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Saturday, April 11, 2015

Rich get government handouts, too

A floating tax shelter photographed in its natural habitat. (photo: Flickr)
A floating tax shelter photographed in its natural habitat. (photo: Flickr)

The Rich Get Government Handouts Just Like the Poor. Here Are 10 of Them.

By Emily Badger and Christopher Ingraham, The Washington Post

11 April 15
 
n case you are still skeptical that many of the non-poor — and, in fact, a lot of the rich — receive benefits from government, too (for which we don't make them pee in a cup or promise not to buy luxuries), we've rounded up some more examples below.

  1. The mortgage interest deduction for big houses and second homes. Thanks to this tax break, the 5 million households in America making more than $200,000 a year get a lot more housing aid than the 20 million households living on less than $20,000. Deductions for mortgage interest incentivize people already capable of buying big homes to buy even bigger ones. This tax break applies as well to second homes (you only get one second home though!). Note: In the eyes of the Congressional Budget Office — the official word on this in Washington — the mortgage interest deduction is equivalent to the government offering you money, not you keeping your own money.
  2. The yacht tax deduction. If you’ve got a boat and you’re paying interest on it, that interest is tax-deductible – provided your boat is really, really big. If it has sleeping quarters, a kitchen and a toilet – e.g., it is a yacht – then it can be considered a second home and any interest you pay on it is deductible. But if you just have a garden-variety fishing boat or canoe, sorry – no deduction for you.  Beyond that, if you have a yacht you can loan it out to a charter business for part of the year, and keep it for personal use the rest of the time. This allows you to deduct the purchase price, insurance, maintenance and slip fees too.
  3. Rental property. If you're a landlord, which you probably aren't if you're very low-income, you can deduct many of the expenses you incur renting a home, including repairs, advertising, HOA fees and — again — mortgage interest. If you happen to rent out either your first or second home for 14 days or less — because, for example, Augusta National Golf Club is hosting the Masters nearby — you get to just pocket all that income without paying taxes on it at all.
  4. Fancy business meals. Talking business over an expensive dinner? That's tax deductible, too, a fact that puts taxpayer spending on food stamps into relief. This is a good deal for, say, a CEO presiding over actual filet mignon at a five-star restaurant. Scott Klinger, now the director of revenue and spending policies at the Center for Effective Government, explains how this works here:Imagine that the tab for dinner and drinks for 10 executives comes to $1,600. Current tax law allows companies to deduct half of the cost of business meals — in this case, $800. With a corporate tax rate of 35 percent, each dollar of deductions yields 35 cents of tax savings — so that $800 deduction saves $280 in taxes. This means one dinner for 10 people provides more public food assistance than the $279 an average household receives in food stamps for the whole month.
  5. The capital gains tax rate. This is the big one. Taxes on investment dividends and capital gains currently max out at about 24 percent when you add in a Medicare surtax that applies to some investment income. But the top income tax rate is 39.6 percent. So investment income is taxed at a much lower rate than regular income. The annual earnings of many of the ultra-rich come from investments, not from wages. This is why Warren Buffett famously has a lower effective tax rate than his secretary.
  6. The estate tax. “The Estate Tax is a tax on your right to transfer property at your death,” according to the IRS. Without the estate tax, super-wealthy families would be able to hoard that wealth in perpetuity, becoming ever more powerful in the process. The tax, as it currently exists, only kicks in on estates worth $5.4 million or more, affecting about the top 0.2 percent of households. For everyone else in the top 1 percent, congratulations! You can pass on your riches to your heirs tax-free.
  7. Gambling loss deductions. Did you know that the government provides a generous tax deduction for literally throwing your money away? You can deduct your gambling losses up to the value of any winnings you earned. More gambling winnings mean more gambling deductions, incentivizing you to keep gambling more to at least break even. And if you’ve got more money to gamble, you’ll have more losses to deduct.
  8. The Social Security earnings limit. Social Security taxes only apply to income up to $118,500 – anything after that is Social Security tax-free. So the more money you make, the less your effective Social Security tax rate is, making this tax about as regressive as they come. Technically, of course, Social Security is a savings plan, not a tax. But the rich tend to live longer than the poor and receive benefits longer than lower-wage earners, so an adjustment to the earnings limit would help offset this difference. Social Security’s own actuaries estimate that eliminating this cap would reduce the program’s long-term deficit by about 86 percent.
  9. Retirement plans. The federal government incentivizes retirement by allowing you to reduce your taxable income by saving money in 401(k) plans or IRAs. But employer-sponsored retirement plans only benefit those people with employers that offer them (so, largely not people who work in retail or the fast-food sector). And the benefit for IRAs doesn’t help people who have no money left over for retirement after they pay their living expenses. In total, about 66 percent of these retirement subsidies go to the top 20 percent of taxpayers. Less than 1 percent go to the bottom 20 percent.
  10. Tax prep. If you have hired an accountant to help you sort through all of these tax breaks to make sure you maximize them — which the wealthy are much more likely to do — you get to write off that expense, too.

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