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.Whether or not they really did so will only be foundby later IRS reports.About 529,000 couples and individuals reported total income of morethan $200,000 in 1986.6 The 595 who escaped tax-free are only a tiny frac-tion, so at first glance it hardly seems worthwhile to analyze them.We discuss them because they are only the tip of the iceberg.An addi-tional 33,800 of those who earned over $200,000 paid an effective tax rateof less than 15%.This fraction is less than that of a typical middle-incomefamily.These 33,800 high-income taxpayers had deductions that their brethrendid not.The average tax rate for taxpayers earning over $200,000 in 1987on their taxable income (somewhat less than AGI) was 33.4%.6 The for-tunate 33,800 paid less than half that rate.The 595 tax-free individuals in 1986 can be contrasted with the 155 non-taxpayers at the same income level castigated by Secretary Barr in 1969.Allowing for an approximately three-fold increase in income levels in theintervening years, the number of tax-free individuals has not lessened.It might even be said to have risen.These 595 individuals had an averageincome of about $600,000.Two out of three had capital gains averaging$490,000 apiece.A total of 453,000 taxpayers reported AGIs of more than $200,000 in1987.This is less than the value of 529,000 couples and individuals with164 HOW RICH IS TOO RICH?total incomes of more than this amount noted above, since total incomeis almost always greater than AGI.For these 453,000 taxpayers, theaverage capital gain (net loss) was about $155,000.Thus most of the IRS595 had capital gains much greater than their fellow high-income earners.Of the group, 118 had state tax refunds averaging $21,000.Of the294,000 taxpayers with income of over $200,000 who received state in-come tax refunds, the average was $4,800.The rest of the data on the IRS 595 is shown in Table 9.1.Almost allreceived some interest, averaging $133,000.Alimony alone, for the ninewho received it, would be sufficient to put them into the above-$200,000bracket.Few, if any, of this group have what most people would call a zero-income year.But because of the way that the tax code is written, as faras the IRS was concerned, it was a zero-income period for this select group.A LOOPHOLE IS NOT A LOOPHOLEPerhaps the most common term used by journalists to describe the draft-ing of a tax bill by Congress is "loophole." "Giveaway" is a close second.A story in late 1989 in the Wall Street Journal9 had a typical headline: "Sen-ate's Tax Panel Measure is Jammed with Billions of Dollars in Giveaways."A loophole implies something shady or mysterious, like a secret cross-ing through a mountain range.Yet the so-called loopholes created by Con-gress or other legislatures are as explicit as laws ever get.It is true that many loopholes are devised behind closed doors.Yet whenthe Wall Street Journal, the largest-circulation newspaper in the UnitedStates, can report on them in great detail, the loopholes may not be assecret as they are often pictured.Table 9.1The IRS 595 Income and Deductions8"LITTLE PEOPLE PAY TAXES" 165None of this is to justify their existence.If any tax code is to be con-sidered fair, it should be written in a general way, applicable to all tax-payers.Special provisions dealing with just a few individuals or corpora-tions should not be included.Yet they continue to be.Consider some examples from the October 1989 proposed revisions.Fortunately, not all of them were passed:1.Multi-millionaires with grandchildren could pass on up to $2 million totheir grandchildren tax free.The income from this money would accrueto the grandchildren tax free as well.This measure was proposed bySenator Bentsen of Texas, himself a millionaire and grandfather of five.2.A tax credit for ethanol-based gasoline would save Archer-Daniels-Midland Co.more than $170 million over three years.This was pushedby Senator Daschle of South Dakota.The agricultural crops in that statewould be a prime beneficiary of the provision.3.Pennsylvania is a center of tuxedo manufacture.Senator Heinz of thatstate proposed that tuxedos be fully depreciated for tax purposes in twoor three years, rather than the five years that the present tax code re-quires.The cost of this change to the government was not estimated.These provisions are loopholes in the sense that a particular industry,company, or tiny group of individuals (millionaire grandparents) has beenfavored.They are not loopholes in the sense of being completely secretuntil a clever tax lawyer, burning the midnight oil, stumbles across them.GIMME SHELTER A BEGINNINGTax shelters did not spring up like mushrooms after a rain in the 1980s,with the start of the Reagan administration.Shelters go back to the begin-ning of the first primitive tax systems.It is only the name that has re-ceived all the publicity in recent years.By the administration of Franklin Roosevelt, even with a Federal govern-ment revenue less than a hundredth of what it is today, shelters werecommon.The president, in a 1935 press conference, referring to onewealthy family that had 197 trusts (one type of tax shelter prevalent inthose days) said, "They are a very thrifty family [ Pobierz całość w formacie PDF ]