IRS records reveal how the wealthiest avoid income tax

https://www.forbes.com/billionaires/

or more succinctly:

“We need to condemn the families and businesses in places like those tiny island nations in the Caribbean to more poverty”

Those tax havens exist because they realize that a very real thing they can offer as a service is a place to domicile a business and capital. Not everyone wants to go to Ireland for its nice beaches you know.

Assuming people find this information objectionable that’s a reasonable justification to publish. In much the same way that leaking classified documents about questionable activities is morally justified, though illegal. Otherwise stamping secret on any evidence of say torture would work.

I completely agree with your overall point, but this statement is not true. Solid concrete evidence of what we "already expected" _is_ new information. (also, as other commenters have pointed out - what _you_ already expected is not necessarily what the average person already expected)

I think when he owns the Washington post, it becomes of the public interest.

Hell, in Norway literally everyone's salary is public information. Hasn't seemed to do them any harm either.

If you want these things to stop, you need to change the incentives that people operate on. Anything else will be like trying to plug holes in a dam with your finger; locally effective at best.

Would it be a disconnect to illegally oppose an immoral law - like, say, the legal protection of slaves as property - while simultaneously wanting to pass laws that you expect people to follow - like, say, making slavery illegal? Probably not.

It's inaccurate to treat obedience to the law as a moral act. It can only be moral because the law itself reflects moral attitudes. Wherever there is a disconnect between the law and morality, it is the law that bends - which is exactly why laws can be rewritten in the first place.

The total harm of stealing billions from the public dwarfs any concern for the thieves' privacy.

They are following the law, sure... the unfair law they pay for to their advantage.

You mean because Joey took his allowance and bought the supplies for a lemonade stand, took the money made from that to buy the ingredients to make cookies, then took the time to bake himself cookies.

It's strange that people find a person who creates & grows a company and who pays hundreds of millions of dollars in legally required taxes detestable. Yet a person who fails to gain the basic education that is free to them, who has no ambition, who is literally a drain on society, cannot be criticized. It's astonishing to me that society accepts and allows people to not have a least a high school education.

I wonder what the response would be to an article about how trillions in taxes are not paid because there are millions and millions of people who simply don't develop their personal capital and make decent choices that would result in them earning more and paying more in taxes.

My entire thesis is that vigilante leaks like this are a product of the perceived unwillingness of the legislature to deal with the abuse of tax loopholes or to tax the rich at anywhere close to the rate that the overwhelming majority of voters want. If my theory is correct, then saying “talk to your legislator instead” is almost hilariously tone deaf, given that these leakers are probably taking actions into their own hands in response to a belief that their legislator is lazy or corrupt.

More broadly, my point is that singling out individual actors is an ineffective way to stop stochastic law breaking. Decry and punish individual law breakers all you want, but don’t expect it to stop until you at least triage the underlying causes.

Also, another 13% of Americans make less than $12/hour, with many of them working under 30 hours a week. Roughly how many of those people, in your opinion, should have a federal tax liability?

It was millions over the period of 2014 to 2018. Not that I disagree with your overall point.

Bezos did almost pay $1b himself though. In total the people in the article paid under $2b.

I hate paying taxes.

But I'm honest about what I'm buying for my money -- the broader community I live in and happen to like and care about.

If you only condone taking legal courses of action, how would you go about opposing those billions and the leverage over the legislative process that brings?

It's all well and good to take a moral high ground and say no one should ever break laws, but when the laws are exploitative and the legislators are beyond real influence, what other recourse is there?

Chances are actual downvotes are still from people who not only disagree with style but also with content, but when those are a minority a magic thing happens: people who agree with content but are at best neutral about the style see it in deeply faded grey and vote "it's not that bad", but only as long as it's deeply faded. The result of a most agree but don't wand to encourage surgeon reliably ends up a slap on the wrist "ca -1", no matter how many people voted. The mechanism works great.

(and it's also quite successful at keeping meta talk like this from escalating, I only feel that it's somewhat acceptable to write this now that the story has left the front page more than half a day)

How do you think most of the rich stay on the good side of the law? They have much more direct access to legislators via mechanisms that should be illegal, but are not because they pay to protect them.

It's clear at this point that extremely wealthy figures should expect reduced privacy rights when it come to their wealth because it serves the public interest.

You're basically arguing that the public shouldn't be aware whether a person owns a nuclear weapon because they bought it fair and square and "privacy".

Some nice charts midway through this page: https://www.pgpf.org/analysis/cbo-warns-fiscal-path-is-unsus...

I think you're misunderstanding. The tax rate they are paying is estimated based on the previous year income (we'll actually it's a combination of present income and previous years) because the tax office can't know your exact income (and deductions) until the end of the year. So when you do your tax return at the end of the year you either get a refund or need to pay some more. I'm pretty sure that's how it works in most of Europe (at least in most of the countries I'm aware of). So there is no loan to the government, they still pay the tax as a rate on when the income comes in.

I'm not super rich but if the government wanted to tax my shares, I'd pay the tax out of my income instead of buying more shares. I could probably pay a decent chunk of it out of dividends too, if I wasn't reinventing them.

Property tax here in Australia is based on hypothetical value, the sky doesn't fall.

Even if people have to sell some shares, I just don't care, it's not a big deal. Sell em.

The idea that someone should pay taxes on potential money is not a good one, IMO. I think there would be a lot of legitimate pushback, and if a plan was adopted anyway there would be serious political consequences.

You might be misunderstanding - this is literally how tax withholding works. You pay estimated taxes as you go through the year, and then file a return at the end of the year and settle up with the government to what your actual tax liability should be.

That's how most income taxes work in most countries.

To avoid a massive tax payment at the end of the year, you could elect how much tax would be deducted from your salary each month. The usual way to calculate it was based on last year's income. It wouldn't factor in all tax deductions so, at the end of the tax year, and after you'd filed the tedious and complicated tax return, you'd find that you'd overpaid. Better that than underpaying.

In the UK, usually your employer collects tax monthly. They calculate the amount to collect based on your current monthly salary projected forward and how much tax you've already paid. If there's a mismatch at the end of the year, the tax office uses a 'tax code' to adjust the amount to collect over the next 12 months.

Yeah, I have no idea why gambiting is not doing that.

The rules in the US is that your estimated tax payments have to cover the smaller of 90% of your current-year ongoing (quarterly) tax liability or 90% (sometimes 110% for high incomes, an there are other special rules for farmers/fishermen) of the previous-year tax liability.

So yes, you can make them based on last year's income as as safe harbor if you have no clue what's going on with your income this year for some reason. Or you can just make them based on this year's income as you go.

I think there are high profile cases of founders getting low interest loans with the shares as collateral. This allows spending of the money without losing control or paying taxes now.

So, no they are useful before they are sold.

Germany does something similar: https://de.wikipedia.org/wiki/Wegzugsbesteuerung (unfortunately only in German).

Basically your tax advisor agrees with the government on a "fair" valuation and you are taxed on a 'fictions sale' when you cease to be a German tax resident and hold more than 1% shares in a company.

This is clearly untrue. At least they have use in the ongoing option to sell. I can use them as collateral to borrow at least as much as, and probably a multiple of, their value.

If you genuinely think they are useless, please give me some. I will use them.

> how can you be taxing someone on a hypothetical sale value?

Since shares are fungible, the government could just apply the tax as a number of shares. Then nobody has to worry about defining a hypothetical value.

You can borrow cash against them, and live entirely on that cash for decades.

What is being proposed is to change the law. A court will absolutely uphold that law, once it is written. What it would do under current laws is irrelevant.

Of course, the assessor can't exactly predict the value of a commodity like a home with complete accuracy. Some people get undercharged and some get overcharged, this might even be a systemic thing. But as long as it's "good enough", then the tax works more or less how it should.

Being asked to pay tax on your wealth is not a judgement about your moral character.

We ask people to pay tax to benefit society, not because we hate them.

Given that shares are fungible, you could just give a percentage of your shares to the government as the tax/the government could or should accept this as your tax payment.

> You do realise that many employees on average wages do this.

I'd like to say almost none but I understand the median person the US holds a small amount of wealth. If there was a progressive wealth tax, you could take people with average wealth out of the requirement to pay.

There are any number of principled reasons to oppose paying taxes to USA government, but "I'm rich and I can afford the lobbyists and tax attorneys to make the system work for me" is not among those.

Capital gains clearly represent a change in your wealth, and are somewhat "income-like". But they also are a persistent thing that you are in control of until the time of sale, and are somewhat "property-like".

It seems plausible that we could come up with a reasonable-scheme for capital gains taxes that manages to accommodate both properties, but I think it'd take a fair amount of consideration to make sure that there aren't nasty edge cases, and the benefits outweigh the additional accounting.

If we think that "everyone" will have to "overdeclare" in such fashion, then obviously the government is collecting more revenue than it intended and will lower the tax rates to compensate, so in the end, you'll pay the same dollar amount in tax on your $26,000 car as you would have on your $25,000 car.

So, such a system would work fine. Particularly for property taxes, which are currently the subject of much scamming (apartment buildings in NYC being valued at a few percent of their actual market value, for example).

You get to declare a reasonable value, and if someone wants to buy, but you're not willing to sell at that time, the insurance company negotiates a substitute payment, and works that cost into your retention rider rate going forward.

Any item must be purchased at a +30% premium over the recorded value with that extra 30% going to the state if a sale occurs. So if you did want to hold onto something, you would declare a higher value and get paid extra.

That aside, I’m not arguing for a lower estate tax threshold. I’m arguing for an elimination of the state up basis at death, at least for assets which the estate tax has not been paid.

If Joe Farmer’s kids keep his $10 million farm, they won’t pay any taxes. But if they sell it, they ought to have the same basis as Joe would were he still alive.

In reality it would be pretty easy to setup the tax code to avoid such issues, but instead we’ve whittled the estates tax down to nothing to benefit heirs of the ultra wealthy.

I know the intent of your comment is to support family farms, but now these tax incentives have become perverse and really only benefit rich people, not family farmers.

If you inherent cash, that cash has already had taxes paid for that. It shouldn't be taxed again like some "death taxes" propose to do. If you inherit stock, then sell it, the basis date for that stock should be the date it was bought, not the date you received it.

E.g. if I win a car in a contest or get paid in stock for working, I have to pay income tax on the current value when I receive it.

You could think about if the owner of a business generously decides to give all his employees a pay rise - the government now receives less money because the employees pay a lower marginal tax rate than what the owner would have paid if he kept the money for his own higher salary. Should the government get involved here and claw back that lost tax?

>> The idea that a wealthy person has a 'better' idea of how to spend their money ...

The word 'wealthy' can be taken out here. The said choice is being given to others too if we let go of the nitty-gritties.

I agree also that I have no reason to believe that donations should be entirely tax free. The optimal point may be at giving say 10% of the donation amount as rebates while the remaining 90% still is subject to taxes. May be that optimum is at 0% rebate also.

>> and provide a measure of fairness and equality in how decisions are made

Overall, I do agree to your point. Fairness in decision making is more important.

Equality however is different from fairness though. Equality and efficiency bear tradeoffs. See here: https://en.wikiversity.org/wiki/10_Principles_of_Economics

Also, I do not see how high earners being subjected to higher taxes is fair (to them). In my opinion, the very premise of taxes being proportional to income has flaws. See my comment here: https://news.ycombinator.com/item?id=27433973

>> is basically a way of using their wealth to obtain a bigger-than-one-vote say in how education spending works

If my viewpoint in the linked comment above of constant income tax is accepted, then the rich may not even have a bigger-than-one-vote to begin with. Overall, I agree to you though.

And what about when it is the government who wants to place these books?

More pedestrian stuff (eg expensing a conference in Seychelles) definitely slips through, but we could make the same principal-agent complaint about business expenses or other settings where one person gets to spend money from different buckets that are taxed differently.

I’d challenge the notion that the rules are unenforced though - someone will have questions if you’re living in a house your foundation purchased or somesuch. At the very least several people with an obligation to know better and much less to lose we’re going to be very nervous.

[0]:https://ag.ny.gov/press-release/2019/donald-j-trump-pays-cou...

In some cases, evidence is fairly clear that the charities are used to actively undermine our society even further, e.g. Kochtopus.

The way that property taxes work in California is more similar to Capital Gains in the US where your taxes are based on the sale price (although imposed continually, not just when a transaction occurs). The net effect of this is that you have neighbors with effectively identical homes who pay a full order of magnitude difference in property taxes every year (i.e. 2k vs 20k). [1]

[1] https://www.officialdata.org/ca-property-tax/

I imagine it's not a super common problem in the general population. But for the HN demographics, two high earning bay area tech people getting married is pretty common, and they'll often be hit with the penalty.

Especially fun for old people living off their pension in their family home with large, attractive gardens in areas which were way outside town but now, some 50-60 years later, has become highly attractive...

https://www.oslo.kommune.no/skatt-og-naring/skatt-og-avgift/...

C'est la vie. That's how Capital Loss deductions, Electric Vehicle credits and other non-refundable tax credits currently work: individuals may not have enough upside to maximize their benefits, That's just how the system works as it is impossible to balance everyone's competing scenarios. If you are eligible for a $7500 EV credit but only paid $3000 in taxes, you'll only get that $3000 back, and not the full $7500.

So: Exemptions specifically covering residency already exist in finance law. If you go bankrupt, you can still live in your house (only if you owned it, mind).

The government, as soon as practical, can auction the stock it receives. Thus identifying its value and releasing the funds.

No doubt they would be loads of ways to scam this though, setting up supposedly valuable companies to 'pay' a big tax bill, then rinse the company or allow it to fail while diverting profit elsewhere.

For simple income tax, where you're paid in dollars and hand the government a percentage, that's fine.

But what if you're paying a tax on, say, some equity you were given in a startup?

This can cause huge trouble for people who have illiquid assets, like equity in a private company. You have to pay tax in dollars based on a guess of the value of that equity, even though you can't trade the equity for dollars (it's not liquid). When you eventually can sell the asset, like at an IPO, its assessed value could have decreased and it might be worth even less than the taxes you already had to pay on it.

That's the kind of gift you don't want to receive.

I'm suggesting that, for those who are worried about that risk, the government allow you the option of handing over a percentage of the asset instead. If it ends up being worthless paper, then the government gets nothing, but on the other hand that's also the correct amount for them to get because the tax on $0 should also be $0.

Most likely, the government would choose to (or perhaps by legislation could be compelled to) sell the asset at an IPO, but that's a detail. Perhaps they could also have an agency for managing and directing such assets in the public interest.

That would only affect home refinancing, which will still be a considerable number of people.

That shouldn't matter as long as they don't start to enjoy the benefit of those assets.

This means tax rules should separate the estate as a business/investment from the personal use of the funds/wealth.

Sure, at some point it becomes neigh impossible, like let's say Bill and Melinda went to Africa on their marriage anniversary, was that business or personal? (And yes, at that level of wealth, influence, income it's always both.)

When an owner (or close relative or friend of an owner) of a family trusts/foundations/estates/NGOs/church/non-profit conducts business through said entity, that entity should pay some tax corresponding to said expense as if some part of that expense were income to the owner/relative/friend.

I can't just say "Oh, I'm investing 30% of my income, tax that part when I sell later", I don't have that choice of kicking the can down the road.

The problem is you're not kicking the can down the road, you are delaying it forever. Your entire 'Lifestyle' can be funded tax free. Instead of things being your assets, that you spent money on you could have a company plane, car, boat, house. Lavish dinners can be put on the company card as 'business meetings' and travel as 'Business Travel'. This is all taken out of your business profits and the best tax structure for a business is at a loss or barly profitable. Add that to the point OP made about taxing collateral loans is it would semi-eliminate the 'loophole' of never having to pay taxs.

Edit: One more point. Should a $1m donation to scientology be considered a tax writeoff?

Unless they pay back said loan with another loan. Given the massive amount of wealth accumulated, you can rinse and repeat indefinitely. Basically you have a free cash flow machine, without ever having to convert that income as proceeds (unless you want to convert between asset types).

Having said I agree with your main point: we need to close the loopholes, and the charitable foundations is the biggest of all, and sadly the article missed the point entirely.

We can argue about whether or not it's good, but its not unthinkable. Property taxes in most places (in the USA, the subject of the article) are linked to the current market value of real estate. Sometimes property values rise, taxes follow, and people have to move.

I have to choose a price for all of my assets and then anyone could just be like 'yeah, I'll buy at that price' and take it from me? What if I bought the assets for the hope of it maybe being worth something in 5-10 years? Do I prematurely announce 'yeah, it's worth the price in 5-10 years that I hope it will be', and pay an enormous tax on something that's not a guarantee it will ever go to that price, just to keep other people from buying it from me if I announced what the market value is now? (And also I'm not allowed to keep any assets at market value unless I announce it's worth more to me?)

Ugh. Never get in a position where you could feasibly propose this in government, please.

Maybe someone knocks on your door and says "I just bought your house. Get out." That would be pretty unpleasant.

Or, more on topic for this site: maybe they do that with your startup.

Oh bless your heart.

Major components of the economy are not valued regularly, e.g. private businesses. Sure, if a buyer paid $10MM last week for a private business, we might say it's worth $10MM today. But what about a business that was started from scratch by the founder? Or one that was last sold 30 years ago? Or one in a very niche industry?

Put simply, valuation is not only a science, but an art... and it's an expensive art. The cost and difficulty of administration alone would be reason enough to steer clear of a wealth tax.

Lastly, although I'm not a fan of higher taxes on anyone, even simply a more progressive income tax would make more sense than a wealth tax.

The exact rules could be tweaked to keep it from being a burden on families taking a second mortgage, e.g. if you borrow less than a certain amount in the tax year perhaps the rule doesn't apply. Use your imagination.

This is pretty much the situation that the tax is designed to combat - people using their assets to increase their wealth without paying taxes. So yes, if you did that, you would need to pay taxes on the new money in the refinance. I don't see an issue if that makes this business model unprofitable or untenable.

> If we do this to homes, and the wealthy move their money to a new place, such as venture capital, do we try and re-price those illiquid assets each year?

There's no need to price anything. You value the assets put up as collateral as the amount of the loan they are securing.

> If one IPO’s and they take a loan against the stock to buy a home, do you give them their previous year’s mark-to-market payment back to them if the stock goes down the following year and they get a margin call?

Nope. It's just like selling and immediately re-purchasing.

> Imagine trying to grow a startup and being worth X on paper with no actual gains or money in the bank.

Ok, but nothing happens unless you borrow against it. I'm not sure what scenario you are imagining here.

There would be some risk that you couldn't get another loan, but if you're only borrowing 10% of your net worth, it's probably an extremely small risk.

It would be interesting to see what happened if a sufficient amount of that debt was bought up and forced to be repaid.

Remind me when that's ever been allowed to happen in the past 10 years. At the first sign of any market trouble, the default Fed response is OMO and cutting interest rates to shore up the markets. Stock prices can never fall even if the actual economy is in the shitter.

I mean, I'm glad I didn't HELOC my way to a few Bitcoin last month, so maybe it's best we leave these tricks to the rich folk anyway.

Over the long run it tends to work in their favour as well, since it's very likely that the increase in the portfolio value will outpace the interest paid.

And yes, a bet that interest rates will remain below effective tax beyond that.

In effect, these are situations where coordinated collective action may be beneficial, but there is a disincentive to being the initiator of such an action.

The examples I gave above were fireproofing your building, buying health insurance before you are sick, and mandatory turn signals on cars, but these abound in public policy: think, mandatory face mask wearing during a global pandemic in which masks which block the transmission of a disease from an infected person are cheaper than masks which block the infection of someone else.

Regardless of where you come down on the ideological question—perhaps you think it's fundamentally immoral for governments to exist at all, which I can respect!—it's very simple economics that such problems (where the global optimal is only achieved if we ignore individual optimization) exist.

If the rules create incentives that lead to bad outcomes, it is a problem with the rules.

I generally regard people building large buildings as a good outcome, so about the max-without-x-permit-sized buildings, I probably would not be too upset, but I would have to think about what buildings would exist in the absence of the rule.

Do you level the same criticism at people who are upset that they are employed for just less than full time? "Well you see, you voted for Barack Obama, and he spent all his political capital to pass a subsidy for the insurance industry, and as part of a compromise internal to the Democratic party that subsidy included incentives to employ people for less than full time, so really this is on you" and so on?

Find yourself an accountant. They will show you how to set it up. It is also usually decently complex enough to be a pain to do in the day to day running of it (hence the accountant).

Also up above I said 'long term low inflation' can hurt? Look at what is going on and you can figure out why suddenly we have lots of it. Think about borrowing at 2-3% and inflation is 5%.

Yes you're fully correct, in principle it should be no different financially. But for people holding straight up cash, there's a psychological hit to seeing your nominal amount of money go down due to a tax bill. If you hold $100k and it turns into $99k, then $98k, then a few years later $95k, you'll feel some drive to compensate those losses. If you hold $100k and it stays that much, a lot of people feel very comfortable and safe with keeping it just like that. (particularly in Europe where many countries don't have as much of a direct stock-investing culture traditionally, and where stocks are still seen by many as a form of gambling, or a world full of scams where only a few clever people profit, particularly the older generation).

For example in many European countries banks now charge minor negative interest (e.g. -0.5%) on your savings account (due to the negative deposit facility rate of the ECB). Suddenly there's an uptick of people who take their savings and invest it, because otherwise they'd 'lose money' and actually see their savings drop over time simply by holding it in a bank account.

However, these same people happily let that cash sit for 10 years at an inflation rate averaging 2%, losing 20% of their purchasing power in this time, responding differently to a universe in which inflation was 0% but the bank or taxes took the same 2% a year. They also happily ignored opportunity costs of various low-risk assets (e.g. a 3y savings deposit) that they could've invested in but didn't. Compared to letting the cash sit idly, the 2% inflation or 2% opportunity costs on low-risk asset-returns were happily ignored, yet when a -0.5% interest rate is charged by a bank, many spring into action. It's likely because while it may not be financially as bad, psychologically seeing $100k turn into $99k, or literally seeing interest charges being deducted from your account, feels worse than if $100k stays $100k nominally but is only worth $98k in real terms due to inflation, even though that's worse.

The fixed wealth tax works a bit similar. You have all these people who, every year, receive a tax bill, and are seeing a chunk of their savings having to be sent to the tax authorities. It inspires people to seek out financial advisers to help them compensate this. If at least you're compensating the fixed tax bill with a return on the stock market for example, it doesn't feel as painful.

Anyway that's what I'm seeing among friends/family and cobbling together from various sources, but it's just a hypothesis.