Helmsley was right about who pays taxes
Most of us would love to be Warren Buffet, or at least have even a tiny fraction of his estimated $50 billion-plus net worth - especially tomorrow, April 15, when, as the business magnate/investor/philanthropist often has stated, he will be required to pay proportionally lower taxes than the secretary he employs.
Mr. Buffett, chairman, CEO and largest shareholder of Berkshire Hathaway and consistently ranked among the world's wealthiest people, at least is up front about the inequities of the federal tax code, and has lobbied Congress (unsuccessfully) to change the laws so that the rich pay their fair share.
He also has recruited a number of other uber-wealthy individuals in his campaign, including Microsoft's Bill Gates, persuading them to pledge that major chunks of their largesse be donated to charity.
But Mr. Buffett, known as the Wizard of Omaha, is not stupid. He may decry loopholes that allow him and fellow billionaires to dodge most if not all of their taxes, but he continues to take advantage of them, as Allan Sloan, Fortune magazine's senior editor at large, reports.
"The deal involves Don Graham's Graham Holdings (formerly The Washington Post Co.) and Warren Buffett's Berkshire Hathaway, which are doing what's known in the tax biz as a cash-rich split-off. It's a way that companies can dispose of holdings on which they have big gains and emerge with cash without technically selling anything, thus incurring no tax bill. Doesn't that sound like fun?" he writes.
Mr. Sloan, who discloses that he owns shares in both companies and is a pensioner of Graham, adds, "Because cash-rich split-offs are specifically allowed by the Internal Revenue Code, Graham Holdings and Berkshire Hathaway aren't pushing boundaries; they're using something that Congress has specifically allowed. It's absurd, but it's permissible under the tax-code provisions that govern corporate spinoffs, such as the imminent non-game-playing separation of my employer, Time, from Time Warner."
The result: both companies stand to save a total of about $675 million in federal and state income taxes by going the cash-rich split-off route.
It certainly helps if you can afford not just to pay the taxes but to hire a team of lawyers and lobbyists devoted to devising, enacting and protecting legislation designed to keep the Warren Buffets of the world from involuntarily parting with their riches.
Over the years there have been any number of schemes they have taken and continue to take advantage of.
One notable example is the fact that no income means no tax. The super-wealthy structure their compensations so that they receive relatively modest salaries, but extraordinarily generous rewards in the form of real estate holdings and stock shares that aren't taxed until sold - if ever.
Confounding the adage, "Nothing is true except death and taxes," billionaires can also bequeath such holdings to spouses.
And anybody who spends even a few minutes scanning the federal tax code can find numerous laws that somehow find their ways onto the books, such as a "Cash for Clubbers" scam outlined by the Wall Street Journal in which a law to promote the development of electric cars qualified some golf carts for a federal tax credit of up to $6,500.
Such loopholes, deductions, credits and offshore tax devices allow many rich Americans and corporations to avoid paying most if not all of their taxes. As one publication noted, "between 2008 and 2011, 26 major American corporations paid nothing in federal corporate income tax, despite making $205 billion in pretax profits. In 2011 (the last year in which data is available), corporations paid just a 12.1 percent effective tax rate, the lowest in four decades. Many wealthy individuals, meanwhile, are able to drive their tax rates down below the rate paid by middle-class families. Some drive it all the way down to zero."
The late real estate magnate Leona Helmsley, whose family once owned the Empire State Building and who eventually served 19 months in prison for federal income tax invasion, perhaps said it best: "We don't pay taxes. Only the little people pay taxes."
The Day editorial board meets regularly with political, business and community leaders and convenes weekly to formulate editorial viewpoints. It is composed of President and Publisher Pat Richardson, Editorial Page Editor Paul Choiniere, retired Day editor Lisa McGinley, Managing Editor Tim Cotter and Staff Writer Julia Bergman. However, only the publisher and editorial page editor are responsible for developing the editorial opinions. The board operates independently from the Day newsroom.
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