How the fortunate 400 got so rich

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HawkHead
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Re: How the fortunate 400 got so rich

Postby HawkHead » Sat Jul 14, 2012 10:23 am

Comrade wrote:
HawkHead wrote:
Rich Schultz wrote:If the income produced by wealth is so easily hidden why do the top 10% pay 70% of the income tax?


Because we have a progressive income tax structure in the US of A!


Actually you are contradicting yourself. Your answer would indicate that their income is NOT easily hidden.


Yes and mostly no. I would argue that income is not easily hidden.

If you are an American citizen you are taxed on your world wide income. There are laws were you can deduct a large chunk of overseas income and others that give you a credit for foreign taxes paid.

What the tax structure currently does is allow different types of income to be taxed at different rates. If I am wealthy enough that I don't need additional money to support my lifestyle until I am dead I can shift my income streams to lower my taxes. This is what the ultra-wealthy do. This is exactly what occured on the return that Mitt showed.

If you are still earning non-investment income to build your wealth you are getting taxed at the higher progressive tax rates. The highest of which is 35%. Before the Bush tax cuts dividends were taxed at the ordinary tax rate; after the tax cuts dividends were taxed at the capital gains rate of 15% or 0% if your income was too low.

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Re: How the fortunate 400 got so rich

Postby HawkHead » Sat Jul 14, 2012 10:31 am

Meade wrote:
HawkHead wrote:I deal with lowering peoples tax liability all of the time.

Is "lowering peoples tax liability" the same thing as tax avoidance?

Doesn't progressive taxation create more work for tax accountants and lawyers? If so, does that work create net wealth?


Meade, why so disingenuous with the questions? You are clearly looking for an answer to turn on me.

Lowering someones tax liability is not the same as tax avoidance. In fact Meade, and I know this will blow your mind, I am encouraging clients to increase their income and tax liability this year.

Progressive taxation does not have to create more work for tax accountants and lawyers. I would submit that the "loopholes" in the tax law is what creates more work.

Henry Vilas
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Re: How the fortunate 400 got so rich

Postby Henry Vilas » Sat Jul 14, 2012 10:40 am

HawkHead wrote:Meade, why so disingenuous with the questions? You are clearly looking for an answer to turn on me.

That's his standard modus operandi.

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Re: How the fortunate 400 got so rich

Postby snoqueen » Sat Jul 14, 2012 10:47 am

Comrade wrote:I don't necessarily agree with your conclusions.

...you have to take the sum of what was accomplished by Rommney's at Bain and consider that on its merits instead of dividing things up and cherry pick what you don't like in an effort to promote an agenda. That is not intellectually honest.


Thanks for a well-considered answer. I think we'll have to agree to disagree, but at least I can see your line of reasoning and understand how you arrive at your conclusions.

In the paragraph I reprinted above, though, I disagree with your thinking. Here's why:

Romney's record at Bain shows his main goal was to make money for himself and his investors, which is perfectly legitimate and to be expected.

However, the US government is not a business. It exists to serve the people, not make a profit. For that reason, the processes that take place within the government require different skills from those needed to run a business.

In government, cooperation, deliberation, and negotiation get a lot more emphasis because there are many, not just one or a few, interests to consider. And for every time government has to move quickly -- say in foreign affairs -- there are many times things work very slowly and cannot be decided before their time. Patience, perseverance, and diplomacy get things done over the long haul.

Example: Look at what just happened at the University of Virginia. One member of the board took a disliking to President Sullivan, who was recently chosen. The board member engineered a coup and had President Sullivan, who was otherwise popular, removed. Later, after much upheaval and angst, Sullivan was reinstated.

The board member, Helen Dragas, came from a business background and handled this situation as you would in a business: she solicited prospective votes from the board in secret and then executed the coup (my term) as a surprise move. She had not consulted the other interests in the community, the faculty, student body, alumni, or anyone else. And the community caused the coup to fail.

Dragas might be perfectly competent in the business world but she did not work well in an academic context, as the results show.

This situation is parallel with the difference between the business world and the world of government. Because of that, I do not feel Romney's background in business strengthens his claim he should be our next president. How do we know he understands the needs of his various constituencies, including a whole range of ordinary citizens? He's done a pretty good job of showing he does not, in my view. And acting in the interests of his constituents is definitely part of the job description.

I might feel otherwise if, in his campaign, he was emphasizing his accomplishments as governor of Massachusetts, but he isn't. On the contrary, he's trying to get the voters to forget he ever was there.

And in business, we could find managers and owners who treated their employees as a valuable, even precious, asset. That's one way of running a business, but it's not part of Romney's record either.

In short, I think his current behavior and his history in business show he's got the wrong priorities to be a good president.

We aren't going to change one another's minds on this, but at least we can appreciate the different values that underlie the conclusions we draw.

-----------
By the way, Hawk, I'm glad to have a CPA on board here. I have some knowledge of tax, but not always enough to back up what I'm trying to say. Thanks for your two cents.

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Re: How the fortunate 400 got so rich

Postby Dangerousman » Sat Jul 14, 2012 11:22 am

Henry Vilas wrote:That's his standard modus operandi.


Sounds redundant. Could someone have a nonstandard m.o.?

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Re: How the fortunate 400 got so rich

Postby Henry Vilas » Sat Jul 14, 2012 11:27 am

Quibbling seems to be yours.

Meade
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Re: How the fortunate 400 got so rich

Postby Meade » Sat Jul 14, 2012 1:04 pm

HawkHead, my questions were candid and sincere. Why did you feel you needed to dodge them? Progressive taxation has pluses and minuses. Loopholes is one of the many minuses that you and I can agree on.

From your experience as a CPA, can you give us a simple common example of where "lowering tax liabilities" would not also be "tax avoidance"? Thanks.

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Re: How the fortunate 400 got so rich

Postby snoqueen » Sat Jul 14, 2012 3:18 pm

For those trying to sort out what Romney did when at Bain/not at Bain, here is a roundup of what is known:

http://www.washingtonpost.com/blogs/fac ... ml?hpid=z2

The writer tries to be fair and give Romney the benefit of the doubt.

This doesn't really change my own assessment of Romney, which is based on his primary orientation as an aggressive businessman, but may relate to (and even support) other parts of Comrade's argument.

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Re: How the fortunate 400 got so rich

Postby HawkHead » Sat Jul 14, 2012 6:00 pm

Meade wrote:HawkHead, my questions were candid and sincere. Why did you feel you needed to dodge them? Progressive taxation has pluses and minuses. Loopholes is one of the many minuses that you and I can agree on.

From your experience as a CPA, can you give us a simple common example of where "lowering tax liabilities" would not also be "tax avoidance"? Thanks.


I answered both of your questions above. Maybe you need to reread before you accuse me of needing "to dodge them."

On the issue of "loopholes", I don't think all "loopholes" are bad or good. As an example, getting a deduction from my taxable income for charitable donations.

I already gave you two examples in this thread of lowering tax liabilities without tax avoidance. And to show you that I am sincere in my answers I'll give you a third, opening a safe harbor retirement account for your business.

snoqueen
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Re: How the fortunate 400 got so rich

Postby snoqueen » Sat Jul 14, 2012 7:53 pm

He did just that. Here's what Hawk wrote earlier:

The best example for small business owners is the ability to use cash basis accounting verse accrual basis accounting.

In cash basis I get to deduct expenses as paid. So with a farmer that has a large gain we will prepay all of their seed, hay, fertilizer for the next years growing season to deduct against this year's income.

With the increased Sec 179 depreciation and bonus depreciation amounts the last few years business owners can deduct up to 100% of all new equipment purchased by the business.


The third of course he just mentioned -- the safe harbor retirement fund.

The first and third tactics have to do with when a tax is assessed. If you can delay the tax or change its timing, you might pay it at a time you are taxed at a lower rate or your other tax liabilities are less and you can more easily afford it. It's not tax avoidance except in the very-very short term. You still owe, only you owe later. Your own IRA or 401(K) does the same thing.

And the increased depreciation is a gift to business, plain and simple. The more of your capital expenses you can write off (or spread over a number of years), the less of your business income remains to be taxed.

With that one, the government was encouraging businesses to buy more stuff (from each other, presumably) and put the stuff to use making more money. In a way, it was a stimulus for business. The tax code can do a lot to nudge people (individuals and businesses both) toward particular financial decisions, and it's not always the enemy of business.

I wish people who think there ought to be a "flat tax" or some such nonsense understood more about how the tax code actually works to carry out legislative or executive intent, not always in a nefarious way. What we really need is better funding for enforcement of the code, but you can imagine why certain participants in the economy don't like that idea.

Damn, I ran way off topic here. But this is one of my pettest peeves.

OK, how do people get rich again, and do they always do so at the expense of a lot of poorer people? Secondary question: how could a person get rich without harming a lot of poorer people? Also: how could government help a person do that, or how could we (collectively) set up circumstances to help a person do that?

Other than tweaking the tax code.

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Re: How the fortunate 400 got so rich

Postby rabble » Sat Jul 14, 2012 8:59 pm

snoqueen wrote:this is one of my pettest peeves.

I like that one.

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Re: How the fortunate 400 got so rich

Postby Comrade » Sun Jul 15, 2012 4:11 pm

snoqueen wrote:
Comrade wrote:I don't necessarily agree with your conclusions.

...you have to take the sum of what was accomplished by Rommney's at Bain and consider that on its merits instead of dividing things up and cherry pick what you don't like in an effort to promote an agenda. That is not intellectually honest.


Thanks for a well-considered answer. I think we'll have to agree to disagree, but at least I can see your line of reasoning and understand how you arrive at your conclusions.

In the paragraph I reprinted above, though, I disagree with your thinking. Here's why:

Romney's record at Bain shows his main goal was to make money for himself and his investors, which is perfectly legitimate and to be expected.

However, the US government is not a business. It exists to serve the people, not make a profit. For that reason, the processes that take place within the government require different skills from those needed to run a business.

In government, cooperation, deliberation, and negotiation get a lot more emphasis because there are many, not just one or a few, interests to consider. And for every time government has to move quickly -- say in foreign affairs -- there are many times things work very slowly and cannot be decided before their time. Patience, perseverance, and diplomacy get things done over the long haul.

Example: Look at what just happened at the University of Virginia. One member of the board took a disliking to President Sullivan, who was recently chosen. The board member engineered a coup and had President Sullivan, who was otherwise popular, removed. Later, after much upheaval and angst, Sullivan was reinstated.

The board member, Helen Dragas, came from a business background and handled this situation as you would in a business: she solicited prospective votes from the board in secret and then executed the coup (my term) as a surprise move. She had not consulted the other interests in the community, the faculty, student body, alumni, or anyone else. And the community caused the coup to fail.

Dragas might be perfectly competent in the business world but she did not work well in an academic context, as the results show.

This situation is parallel with the difference between the business world and the world of government. Because of that, I do not feel Romney's background in business strengthens his claim he should be our next president. How do we know he understands the needs of his various constituencies, including a whole range of ordinary citizens? He's done a pretty good job of showing he does not, in my view. And acting in the interests of his constituents is definitely part of the job description.

I might feel otherwise if, in his campaign, he was emphasizing his accomplishments as governor of Massachusetts, but he isn't. On the contrary, he's trying to get the voters to forget he ever was there.

And in business, we could find managers and owners who treated their employees as a valuable, even precious, asset. That's one way of running a business, but it's not part of Romney's record either.

In short, I think his current behavior and his history in business show he's got the wrong priorities to be a good president.

We aren't going to change one another's minds on this, but at least we can appreciate the different values that underlie the conclusions we draw.

-----------
By the way, Hawk, I'm glad to have a CPA on board here. I have some knowledge of tax, but not always enough to back up what I'm trying to say. Thanks for your two cents.


Snowqueen, I don't disagree with large parts of what you said. I also think that his term as Governor is far more relevant to how he might act as president.

Do I have doubts about him? Yes, absolutely. Was he my first choice? NO!

All I can do now is compare him to what we have in Obama. I judge him to be a failure. Not only in economic matters, but also in his abject failure to be an effective leader. He doesn't even stand up to his own standards of how to judge him that he outlined in 2009.

As I see it, we are back to being forced to choose between possible failure and confirmed failure. I know how I will vote.

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Re: How the fortunate 400 got so rich

Postby Henry Vilas » Sun Jul 15, 2012 4:16 pm

Comrade wrote:As I see it, we are back to being forced to choose between possible failure and confirmed failure. I know how I will vote.

Did you vote for Bush, Jr. when he ran for re-election?

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Re: How the fortunate 400 got so rich

Postby Meade » Sun Jul 15, 2012 4:42 pm

HawkHead wrote:I already gave you two examples in this thread of lowering tax liabilities without tax avoidance. And to show you that I am sincere in my answers I'll give you a third, opening a safe harbor retirement account for your business.

Legally reducing your current year income is tax avoidance. In fact, all three examples you gave of lowering tax liabilities avoid taxes. I'll conclude that the answer to my question that you chose not to answer directly is: "lowering peoples tax liability" is the very same thing as tax avoidance.

Thank you.

HawkHead
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Re: How the fortunate 400 got so rich

Postby HawkHead » Sun Jul 15, 2012 8:59 pm

Meade wrote:Legally reducing your current year income is tax avoidance. In fact, all three examples you gave of lowering tax liabilities avoid taxes. I'll conclude that the answer to my question that you chose not to answer directly is: "lowering peoples tax liability" is the very same thing as tax avoidance.

Thank you.


I knew you were reaching for an A HA! moment. Now we have seen your attempt.

Let's look at the cash basis example first.

Farmer X makes $100,000 and spends $50,000 in expenses. On the accrual method Farmer X picks up $50,000 in income in year 1 and year 2 for a total of $100,000 in income.

On the cash basis Farmer X makes $100,00 in year 1 and spend $50,000 in expenses. Before the year ends he pays $50,000 for his next year's expenses. Year 1 income is -0-. Year 2 Farmer X decides to quit farming after the year. Year 2 I have $100,000 in income and no expenses to offset the income because I paid them last year. Total income in year 1 and 2 is $100,000.

The income is the same and I will be taxed on the $100,00. I haven't avoided any tax I have deferred my tax from one year into the next. The same is true with examples 2 and 3 that I have given. I am deferring when the tax is due not avoiding it.

I did Google tax avoidance and it states legally reducing my income tax liability. Having practiced for over 16 years avoiding to me means never paying tax on and that is how my colleages and I talk when discussing taxes.

To a layman tax avoidance may mean legally lowering my liaiblity. To a CPA when someone mention tax avoidance we start wondering if this client is behaving ethically.

Tax avoidance to me is someone walks into my store and pays me cash for merchandise. I don't ring the sale in and I pocket the money. I have avoided the tax on the money I received. When I find evidence of a client doing this I tell them to find another CPA firm.


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