Say I have $10m I want to invest in an international company. If I do it in the most obvious way, by capitalising an entity, I might get a 30% return on my money after 3 years after paying all taxes. Alternatively, I can structure it in a different way, and make 50% in 3 years, because I end up paying less tax. The difference is an extra $2m on $10m. If the amount to set up a structure/attorney fees/possibly litigation fees < "normal" tax to pay -> avoid.
The only real solution is to lower rates across the board by getting rid of most deductions. If you remove the incentive to avoid, it'll be less worthwhile to avoid, and most people will stop doing it. How much people would put in an effort to avoid taxes, if the actual tax rate was, say 10%?
You're right. It's way different to charge 40% on $50k, because the person making 50k probably can't make ends meet if you charge them 40% tax. The person making $10MM has no such trouble.
Evasion has always been illegal, avoidance is structuring a transaction in a way so that it ends up being taxed at a lower rate, but in a legal way. Ruthless enforcement is already happening today in most western european countries.
Oh please. It took 6 years for the EU to penalize Ireland for the double irish/dutch sandwich avoidance mechanism.
https://en.wikipedia.org/wiki/Double_Irish_arrangement
https://www.bloomberg.com/news/articles/2016-08-30/apple-ire...
Countries are starving for tax income and have very clear conflicts of interests: they want to 1) tax their normal residents as much as possible, but at the same time 2) hand out low tax “freebies” to non residents (or HNWIs) so they will book some of their taxable profits in their jurisdictions. This needs to stop (globally) before you can effectively combat avoidance. But I doubt it’s ever going to happen.
That's because it's not a clear-cut legal issue. It's pretty much the EU versus everyone else on this one. Even the US government is unhappy about the EU ruling, even though the US government has gone after Apple for its tax practices fairly recently.
If you're making 30k/year, you are just barely making enough to support a family on your income. Yes it's possible to be wealthy and low income, but it's uncommon and generally indicative of retirement or something similar.
Maybe, but not necessarily. What if I spent twenty years putting myself in the position to make $10m in one year?
>If you're making 30k/year, you are just barely making enough to support a family on your income. Yes it's possible to be wealthy and low income, but it's uncommon and generally indicative of retirement or something similar.
Well, yeah, but so what? My point was you're making a lot of assumptions based on income alone.
I don't understand what your point is with this whole argument. Yes, there are always exceptions. They aren't very interesting but the very nature of being exceptions, especially since tax laws are written for the general case.
The number of multi millionaires in your exceptional case is also much smaller than you probably think. It's vanishingly difficult to earn no money when you have millions in assets.
I don't see how you could make a statement like that. It costs money to live, and it costs money to keep a business venture going. After 20 years you may own $20m. It doesn't necessarily mean you're incompetent. It may just mean things didn't go the way you planned.
>I don't understand what your point is with this whole argument. Yes, there are always exceptions. They aren't very interesting but the very nature of being exceptions, especially since tax laws are written for the general case.
My point is you don't know enough about someone's situation to make a blanket "they can afford it" or "they can't afford it" statement, and that statement underpins the entire argument for forcing people with higher incomes to pay more taxes.
>The number of multi millionaires in your exceptional case is also much smaller than you probably think.
Or it's much larger than you probably think. Nobody knows. Why are you assuming you know?
> It's vanishingly difficult to earn no money when you have millions in assets.
Actually, with current interest rates it's pretty easy. I know people with millions in assets who put their money in safe investments, because there's no reason to take risks when you have millions and you're in your 70s. Right now the interest on safe investments is a rounding error.
If you have $10 million in income and cannot make ends meet, something is wrong with you. I understand that you could also have debt. That doesn't mean you aren't "making ends meet". I have more debt than income. I'm making ends meet just fine.
> My point is you don't know enough about someone's situation to make a blanket "they can afford it" or "they can't afford it" statement, and that statement underpins the entire argument for forcing people with higher incomes to pay more taxes.
Income is extremely correlated with how much of anything one can afford, including taxes.
What is your alternative anyway? We'll just stop taxing people entirely because we can't really know what they can afford? Or are you just being pointlessly argumentative?
> Or it's much larger than you probably think. Nobody knows. Why are you assuming you know?
Because I did the math, as could you.
> Actually, with current interest rates it's pretty easy. I know people with millions in assets who put their money in safe investments, because there's no reason to take risks when you have millions and you're in your 70s. Right now the interest on safe investments is a rounding error.
Drop your millions into T Bills for 5 years and you'll earn 1.3% on the safest investment you'll get. 1.3 is a rounding error? Ok. On a million dollars it's also 13k. So if you park 5 million in this absurdly low interest investment you'll still make 65k/year.
So no, it's not easy to make no money if you have millions in assets. A few million in safe investments yields more income yearly than the average American family makes.
Again, it all depends on the details. Could you make ends meet with $10m when your $20m debt comes due in the same year?
>What is your alternative anyway? We'll just stop taxing people entirely because we can't really know what they can afford?
The alternative is, one, we keep the top rate reasonable. Nobody should have to pay 70% or 90% or whatever on his income, no matter how large. And everybody should pay income taxes, even if it's just a token amount.
And two, we should get more of the national income from consumption taxes. If you can run out and buy a bunch of stuff you can then I know you can afford it. I'd have a national system like California's, where things like food and clothing are exempt.
>Or are you just being pointlessly argumentative?
Don't be an ass. Seriously.
>Because I did the math, as could you.
When I "no money" I don't actually mean zero money, though I'm sure there are people who keep large amounts of money in their checking accounts. I mean no money compared to assets. What is a few tens of thousands for someone who has millions in the bank?
>Drop your millions into T Bills for 5 years and you'll earn 1.3% on the safest investment you'll get. 1.3 is a rounding error? Ok. On a million dollars it's also 13k. So if you park 5 million in this absurdly low interest investment you'll still make 65k/year.
You realize for someone who has five million dollars in the bank, particularly someone who's only going to be using it for a handful of years, $65k is a rounding error? And that the average tax rate for someone in that bracket is around 13%, so that guy with five million in the bank is going to pay somewhere in the neighborhood of $8500 in taxes.
Can you describe a realistic situation in which you receive a personal loan for $20 million that comes due at once that you cannot pay for by liquidating other assets? This isn't a real scenario. No one will give you this kind of personal loan without collateral or proof of significant unencumbered assets. And at minimum, you'd be doing this through a corporation, or again, you are incompetent.
> The alternative is, one, we keep the top rate reasonable. Nobody should have to pay 70% or 90% or whatever on his income, no matter how large. And everybody should pay income taxes, even if it's just a token amount.
No one in this comment thread said anything about raising taxes to 70 or 90 percent for anyone. You're taking against a nonexistent point.
Nor is this "alternative" an alternative. In no way does this address the fact that a specific income does not guarantee an ability to pay a specific tax rate.
> And two, we should get more of the national income from consumption taxes. If you can run out and buy a bunch of stuff you can then I know you can afford it. I'd have a national system like California's, where things like food and clothing are exempt.
Consumption taxes are effectively regressive. Exempting clothing and food is a decent idea but it's still regressive and I'm not sure foie gras and mink coats should be tax free.
> Don't be an ass. Seriously.
You're arguing against points I never made and you never even stated. You're making appeals to consider imaginary millionaires who can't pay basic taxes. It honestly feels like you're being intentionally argumentative.
> When I "no money" I don't actually mean zero money, though I'm sure there are people who keep large amounts of money in their checking accounts. I mean no money compared to assets. What is a few tens of thousands for someone who has millions in the bank?
The money you have in the bank isn't relevant to your taxes except to the extent that it produces income for you. If you are insanely wealthy and have almost no income, you'll have no trouble paying your taxes.
Are you imagining that I at some point proposed a tax on wealth?
The most obvious situation is probably where you've invested a certain amount of money in a highly illiquid asset, that can someday (i.e. 10-20 years from now) be liquidated for a significant capital gain. This could, for example, be a business or a plot of valuable land.
I can't deny that it's technically possible. I just think it's extremely far-fetched.
For example, let’s say I buy a Monet painting for X million and a bank is willing to give me a collateralised loan of up to 75% of the asset value. If a bank decides to sell that asset tomorrow (i.e. at a suboptimal time) they might not even get 75% of the value back.
Debt is a lever in business and some people make it big by leveraging big.
It's doubly far-fetched to talk about loans to individuals for $20MM. If you're applying for a $20MM loan, you should have an accountant and your accountant should have told you to put this kind of thing in a corporation. You'll still lose a lot but it shouldn't bankrupt you personally.
But yes, obviously not that common. Random Joe won't be getting these. Random Joe doesn't have $20m in assets either, though.
I never use a single 'M' by itself when talking about money because it's ambiguous. Mega or mille? If you see MM, it's not ambiguous.
Taxes are needed to pay for hospitals, teachers, firefighters... what happens if the amount that the 1% think is fine doesn't cover for that expenses? They have so much money that they can afford private version of that services. But what is in that model for the rest of citizens?
This is a problem between short term benefit for a few against long term losses for everyone. It is not possible to have a modern society with low rates of death by sickness and low levels of violence and crime if we can't afford to have in place none less improve all the current safeguards.
Wealthy people can move relatively easily if they want to. If someone is worth $50m, he's really getting very little value from the system. Heavy shoulders should bear a heavier burden, I agree, but how far should that go? Maybe the maximum amount of tax should somehow be capped. Past a certain point, some people just get fed up with paying insane amounts of taxes. Proportionally (income wise) middle and lower income people are paying more in taxes then, but they are also getting more back in comparison to the guy who is worth $25-50m.
The truth is more likely that their wealth has made them selfish and insensitive. As Leona Helmsley famously said "Only the little people pay taxes".
It might be interesting to know what percentage of thier offspring the wealthy are sending to fight and die in wars compared to everyone else.
The only way to create wealth is to give most of it (>50%, at least) away. You have to provide more value than the price of what you're providing.
It is a very good thing, for society, for you and me, that that wealth is created. If the rich ever "stop accruing an insane amount of wealth", that would be very bad. We don't want that. We want that wealth to be created.
And then there's the obvious fix: just have the government do it all. The problem with that is that it takes away the wealth creation motive and replaces it with raw power. The point of business, at that point, becomes advancing it's management position in the government, not to serve anyone. I very much prefer a lot of highly capable people working to provide more goods for me cheaper & better to a lot of highly capable people working to provide a tighter and more controlling government. So should you.
He's getting everything from the system. Law, the courts, the ability to live in relative freedom without walled compounds and guards, etc.
When revolution comes, those $20-50M guys will be the ones on the wall.
Basic services like fire protection are membership based, folks who live in unincorporated territory have to BYO water, sewer, security, and poor folk are really poor.
That's not true at all.[1]
For those making $50K-$100K, 87% have less than a 15% effective tax rate. For those making $200K or more, Only 14% pay less than a 15% tax rate with 84% paying more than 15%.
Here is another set of data.[2] Effective tax rates are strongly associated with higher incomes.
[1]http://www.taxpolicycenter.org/statistics/effective-tax-rate...
[2]http://taxfoundation.org/blog/chart-day-effective-tax-rates-...
I never said they were being bled dry. I said they already pay most of the taxes, and it seems unjustifiable to ask them for even more, while at the same time demonizing them for not paying their "fair share" -- as if paying more than half of the taxes isn't already a major contribution. Their ability to pay is not relevant to my argument.
Most of the wealth == most of the taxes. This is justified in a basic arithmetical sense.
No, most of the income == most of the taxes, and that is the situation we are already in. My point is that it's hard to justify asking for even more money from the group of people who already pay more than half of the taxes.
I suppose I mean to say that this is the thing really - income tax on its own is not working, evidently, given that it is so easily avoided. Surely the idea is that everyone should want to commit as much as they can to the furtherment of their community, nation and species. The very fact that things like this, game-theoretic winner-take-all, tax "avoidance" (because it's legal, therefore morally fine), exist is enough to make me wonder if there is any point at all to my existence, let alone the existence of the poor sods who aren't fortunate to make even as much as I.
But then I strongly suspect I'm a lefty pinko communist and shouldn't be trusted in a proper discussion about actual fiscal policy.
Do it, then. Don't just post worthless snark.
If you depend on a small number of people for the majority of tax revenue, you will end up with unstable revenue. Look what happened to California's tax revenue during the 2008 recession. It dropped because the small number of rich people who pay more than half of the taxes got hit pretty hard by the recession.
Besides, do we really want to live in a society where only a small group of people has a financial stake in the funding of the government? Voters would probably be a bit more informed if they had some skin in the game. We really don't want to live in a society where the majority of voters will always approve spending increases because they know their taxes won't increase, and the cost of the increase will be borne by the top few percent. That will get us a runaway train of government spending.
Keep in mind that just because Bob is paying a million dollars in taxes and Julia is paying ten dollars in taxes does not mean the system is unfair towards Bob. Especially if Bob should actually be paying three million dollars in taxes, but has used creative accounting practices and tax avoidance schemes to reduce his tax burden.
If the accounting schemes and tax avoidance schemes are legal according to the tax code, then they are what determine what he should pay.
The amount someone should pay is the amount he or she is legally required to pay. The tax laws are the only standard by which the amount of taxes someone should pay can be determined.
Morals musn't enter this argument, it would muddy the waters too much.
And then, the law being the law, those taxes will be paid.
Yes it does. The reason Bob pays more has nothing to do with fairness. Bob has money the government can take without his permission and Julia doesn't. That's the long and the short of it.
The fight isn't happening at the rich's doorsteps, it's happening at the doorsteps of the middle and poor, pushed there by the rich.