Posted on 09/27/2003 12:01:18 PM PDT by Action-America
Sept. 26, 2003, 11:43PM
By DAVID CAY JOHNSTON
New York Times
The incomes of the top 1 percent of Americans fell 18 percent in 2001, as did their income taxes, shaving $66 billion off revenues and showing how dependent the federal government has become on its wealthiest citizens.
Overall, Americans had 2.8 percent less income in 2001 than in the previous year. But federal tax revenues fell 9.4 percent because the incomes of those at the top, who pay the highest tax rates, dropped so much more than the average.
The top 1 percent reported $1.09 trillion of income, down from $1.34 trillion in 2000, according to data posted by the Internal Revenue Service on the Internet on Friday without announcement.
The minimum income to reach the top 1 percent was $293,000 last year, down from $313,500 in 2000, but almost identical to the threshold in 1999.
The sharp decline in incomes at the top "is obviously due to the collapse of the stock market boom and the recession," said Bruce Bartlett, a senior fellow at the National Center for Policy Analysis, a lobbying group.
The combination of a sharp drop in income, if sustained for several years, and the tax cuts that were enacted this year could result in another sharp drop in taxes paid by the top 1 percent. The top rate on capital gains and dividends has been cut to 15 percent from 20 percent.
Taxes paid by the top group fell to $300.1 billion in 2001 from $366.9 billion in 2000. The decline accounted for the bulk of the $92.7 billion drop in individual federal income tax revenue in 2001.
The large drop in incomes caused the share of income taxes paid by the rich to shrink nearly a tenth. The share of total taxes paid by other groups consequently increased. The top group paid 33.9 percent of all income taxes, down from 37.4 percent in 2000.
The share paid by the next wealthiest group, the 4 percent of Americans just below the top group, grew slightly. The bottom half of Americans, the 64 million households making less than $28,000, accounted for a somewhat larger share of total taxes.
The biggest increase, however, was among those making $56,000 to $92,800, whose share of all income taxes increased to 18 percent from 16.7 percent. They accounted for a larger share of income taxes than the very wealthiest, the top tenth of 1 percent of Americans who paid 16 percent of the government's total income taxes.
Isaac Shapiro, an analyst at the nonprofit Center for Budget and Policy Priorities, said the tax rules set by Congress mean broad swings in revenues as the economy moves through good times and bad.
The IRS also released data on the top tenth of 1 percent, the most prosperous 129,000 households. This group had so much income that they made almost as much as the other nine-tenths in the top 1 percent.
This very top group, representing one in a thousand households, had $505 billion in income, for an average of $4 million each. To be counted among this group one needed an adjusted gross income of at least $1.3 million, down from $1.6 million in 2000.
This small group received almost $1 of every $12 earned by all 129 million U.S. households.
Bartlett, an advocate of lower taxes, noted that the Bush tax cuts in 2001 did not cause the drop in taxes by the wealthy.
"It is pretty clear that the tax cut played no role by the fact that the average tax rate paid by the top 1 percent actually went up slightly," he said.
This group paid 27.5 cents in taxes on each dollar of reported income, up a sliver of a penny from the previous year. This increase was caused by a drop in income from capital gains, which are taxed at a much lower rate than wages.
Overall, the tax rate fell, with Americans paying the government 14.2 cents in taxes on each dollar of income, down from 15.3 cents in 2000.
1) Slaves doesn't get paid. They're slaves.
2) Let's say that Nike does pay its workers $2. The fact that their factories are humming along means that that $2 a day is an acceptable wage to those workers. If it wasn't, why would they work there?
3) Ok, lets say that Nike pays its overseas workers $2 and sell their latest model sneaker for $120. Both you and I know there is a whole lot in between that $2 and that $120. Before you get those sneakers on the shelf at the store you gotta have a factory, R&D, workers, equipment, electricity, insurance, stores, rare material, markerting, supplies/suppliers, plumping, taxes, warehouses, transportation and shipping, taxes,union workers/wages for the US end of the shipping line, taxes,distributors, wholesalers....the list is legion.
Oh, and it's always nice if the company does make a bit money free-and-clear
Actually I think it is Delware, but I wouldn't swear that in court.
FYI:
1- Interest on municipal bonds is not taxable.
2- Interest on municipal bonds is not reported to the IRS by the payor.
3- Although interest on municipal bonds is reportable on line 8a of Form 1040 by the payee, there is no penalty or interest for not reporting it.
"lots of "legal" things are dishonest and immoral."
Many years ago - in 1934, to be exact - the IRS made the same inane claim. However, Justice Learned Hand set them straight, writing in Helvering v. Gregory, 69 F.2d 810, he said:
"Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one's taxes."
"...not even a patriotic duty..." There are numerous other cases that have established quite firmly that "tax avoidance", which is the structuring of your financial affairs, so as to pay the least amount of tax, is not only legal, but just plain common sense. "Tax evasion", on the other hand, which is the act of hiding or underreporting income, is what is illegal. It is only IRS false propaganda that has many people thinking that the two are the same.
The real problem that our onerous tax laws and anti-privacy laws, such as the (Un)Patriot Act, are causing, is that wealthy individual, who are the target of such abusive laws, are taking what they see as the last legal (notice that word - legal) option open to them - they are taking their money and leaving. Maybe oceanview has some insight that the rest of us are not privy to, but the last time that I checked, the government had not erected an iron curtain, to keep us all in.
Actually, it's fortunate that they haven't tried to close the borders. History shows us that every time in modern history, that a government tried to force the wealthy to stay, it only increased capital flight. That was the case in pre-war Germany, when the wealthy Jews were leaving, just as it was in Apartheid South Africa and more recently in Malaysia. But if the wealthy keep leaving, I wouldn't be surprised if the greedy, power addicted lawmakers in Washington, try such a futile attempt. In fact, I think that it is the fear that the government may some day try such stupidity, that is part of why the wealthy are leaving so fast today, while it's still legal to do so.
"Europe the top tax rates go as high as 80% (not to mention VAT taxes of 17%) so I dont know why anyone would run there."
Simple. Since the US is the only major country in the whole world that taxes offshore income, a person who realizes say 80% of his income from offshore sources and keeps that income offshore, will see the 70-80% territorial tax rates in countries such as France and Germany, as a significant drop in real taxes and he still has all of the conveniences of a developed country (though I have trouble thinking of either France or Germany as developed). Many high level investors move to business centers like Switzerland or Amsterdam. There is an island off the coast of Greece that is almost all wealthy American expats. If most of their income remains offshore, the local tax rate becomes immaterial.
Now that I'm older and wiser and a whole lot more cynical, I can say that about the USSA! Especially since I live in CA, where Governor Davis recently admitted that our tax scheme was overloaded toward the highest earners!!!
You won't even tolerate griping about having half of one's income confiscated! What's the matter with griping? That's not tax evasion! Theft is upsetting!!! Especially when they turn right around and use that money against you!
"...why should Stanley Tools be facilitated in manufacturing tools with foreign labor, then locating in bermuda as a tax haven, while profiting in the US market, when some other tool company makes their stuff in the USA and is not gaming the tax system offshore?"
oceanview, your envy of the wealthy is showing again. In fact, Stanley is the only major tool only company (some companies that make tools are subsidiaries of other profitable companies) that has not at least nominally left the US in recent years. The reason is that the tool business is extremely competitive and foreign tool companies have a decided tax advantage over US companies.
German and Japanese tool companies don't have to pay taxes to their home nation on earnings generated outside that country. That means that they don't have to pay taxes to their home country on profits that they make in a country with a 15-20% tax rate. US companies, on the other hand, have to make up the difference between that 15-20% tax rate and whatever their current high US tax rate is. In other words, the US company is going to have to pay at least 45% income tax on all of their earnings, regardless of where that income was generated, if not to the country where the income was generated, then to the IRS. The reason that I say, at least, is because if the foreign country taxes their income at a higher rate than the US - say 60% - then that is their tax rate, not the US 45%. The foreign company pays whatever the going tax rate is in each country, so some of their income may be taxed at 60% in one country and only 15% in another. The end result is that their total tax rate is far lower than that of a US company operating in the same countries, with the same sales, since the IRS wants an extra 25% tax from the US company, for income from a country that only has a 20% tax rate.
In a highly competitive business like the tool business, that additional 5-30%, depending on what country the income comes from, can be the difference between profit and bankruptcy. Several tool companies and other US companies in highly competitive international businesses have nominally incorporated offshore in recent years, not only to save on those taxes, but to remain competitive with their foreign counterparts. Most continue to employ US labor and keep their offices here.
However, a number of US Representatives and Senators threw a hissy fit over this entirely legal maneuver and tried for several years to pass legislation to punish US companies that nominally relocate offshore (notice that they punish companies that find a way to succede - that's liberalism). They finally got that legislation through in the post 9/11 fervor. The fools don't realize that when the next US company finds it necessary to incorporate offshore in order to compete, they will now be forced to move not only their place of incorporation, but all of their operations (can you say JOBS?) offshore, as well, to avoid being punished by that new law. In other words, they will become a truly foreign company, with a foreign home office and foreign workers. Of course, they could remain here and lose money until they are bought out by their foreign counterparts and become a truly foreign company that way. Either way, we lose. Both the Democrats and Republicans are so addicted to spending our money, that they are oblivious to the real business effects that their greed will have, so we will probably have to lose a few tens of thousands of jobs before they realize what monster their greed has wrought.
The real problem, in this case, is the global taxation of the US. Only two other countries in the world even attempt to tax extraterritorial income - Philippines and Eritrea - and they have been unable to enforce it. In all the world, only the US is so arrogant as to claim the right to tax foreign earned income and actually collect that tax. Frankly, I'm rather surprised that more international companies and investors haven't left.
"As a consequence, I have averaged $10k gross income for the last three years, which is just enough to cover my basic living expenses."
You may have been in the top earning 1% for a few years, but you certainly are not among the truly wealthy that I am talking about. I spent more than $10k on my last vacation and I took three last year. It probably costs that much in gasoline and insurance to run my Suburban for a year.
I know more than a few people who are leaving and I can guarantee you that they might spend that much on a single business meeting. I used to own a very successful import/export business and traveled all over the world in that business and today I am involved with a company that has me dealing with the wealthiest people in many countries around the world. There is one change that I have noticed in my travels in recent years. There are a lot more US expats in a lot of those countries - a whole lot more. In most small countries, 10 years ago, you would have to ask dozens of people to find out where the single bar or restaurant was, where the local American expats would gather. Today, you ask any taxi driver that question and he will ask which one you want to go to, since there are so many places like that now.
I'm talking about people like a man I met in Belize a few of years ago, who made, I'm sure, at least $2 million a year, back then. He has a home in Belize, one in Ireland and one on an island off the coast of Greece. He is a former US Marine officer who told me that the country that he left was not the country that he grew up in and proudly served. He was deeply disturbed by the fact that when he became successful, he went from being an honored patriot to being a target for every government agency that could find a way to poke their nose into his business. After two lucrative business deals in two years were bought out from under him by large corporations that learned of the deal from contacts in the US government, who leaked the content of certain filings that he was required to make, he was on the verge of leaving. Then Congress passed the Health Insurance Portability and Accountability Act (HIPAA), in which they tried to stem capital flight by punishing those wealthy people who have the audacity to leave. That law includes a provision that claims the right of the US Government to tax the income of a wealthy expatriate American for 10 years after he renounces his citizenship and is a tax paying citizen of another country (Why would the government pass such an onerous law, if they didn't already know that the wealthy are leaving?). If you don't believe it, read it. My associate told me that he saw that law as a howitzer aimed right at his pocketbook. It took him 10 months to move all of his assets offshore (out of the reach of the IRS) and acquire citizenship in at least two other countries. He has more than tripled his income since then and he hasn't looked back.
I can tell you similar stories about quite a few other US expats that I have met or talked with on the phone in the past 6 or 8 years. Most are not as prone to talk about what they make as the gentleman I mentioned above, but considering the subject of our discussions, in most cases, I can assure you that most of them have available cash in the 8 figure range - not just net worth - available cash. At least two of them have their own private jets. Another has a 180 something foot yacht on which he spends about half of his time. I can assure you that he spends more than your $10k a year in a single day on board that yacht. Chances are, that you would even recognize his name.
But, the people that I'm talking about are the people who aren't worried near as much about the level of the taxes, as they are worried about the privacy issues of being wealthy in the United States. Many high level business deals might be compromised if word got out to the wrong people before the papers are signed and they are ready to announce the deal. But, because of the IRS and other agencies that now claim the right to look into and "approve" any deal that involves more than a few thousand dollars, it is not uncommon for critical information to be leaked through one of those agencies.
Although all of the US expats that I know left prior to the (Un)Patriot Act, I know several wealthy US investors who are planning to leave as a direct result of that onerous legislation. It seems that many high level business deals are very time sensitive and each of them have lost very lucrative deals due to (Un)Patriot Act compliance delays. One deal that I am personally familiar with should have been completed in only about three days, prior to the (Un)Patriot Act. The US investor had a 30 day window to complete the deal. That window expired while the feds were giving every person involved in the deal, including several layers of brokers, a financial anal exam. I heard that the person that got the deal was European (I think he said German), who dealt in Euros, that don't move through the Fed and completed the deal in guess what time - three days. In fact, there are now many people who will not even offer a time critical deal to a US citizen or even to anyone who is offering only US dollars, since either of those things will create unacceptable (Un)Patriot Act compliance delays.
Our elected representatives in Washington, in their lust for power, control and more of our money to spend, are actually making it impossible for high level investors to function as US citizens and many are preparing to leave. The only thing that is delaying them is the time it takes for people that wealthy to move all of their assets out of reach of the IRS, before they leave (remember HIPAA? - if you leave it, it gets taxed for ten years).
And, even with all of that, I haven't even touched on the fact that the US government confiscates much more private property, per capita, every year, than any other Western nation. What it boils down to is that the more you have to lose, the more incentive you have to leave.
I congratulate you on making it into the top 1% for a few years. But, if you can live on $10k, then even if you managed to reach that top 1% for a few years, you are certainly not among the elite major taxpayers that I am talking about. You obviously just don't have that much to lose, yet. When your basic living expenses reach $100k or more and when each day or even each month, you risk millions, then I would be interested in hearing your thoughts on expatriation of the wealthy. And, should that ever happen (and it sounds like you may be headed in that direction), I would not be surprised to learn that you had changed your tune significantly, if you were still here, at all.
Unless I am missing the post you are responding to, it sounds like oceanview was talking about the status of these corporations in terms of nationality. After all, not every company in the world is considered an American company. At what point do these companies lose the advantages of being American companies, especially if they primarily consist of workers from other countries?
Oceanview said nothing of what you post. He only used the word "dishonest" without providing his reasons. When presses, he said that meant "out of the norm".
So I am still trying to determine exacty what behaviour oceanview thinks is dishonest ("out of the norm" is not dishonest.)
The questions you raise in your post are valid, and deserve to be discussed. However, they are not the questions raised by the poster in question.
Please indicate where I am making that case. I have not done so. What I have done is predict that it will happen, but I have made no case to promote such.
And audits are already a part of our system - were you not aware?
Isn't it the case that corporations should do everything legal to minimize their expenses?
Where'd you hear this?? Not doubting you, just want a source so I can use this in my own personal culture wars.
It was in the evening news a few weeks ago. He bought something like 800 acres next to a golf course, and has a residence there. Sorry, didn't record the source.
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