NYT: The Nontaxpaying Affluent Grew by 15% in One Year

[DeepModem Mom]

The Nontaxpaying Affluent Grew by 15% in One Year
By DAVID CAY JOHNSTON
Published: July 1, 2005


The number of affluent individuals and married couples who paid no federal income taxes jumped more than 15 percent in 2002, to 5,650, new government data showed yesterday.

The chances of having a large income but not paying taxes on any of it are growing, according to the data, issued in the Internal Revenue Service's annual report to Congress on well-to-do Americans who live tax free. About one in every 436 high-income Americans paid no taxes in 2002, up from one in 531 in 2001 and one in 1,010 in 2000.

Over all, the top 2 percent of earners, the 2.5 million filers with income of $200,000 or more, paid almost 27 cents in taxes for each dollar of income they reported in 2002, other I.R.S. data showed. This group accounted for 53.5 percent of the income tax paid by all Americans.

Among that high-income group, however, almost 83,000, or one in 33, paid less than a dime in taxes for every dollar of income. An additional 79,000 paid less than 15 cents. The average for all Americans was 13 cents.

Congress taxes Americans on their worldwide income. Of the 5,650 individuals and couples who paid no income taxes to the United States, only 728 paid any to a foreign government, while 4,922 lived completely free of income tax....


http://www.nytimes.com/2005/07/01/national/01tax.html

[ckramer]

1. But how can they get away with it???

DU accountants explain please.

[lateo]

2. You ever hear about the "Golden Rule"?

He who has the gold makes the rules...

[Yupster]

3. It could work if

you have millions in tax free bonds and take no salary out of your business for the year.

You could just live off of your tax free dividends.

Eventually you're going to want to take some money out of your business though and then it will be taxable.

[Gormy Cuss]

4. Read this author's book "Perfectly Legal"

Johnston catalogued some of the more inventive schemes uncovered in recent years and flat out points to the "reform" of the IRS to be customer friendly as a cause --- not as many of those audits for rich folk.

[Newsjock]

5. NYT: Number of rich paying no tax is rising

http://seattlepi.nwsource.com/national/230862_rich01.html?dpfrom=thead

By DAVID CAY JOHNSTON
THE NEW YORK TIMES

The number of affluent individuals and married couples who paid no federal income taxes jumped more than 15 percent in 2002, to 5,650, new government data showed yesterday.

The chances of having a large income but not paying taxes on any of it are growing, according to the data, issued in the Internal Revenue Service's annual report to Congress on well-to-do Americans who live tax-free. About one in every 436 high-income Americans paid no taxes in 2002, up from one in 531 in 2001 and one in 1,010 in 2000.

Overall, the top 2 percent of earners, the 2.5 million filers with income of $200,000 or more, paid almost 27 cents in taxes for each dollar of income they reported in 2002, other IRS data showed. This group accounted for 53.5 percent of the income tax paid by all Americans.

Among that high-income group, however, almost 83,000, or one in 33, paid less than a dime in taxes for every dollar of income. An additional 79,000 paid less than 15 cents. The average for all Americans was 13 cents.

more

[Erika]

6. Bush's introduction of the caste system to Americans

Keep the rich richer while doing away with the middle class and squeezing out social programs for the needy. Bush's America.

[Nostradamus]

7. the rich get richer and the poor get the picture

[Psephos]

8. The good, the bad, and the ugly

Be sure to read the article.

Here are the two key paragraphs.

The IRS report said that "the most important item in eliminating tax" was taking income in the form of tax-exempt interest on state and municipal bonds. Nearly two-thirds of those who lived tax-free reported income from such bonds.

The four largest items that reduced income subject to taxation, the IRS said, were miscellaneous deductions; interest paid on borrowing to finance investments; various tax credits; and large medical bills, which can be deducted once they exceed either 7.5 percent or 10 percent of adjusted gross income, depending on the taxpayer's circumstances.


Rich people buy muni bonds to avoid tax. That's working the way it was designed, as it causes flow of money to cities who pay less interest on their borrowings than similarly-rated corporate borrowers. I don't have a problem with it. More power to 'em.

I also don't have a problem with deductions for large medical bills. Who would?

Tax credits are social engineering through tax code, so if tax credits are used in good faith, then no problem there, either. If they are used fraudulently, then it goes without saying a fie on their houses.

Deductions for interest paid on investment financing seems like a minefield to me. It only takes a few sharp lawyers to figure out how to put a lot of things into the investment column that the lawmakers never envisioned. That's not to say all such deductions are bad, only some of them. We *do* need to encourage the active investment of capital, but if we give it tax advantage, it must be an investment that clearly benefits society.

The "miscellaneous deductions" are where the loopholes are. More abuse here than all the other categories combined. It's ultimately the fault of lawmakers who piggyback loophole laws onto other bills, or horse-trade loopholes with other lawmakes to reward campaign contributors or influential constituents.

If we want to see these wealthy people buck up more tax money, the miscellaneous deductions are the low-hanging fruit.

Peace.

[teryang]

9. Figure in FICA witholding and its worse

FICA also falls less heavily on the the top 2 percent.