A few words on tax policy.

Note: This is a post I wrote in April, 2011. I had been away from tax work for two years and found that things had changed in the interim.

Tax policy may not be everyone's favorite topic. I'd rather talk merino and Magic Loop and the best way to pill a cat, but right now I am thinking about tax policy, and that is what you get.

I work on tax returns for what are euphemistically called "high net worth individuals",
  which is another way of saying "rich people". This means I am highly conversant with 1040s and the accompanying forms and schedules that are common among the rich. I can read a broker's year-end summary with aplomb, I know what goes where on a K-1, I have a passing knowledge of at-risk calculations, I rock the foreign tax credit and the haircut on dividend income from foreign mutual funds, and I used to be the recognized expert in our office on making the tax software do kiddie tax right. (We use different software now.) Rich people also tend to invest in a lot of partnerships of one kind or another and to set up trusts or some such for their kids and grandkids.

It is that last item that I want to talk about here.

Tax law has created an ever-growing and astonishisng number of vehicles for avoiding or minimizing taxes. Forget about tex benefits for the middle class. Tax law in the past 10 or 20 years has been all about the rich. A couple of well-established deduction-reducers that applied only to those whose income was north of $150,000 or so went away since 2009, the last year I did taxes. Every time I see a high-income person's itemized deductions and exemptions being subtracted 100% from their income I grit my teeth; they used to be scaled back the higher one's income was. No more.

What I see this year are trusts -- GRATs, GRITS, GSTs, CLUTs. CRTs. The "T" in each one stands for "'trust". There are grantor trusts and grantor retained annuity trusts and on and on ad nauseum.

Of the 37 tax returns I have worked on this year, 25 -- over 70% -- have been trusts. 

And every single solitary one of them was created for the sole purpose of avoiding or reducing inheritance taxes.

If the rest of this post makes your eyes glaze over -- and I cannot think of a single
reason why it wouldn't if you are not a tax accountant or attorney -- remember that one statistic. Over 70% of the tax returns I did this year were for entities that were created solely for tax avoidance or elimination.

The rich pay their attorneys and accountants thousands -- and tens of thousands -- of dollars rather than pay taxes. 

Do the attorneys and accountants create anything? Do they improve the quality of life in America? How is their labor adding to our national (or world-wide) well-being?

They do not. Their work is depleting it, in fact, because the dollars these people do not pay in taxes are therefore not available to fund schools, roads, national parks, the national debt, WIC, Head Start, public broadcasting, or anything else.

Grrrr. Maybe it is just because I am tired, or because Wisconsin is in the midst of an aggressibvel attack on unions and the middle class (Ed. note: remember, this was April, 2011), or because I am a born whiner, but right now I am fully disgusted with America.

Which is not to say I'll give up this job. It pays handsomely (some of those thousands that the rich pay their accountants trickles down to me) and, ethics aside, it is fun. I like to work with numbers and computers.

And I pay my own taxes more-or-less gladly.

 

Comments

[Soxanne]

As we say in Minnesota....Uff-da.

[Vicki]

I have occasion to look up property information at work and am seeing more and more trusts as "owners."

[Window Watcher]

Well written. Even my hippie brain can understand. Do you think they know about this in Washington?

[Big Alice]

Thanks for this. Your viewpoint is unique because of what you do.
This is one reason I cannot talk to my FIL for long. Almost all his schemes are for tax avoidance. The man has a FREAKING PENSION (who has those anymore) but he's registered as a resident of South Dakota so he (surprise!) doesn't have to pay income tax on his pension. My ILs who were looking to purchase a second house up here in the northwest. You know, for fun. GRRRR
My tiny yarn dyeing company last year had to pay taxes to Metro district (tri-county metropolitan area) for public transit. And I'm happy to support that. I like libraries and public transit and schools and everything else public money helps pay for.

[Lisa]

Grrrrrr indeed!

I just learned that we have not been adding Maine's "use tax" to our state returns. And so now we owe them... luckily there's an opportunity for forgiveness if we just send something in, and so we will, based on our top 3 years of the past 6, and on salary.

This is for items purchased outside the state that will be used within the state (including online or out of state purchases of downloaded books, games, music, clothing, liquor, etc etc etc). If we paid tax to another state, and it was less than Maine's 5%, we owe Maine the difference. I'll keep some tabs on it for this year, but I think it's just easier to pay based on maine adjusted gross income (for us always more than federal, because of state pensions-we have no social security). And we live in a state that doesn't really offer the things I need (32G bras) in stores physically within the state...

[Cindy G]

Not at all surprised. Thanks for putting it all so clearly.