with the chain of inferences from the obfuscated language (to show the judge).

amalag 13y ago

The Republican party has become the party of the rich. They really want to get rid of the estate tax so they can build wealth across generations. $5 million is excluded from the estate tax, but they don't think that is enough to pass on when they die.

hnal943 13y ago
What claim does the government have on the wealth those people created? Why is the discussion always about how much the rich deserve to keep based on their own creation of wealth?
- amalag 13y ago
  The estate tax extends the standard tax rate on that degree of income to the money left behind when they die, it is not currently a higher rate. Do you suggest there should be no estate tax?
- swalkergibson 13y ago
  The government has the same claim on their wealth as any other level of income, as part of the social contract of living in the US. I am a little confused on what your point is. Should people making $50k/year be exempt from the government's claim on the wealth they created, too? What about people making $25k/year?

swalkergibson 13y ago

<rant> How much fucking money does someone need? Seriously. What is the difference between 7.9 billion (what he wants to leave) and 5.1 billion (less the existing estate tax of 2.8 billion)? Clearly, his ego is huge given that he watches the ranks of richest people closely. Honestly, what the fuck? Congratulations man, you got really fucking loaded. Good work. Now, please play fair. </rant>

breischl 13y ago
I see your point. The thing is, nobody trusts the government to spend their money well, or at least not as that person thinks it should be spent. Therefore everyone avoids taxes to the extent they can. I take every deduction I can, I bet you do too. Even the rich folks that aren't trying to pass on a huge inheritance, such as Bill Gates and Warren Buffet, still aren't giving it to the government. They're giving it all to charity, which is undoubtedly generous of them but also lets them direct their wealth themselves rather than giving it to the tax man.
- swalkergibson 13y ago
  Warren Buffet has frequently said that he is perfectly willing to pay more taxes, and that his secretary pays a higher percentage of her income than he does. There are numerous reasons for government inefficiency, but how could you run efficiently if there is always a target on your budget's back? EDIT: You are absolutely right that the government spends money on stuff that I don't want, like bombs and wars, and I think it is extraordinarily generous that men like this give so very much to charity. However, I also believe that if we as a society have decided that there should be an estate tax, then there should be an estate tax and that the loophole should be closed.
  - breischl 13y ago
    The IRS does accept voluntary donations, but despite the rhetoric Mr Buffett has not actually given more to the government than he has to. So I'm a little skeptical of his claims. Also, part of the reason his secretary pays more is because he has gone out of his way to avoid paying taxes (euphemistically, to structure his businesses in a tax-efficient manner). I'm not arguing that there shouldn't be an estate tax, or that people shouldn't pay it. Just that I fully understand why they try to avoid it. I would probably do the same thing in their situation, and I suspect many others would as well.

viggity 13y ago

Judging by the other responses, I'm probably a bit of a contrarian, but all in all: "meh". I honestly don't care. Wealth is not a zero sum game, and all talk about the horrors of wealth inequality are completely ignorant of that fact. I think gift taxes are bullshit. If I earned and paid taxes on income/capital gains, I should be able to give the balance to whom ever I wish. Double taxation is bullshit.

swalkergibson 13y ago
What if you earned the money through a company using the Double Irish Dutch Sandwich tax shelter and didn't pay your fair share when you earned it? That is why wealth inequality is a problem. Our government is owned by the people that can afford to make donations, which are the same people that benefit from these tax games.
- viggity 13y ago
  If you have a problem with a double Dutch sandwich, then lobby for fixing that, but don't hose a hard working farmer and his family by nailing them with a 40% estate tax. There are a lot of millionaires who have paid taxes on every penny they've made.
  - swalkergibson 13y ago
    I have a problem with all of these tax loopholes. The tax code already has a rule in it about estate tax, which means that estate tax should be collected. To not close this loophole is unfair, that is what I am saying. Finally, how many hardworking farmers do you know that would just straight-up hand their kids something for nothing? If we are going to work with stereotypes like that, I would be willing to bet that the farmer would be happy to sell his successful farm to his kids for fair market value so they could work as hard as he did to make a living for their families.
  - mikeyouse 13y ago
    but don't hose a hard working farmer and his family by nailing them with a 40% estate tax. Cute, but the estate tax has exemptions for both farms and family-owned businesses. The Tax Policy Center found 20 (!) farms in the country that would have to pay any sort of estate tax, and the average tax paid by those 20 (out of several thousand farms) would be under 5%.[1] - See Myth 5 - http://www.cbpp.org/cms/?fa=view&id=2655 http://www.cbpp.org/cms/?fa=view&id=2655

driverdan 13y ago

There shouldn't be an estate tax. You're taxed on your income when you earn it. Why should there be a special tax just because you died? If anything those who inherit it should just have to file it as income and pay income / cap gains tax on it.

swalkergibson 13y ago
It is exempt up to 5.25 million for individuals and 10.5 million for couples. Is between 5 and 10 million not enough? For hitting the sperm lottery? Large amounts of generational wealth is a net negative in a democratic society as it further exacerbates the income gap.
- bedhead 13y ago
  I can assure you that meager transfer payments in the form of SS, Medicare, etc will do absolutely nothing to reduce the income gap. Do you really think that giving money to the government is going to magically make people wealthier? While generational wealth of the magnitude we have today certainly isn't productive, it doesn't actually do anything to impede peoples' ability to earn more for themselves, and forcing the wealthy to fork over money when they die is basically purely symbolic, because even when taken cumulatively it has zero effect.
  - swalkergibson 13y ago
    I disagree that it doesn't actually do anything to impede peoples' ability to earn more for themselves. If someone handed you $50 million of tax-free money, you wouldn't go volunteer somewhere or travel or whatever instead of going into the office? Maybe ever again?
    - bedhead 13y ago
      Something is getting lost in translation here. How does some kid inheriting a bunch of money adversely effect my or anyone else's ability to earn a better living? As distasteful as it may be that someone can win the genetic lottery, the reality is it doesn't preclude others from creating more wealth for themselves. This is one of the biggest economic misconceptions in the world...it's not a zero-sum game.

powertower 13y ago

Option A - Give money to your children (as much of it as you can). Option B - Give money to a government who spends $5 to be able to spend $1. Then waistes that $1 (on polices that you don't agree with). Option C - Give money to people who hate you for having money (a.k.a "trickle it down", "guaranteed minimal income", "anyone off the street can be a CEO", "lets retroactivly tax the rich", etc). I know what I would do.

swalkergibson 13y ago
Option D - Sign the giving pledge and stop being concerned that your children can't live on less than 8 billion dollars.
- deleted 13y ago
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wavefunction 13y ago
Option D - Get merc'd when the rest of us have had enough. Option E - Realize that we have enough food and resources so that noone should have to do without, and create a society that reflects that. Funny how these last two options contain the one option that will solve this problem permanently, and the one option that humanity always ends up at.
- powertower 13y ago
  So your options are to - 1. Murder them out of spite. 2. Make them shelter and feed the poor of the world, so the poor multiplies/reproduces geometrically, and requires geometrically more resources to shelter and feed.
  - lukeschlather 13y ago
    No, they need to educate, shelter, and feed the poor of the world. Experience shows us that educated and healthy populations actually start to shrink as time goes on without intervention. You're making the mistake of assuming malice, while we're just talking about cold hard fact: people who amass a lot of power always lose it, if not by choice or natural death, then violently.

joecurry 13y ago

For perspective - let's make them pay it all back, retroactively, from the year 2000 as the article suggest. Now we will have (roughly due to compounding) tackled 0.0058% of the current US deficit leaving us with $17,133,947,996,837 or 99.994%. For those who prefer a visual perspective - http://demonocracy.info/infographics/usa/us_debt/us_debt.html http://demonocracy.info/infographics/usa/us_debt/us_debt.htm... I'm not convinced focusing on these tiny (relatively) loopholes on the "world's richest", should be the focus of trying to fix the problem.

frogpelt 13y ago

I guess I don't understand why people just LOVE, LOVE, LOVE the U.S. Government so much. They do not manage money, personnel, or any resources efficiently. The allocation of federal funds is subject to the whims of whatever lobbyist or political trend happens to be going on at the moment. If they want to use the 40% they take from your estate to fund NSA spying, deal with it. I understand that some poor and middle class people think it's unfair for rich people to keep increasing in wealth but the government is many times more corrupt than the average multi-millionaire or billionaire. First-generation wealthy people got that way by innovation, hard work, and filling a necessary role in the marketplace. In summary, I don't think the solution to "income inequality" is to let the government have half of our money. They have proven time and again that they do not have the right solutions.

001sky 13y ago
The people that "love the government", are the lobbysist and political donors. They are the ones that receive the benefit of from this tax dodge, from the cash left over. Make sense now?