Brad Wardell's views about technology, politics, religion, world affairs, and all sorts of politically incorrect topics.
The hypocricy of politicians
Published on October 17, 2004 By Draginol In Business

Demographically, the Democratic party base is largely made up of two groups: The rich and the poor. If only the middle class voted, the Democratic party would become an endangered species.

Yet it's Democrats who seem most inclined to raise taxes. Why would they raise taxes if its leaders are so rich? The reason is that there are rich people and then there are rich people.  The rich portion of the Democratic base aren't people earning money in the traditional sense. They inherit it or they earn it purely on their own as a service (lawyer, actress, investor).

So why does that matter? It matters because the tax system, written by lawyers in congress, puts in loopholes that enables them to get out of having to pay significant taxes. 

John Edwards, a personal injury lawyer, made his millions by suing insurance companies on behalf of "victims". He then took 25% to 50% of the jury award for himself.  Well, not quite. John Edwards set up an S corporation that he was the sole owner of. Instead of paying Edwards a salary, he took it as a stock dividend. Dividends that are taxed at only 15% and bypass payroll taxes (which means he didn't contribute to social security, Medicaid, Medicare, etc.) for virtually all his income. This is quite common and no doubt plenty of Republicans do it too. But Edwards is one arguing to roll back the tax cuts -- a move that would have no effect on him.

Theresa Heinz Kerry has various shelters herself too.  Last year, her effective tax rate was only 12.7% and in other years has been higher but still less than 15% (the average American pays over 20% in federal taxes).  John Kerry's proposed tax cut roll-back wouldn't affect him (well not entirely true since the President does get a regular salary that can't be monkeyed with).

Most Hollywood celebrities have tax setups that are very similar.  They set themselves up as LLCs or S-corporations and then pay themselves via dividends. It is unlikely that most big name Kerry supporters in Hollywood would be affected at all by Kerry's tax-cut rollback. 

Most "rich Republicans" actually do pay a lot in taxes.  That's because they earn their money via traditional businesses. The big time sales executive at GE making $280,000 a year in commissions can't set himself up as an S-corporation. And small businesses people can't usually do the trick because they tend to have lots of other stock holders. The dividend trick is less effective if you have 600 stock holders to split it with.  Or in some cases (such as mine) where the principle stock holder refuses to engage in such flimflammery (though if Kerry wins I'll certainly reconsider it).

I support the progressive tax system. But I think we pay too high in taxes even after the tax cuts. That's because I know that many of those elites who support raising taxes can be assured that they won't be affected. After all, they don't earn their income creating products and goods for the citizenry. They make it through selling a service in the form of themselves which enables them to dodge taxes. Or they inherited it.  But don't take my word for it, consider after you read this who they most vocal Democrats tend to be. Where did they make their money?  Then consider the most vocal Republicans and where they got their money.

When I'm paying an effective federal tax rate of 29% (that's after deductions) making a fraction of what the Kerry's make, I can't help but feel a bit offended.  Until they're paying their fair share they should shut the hell up about trying to get me and millions like me to pay more.


Comments
on Oct 17, 2004
Additionally I would love to see where they could possibly cut my (a lower class wage earner) taxes. I barely pay any! Hell when I was younger and made even less as a Private the government actually used your tax money to pay me to procreate! (EIC) Hell of an article.
on Oct 17, 2004
The problem is, you are asking them to tax wealth, not income. Those who have, are trying to shut the door to so that those who want cant get in.

Any tax proposal by Kerry will exempt him and his weird wife. And his running-'mate' as well?

Sure. Shut the door after you get in and leave everyone else outside!
on Oct 17, 2004
I find it ironic that the two major tax loopholes that you seem to hate the most were opened WIDE by the Bush Administration's recent tax cuts(eliminating the Estate and Dividend taxes)
on Oct 17, 2004
I don't think Edwards inherited his money. The point is that he uses a S corp to avoid paying into SSI, Disability, etc.
on Oct 17, 2004
Which uses the elimination of the Dividend tax as part of that loophole....
on Oct 17, 2004

Bush didn't open a tax loophole that didn't exist, History. Are you really that blind? The dividend tax was designed to help investors in businesses which particularly benefited elderly investors btw.

But people like Edwards, who decry the "Two Americas" avoid paying hundreds of thousands annually in taxes by making use of them even as they argue to raise taxes in other areas.

You'll note that neither Kerry or Edwards suggested fixing that.

on Oct 17, 2004
And I never said they would Brad....

My question(and forgive my ignorance), is that the Dividend Tax cut doesn't help S-Corporations at all?
on Oct 18, 2004
Another reason not to vote for Kerry... I can't believe it.
on Oct 18, 2004
HistoryIsHere,

I'll try to summarize it for you based on my own (probably very imperfect) understanding.

The top tax rate for individuals is currently 36%, down from 39%, if I recall the tax-cut brackets correctly.
Dividends are taxed at a flat 15%, down from 20%.

- If, as a small-business owner, you pay yourself a salary of $200,000 (that's not the actual cut-off point, but since it's widely bandied about as the dividing line between "middle class" and "rich", I'll use it for example) then you will pay about $72,000 in tax on it. (Not entirely true due to the fact that our tax scale is actually progressive, but again I'm simplifying for the sake of the example.)

- If, on the other hand, you set yourself up via an S-Corporation and take no salary, but instead issue yourself $200,000 worth of dividends, you will pay $30,000 in taxes on that income.

- If you are not a small-business owner but still make $200,000 a year then you have no choice but to cough up the $72,000 in taxes.

Clearly then, being an S-Corp saves you over $40,000 in tax load.

Kerry et al. are apparently proposing to restore the pre-cut tax bracket of 39%, raising taxes on non-dividend-paid individuals from $72,000 to $78,000. They have not proposed restoring the Dividend tax rate or otherwise raising it.
on Oct 18, 2004
See, I think that was where my misunderstanding came from... Warren Buffett in attacking that particular tax cut it sound so much more.... sweeping... than that explanation makes it out to be.

Thanks for the info.
on Oct 18, 2004

See normally the dividend loophole doesn't apply because MOST real companies have many stock holders.

Very few small businesses that are S-corporations have only a single stock holder so they wouldn't pay themselves through that system.

On the other hand, a lawyer or say a celebrity (musician, actor/actress, sports star, or other single person agent) can structure their payments to go to a "company" that is just themselves and then pay themselves the dividend.  That's not a theory, that's how it's done.

So Kerry can make it out like he's for the middle class when in fact he's looking to raise taxes on small business people mainly while protecting the obscenely rich lawyers, hollywood celebreties, and sports stars.

on Oct 18, 2004
I wonder if being the sole stockholder in an S-Corporation would also limit ones personal liability in civil cases? Because that sounds exactly like something a lawyer would use too...
on Oct 18, 2004

wonder if being the sole stockholder in an S-Corporation would also limit ones personal liability in civil cases?


Actually yes it diminishes it in a lot of cases (something used quite often by very rich men, take action through a corporation set up for it and then fold the corp leaving no one to blame)