The hypocrisy is meant to highlight their superior position in the hierarchy of social class. Pointing out the hypocrisy means they successfully rubbed the point home into the noses of the the squawking plebs. It must be most satisfying for them to hear the cries of hypocrite, it just affirms their perch in the ranks of the elite
A common use of profit share is also for those with a family office to legally deduct investment expenses that regular people can’t via a family office. Hedge funds and private equity is incredibly expensive to administer. Cash management, tax planning, and compliance costs go through the roof. Since Trump’s 2017 tax law change these 2% floor deductions are no longer deductible at any level.
Here’s how it works. You have investment partnerships that give a family office a profit share. That profit share is never taxed by the underlying investors since it is a reduction of income not an expense no longer deductible. The family office is a legit professional services business. The profit share funds the family office and the family office can pay then deduct the legal, professional, and tax compliance expenses that wouldn’t be deductible if directly paid by the underlying investors.
Normal people can’t do it because they directly pay their financial advisors and CPAs or other tax return preparer. ETFs and mutual funds have internal fees most investors never see. Many pay less sophisticated advisors a fee on top. Even more sophisticated people that hire a financial advisor to directly invest in stocks and bonds - which offers huge tax benefits well below the ultra wealthy because you maintain control over the timing and lots sold to minimize income tax expenses - still must pay the advisory fee and their CPA directly and it’s not deductible.
There are all kinds of loopholes like this and people who cared enough to get rich tend to use them. Every time rates go up, so does complexity. It’s a full employment act for folks like me, but it’s not a good economic plan. Generally speaking “tax the rich” schemes have very little impact on the already very wealthy, but crush strivers and innovators in their tracks. They can prevent new people from becoming very wealthy by taxing away their ability to accumulate wealth. By design.
I’m not sure one can or should control other people’s ambitions in life. There is nothing moral or amoral about getting wealthy. It’s one of many aims humans can have in life, and which is achieved by those who pursue it to varying degrees of success. An acknowledgement of reality is not the same things as agreement with it. It’s very difficult to create better policies for better outcomes when discussions about reality get overtaken by faux moralization of the issue. No one is going to wish or want away reality as it is or innate human nature
Certainly some can be very outright immoral and destructive to society. The right of companies like BlackRock and State Street to use undefinable “metrics” like ESG to vote shares against the interests of the actual shareholders whom they owe a fiduciary duty to - those who are the beneficiaries of the pension plans they manage, the owners of 401(k)s, mutual funds, ETFs, etc is harmful. It’s harmful and immoral that these companies take the investments of the middle class and use them as tools to promote the policies of politicians they control and enrich themselves and their ultra-wealthy buddies by who they vote for on boards and how they direct those investments. It’s immoral that our government is so big and so centralized permanent DC chooses winners and losers on everything from baby formula to banks. It’s immoral to gain wealth by stealing ideas from others, but that didn’t stop Zuckerberg or Gates from becoming two of the wealthiest people on Earth. It’s immoral to shield money from all taxation with false claims of directing it to charity, but instead continue to control the money and use it to exert economic power and political power - the real goal of many private foundations with indefinite lives and education endowments. They don’t have to actually spend the money on the stated not-for-profit purpose, but can accumulate more wealth and power within these structures entirely tax free.
There are a lot of issues with concentration of wealth and tax avoidance, many of which can be solved by targeted policies and more effective tax systems, but which will never be solved by simply believing rich people don’t pay enough in taxes. According to Tax Foundation, over the last 5 years, the top 1% of individual income earners has averaged about 20% of the income and paid 39% of the income taxes. What isn’t included in that income figure is the trillions in private foundations and endowment wealth, generating tens of billions in net income, all together exempt from any taxation. Rather than telling Universities to spend their combined trillions in endowments educating students or building infrastructure, the government backs student loans and plumbers cover the unpaid student loans of wealthy universities while donors sitting on endowment boards ensure their private equity fundraising rounds are fully funded.
It’s neither fair nor good for society that Bill Gates and George Soros can control tens of billions in investments, but because much of it is in a “private foundation,” they can accumulate that wealth at much faster rates by completely shielding it from taxes. Putting a 10 year life on private foundations, and a spend it or tax it requirement on endowments, would do far more to even the playing field than further complicating the tax code, vilifying all rich people, or raising rates even more on those who already pay the biggest chunk of taxes.
My father, a CPA, was a lifelong activist Democrat. He often spoke of the government's ability to "lift people up" and felt using federal tax dollars for this purpose was not just legitimate, but also praiseworthy. Yet, at the same time, his tax avoidance strategies were so complex that after his death, a team of top-drawer tax attorneys had difficulty unwinding them and even understanding them. I see this sort of dissonance often among people who wish to be generous with other peoples' money.
The tax code should fit on a single page. Three different rates, kicking in at different thresholds. Maybe the elite's widespread contempt for us originates from us letting them get away with this crooked scheme?
Problem not solved. Long term capital gains are taxed at a lower rate because much of the gain is often inflation. It would prevent strivers from saving money, discourage responsible financial behavior, and ensure the only people who are ever wealthy are those who are already wealthy today.
It is not obscene the tax code favors capital investment. There is no economy without investment. Yes, gains do often exceed inflation, which is why they are taxed, just at a lower rate. Buy hey, what do I know, I am just the tax director at a family services office with people I tax plan for based in several countries and before I cut back to hang with my kids spent 15 years in multi-national income planning for large corporations. Why listen to someone like me who understands the rules, dedicated most of my adult life to mastering them, and sees how they system works daily when you can just listen to politicians who spout narratives with outcomes the opposite of what they claim will happen.
No, I work for rich people and my job is to lower their tax liability to ensure they pay every penny they own and not one penny more. It also means I see what works, and what doesn't, in terms of policies, in actual practice. I see what gives the people I work for a genuinely unfair advantage over me, and the ones that are structured for the economy to function. Even when the highest marginal rates were 90%, the 1% still paid an average, combined of all taxes (federal, state, property, etc), of around a 44% effective rate. You seem to be more intent on screwing yourself than learning how to make real effective policy changes. All the people I work for, only 1 of the 18 humans being supported by the wealth actually worked. All 18 are dedicated Democrats. I am not. You are supporting these silly narratives that are not based in economic reality. You are being a useful idiot for the ultra-wealthy. At least I'm honest about reality and getting paid to plan based on the laws as they actually are - which has nothing to do with if I agree with them (I often do not).
No buddy...you don’t know crap about policy...you know how to help rich people avoid taxes...and you nor your clients give two craps about people who work for a living
These policies of a favoring capital over work have gutted the middle class, eviscerated domestic production and turned our economy into a casino
Why do you continue to engage with this clown? He cited Piketty and that should have been a big clue. He thinks investment income should be taxed at a higher rate; truly the insane muttering of a Marxist idiot. He reminds me of Compote 2.0. A troll who doesn’t think, just a reactionary who tries to win. He is trusting that government is going to provide for him in his dotage - which could be around the corner for him.
True, he is a Marxist sheep who spews very predictable propaganda. That propaganda is something a lot of especially younger people hear, and don't know how to research or assess. I respond so that other people reading it, particularly those in an ideological bubble, are at least exposed to reality and have some questions they can go investigate and consider for themselves. Though I do have a limit after enough idiotic nonsense propaganda gets spewed, I have no issue plainly stating I am done responding to clear nonsense.
😊. I’m a curious person and on subjects I don’t understand I ask a lot of questions and read a lot of debate to try and I understand. I appreciate when people take the same approach to policies I actually understand because tax policy is more consequential to an economy functioning that many realize. The best source for understanding tax policy is by far the Tax Foundation. You can see actual data from around the globe and in the US, see who pays what, compare policy promises with observed actual outcomes, compare tax systems, etc. Second best is Tax Policy Center. Tax Policy Center engages in more ideological moralizing than Tax Foundation, and approaches tax policy from a decidedly left view so there is less “did this program actually help the people it was intended to help,” but at least Tax Policy Center, unlike much of even the financial media, uses actual data that is real to support their assertions. Finally, when both places agree a proposed policy is bad, there is a 99.9999% chance that policy is really, really bad.
Lee, you have my sustained support as a subscriber. You have been doing excellent investigative journalism for years and deserve sustained support from your many readers. These first few years on substack are important to the success of your endeavour and I hope every reader will pitch in with a paid subscription and distribute your articles so that more will subscribe. The future of journalism now depends on its readers.
One of the difficulties with an income tax is deciding what income is. Though the idea of income is clear conceptually, in practice it is cloudy, if not obscure. I cannot remember his name right now but when the original methodology for NIPA was released one of the earliest criticisms of it was how consumption expenditures are defined. Wage earners have expenses related to going to work and also perhaps clothing for work. These are counted as consumption expenditures but really they are costs of earning income. I would dare to venture that most transportation expenditures are for commuting to and from work and are not really consumption expenditures. When it comes to business income it is even more complicated and this complication is what creates a lot of things that are called loopholes.
It should also be pointed out that capital gains can be eliminated if a taxpayer has a large enough portfolio to have offsetting loses. This is why high capital gains taxes don’t harm the already wealthy but do harm savers who invest in equities or small businesses. Finally, if the rate of inflation is 5% and a person earns an investment return of 10%, the real tax rate on his earnings is higher than the statutory rate. If income is $100, real income is only $50, but taxes are paid on $100 instead of $50. A tax rate if 50% would yield a real after tax income of $0. (I am assuming a $1000 investment.)
In the end, the masters all look the same. George Orwell saw that in Animal Farm. Why should the elites, Democrat or Republican, pay their fair share? That's for little people.
I think you’re forgetting that productive, ethical high-income earners generate more absolute tax revenue, than lower wage earners. Why demonize high income earners for being productive?
Hypocisy of the highest order, matched only by his arrogance, hubris and narcissism.
The hypocrisy is meant to highlight their superior position in the hierarchy of social class. Pointing out the hypocrisy means they successfully rubbed the point home into the noses of the the squawking plebs. It must be most satisfying for them to hear the cries of hypocrite, it just affirms their perch in the ranks of the elite
A common use of profit share is also for those with a family office to legally deduct investment expenses that regular people can’t via a family office. Hedge funds and private equity is incredibly expensive to administer. Cash management, tax planning, and compliance costs go through the roof. Since Trump’s 2017 tax law change these 2% floor deductions are no longer deductible at any level.
Here’s how it works. You have investment partnerships that give a family office a profit share. That profit share is never taxed by the underlying investors since it is a reduction of income not an expense no longer deductible. The family office is a legit professional services business. The profit share funds the family office and the family office can pay then deduct the legal, professional, and tax compliance expenses that wouldn’t be deductible if directly paid by the underlying investors.
Normal people can’t do it because they directly pay their financial advisors and CPAs or other tax return preparer. ETFs and mutual funds have internal fees most investors never see. Many pay less sophisticated advisors a fee on top. Even more sophisticated people that hire a financial advisor to directly invest in stocks and bonds - which offers huge tax benefits well below the ultra wealthy because you maintain control over the timing and lots sold to minimize income tax expenses - still must pay the advisory fee and their CPA directly and it’s not deductible.
There are all kinds of loopholes like this and people who cared enough to get rich tend to use them. Every time rates go up, so does complexity. It’s a full employment act for folks like me, but it’s not a good economic plan. Generally speaking “tax the rich” schemes have very little impact on the already very wealthy, but crush strivers and innovators in their tracks. They can prevent new people from becoming very wealthy by taxing away their ability to accumulate wealth. By design.
"People who cared enough to get rich"....
Wow. Yes indeed. If only they had cared enough about something better, more worthwhile.
I’m not sure one can or should control other people’s ambitions in life. There is nothing moral or amoral about getting wealthy. It’s one of many aims humans can have in life, and which is achieved by those who pursue it to varying degrees of success. An acknowledgement of reality is not the same things as agreement with it. It’s very difficult to create better policies for better outcomes when discussions about reality get overtaken by faux moralization of the issue. No one is going to wish or want away reality as it is or innate human nature
Certainly some can be very outright immoral and destructive to society. The right of companies like BlackRock and State Street to use undefinable “metrics” like ESG to vote shares against the interests of the actual shareholders whom they owe a fiduciary duty to - those who are the beneficiaries of the pension plans they manage, the owners of 401(k)s, mutual funds, ETFs, etc is harmful. It’s harmful and immoral that these companies take the investments of the middle class and use them as tools to promote the policies of politicians they control and enrich themselves and their ultra-wealthy buddies by who they vote for on boards and how they direct those investments. It’s immoral that our government is so big and so centralized permanent DC chooses winners and losers on everything from baby formula to banks. It’s immoral to gain wealth by stealing ideas from others, but that didn’t stop Zuckerberg or Gates from becoming two of the wealthiest people on Earth. It’s immoral to shield money from all taxation with false claims of directing it to charity, but instead continue to control the money and use it to exert economic power and political power - the real goal of many private foundations with indefinite lives and education endowments. They don’t have to actually spend the money on the stated not-for-profit purpose, but can accumulate more wealth and power within these structures entirely tax free.
There are a lot of issues with concentration of wealth and tax avoidance, many of which can be solved by targeted policies and more effective tax systems, but which will never be solved by simply believing rich people don’t pay enough in taxes. According to Tax Foundation, over the last 5 years, the top 1% of individual income earners has averaged about 20% of the income and paid 39% of the income taxes. What isn’t included in that income figure is the trillions in private foundations and endowment wealth, generating tens of billions in net income, all together exempt from any taxation. Rather than telling Universities to spend their combined trillions in endowments educating students or building infrastructure, the government backs student loans and plumbers cover the unpaid student loans of wealthy universities while donors sitting on endowment boards ensure their private equity fundraising rounds are fully funded.
It’s neither fair nor good for society that Bill Gates and George Soros can control tens of billions in investments, but because much of it is in a “private foundation,” they can accumulate that wealth at much faster rates by completely shielding it from taxes. Putting a 10 year life on private foundations, and a spend it or tax it requirement on endowments, would do far more to even the playing field than further complicating the tax code, vilifying all rich people, or raising rates even more on those who already pay the biggest chunk of taxes.
My father, a CPA, was a lifelong activist Democrat. He often spoke of the government's ability to "lift people up" and felt using federal tax dollars for this purpose was not just legitimate, but also praiseworthy. Yet, at the same time, his tax avoidance strategies were so complex that after his death, a team of top-drawer tax attorneys had difficulty unwinding them and even understanding them. I see this sort of dissonance often among people who wish to be generous with other peoples' money.
I think President Jimmy Carter is the only past president who does not use these tax tools for personal gain.
Getting rich (if not rich already) after leaving office seems to be an American tradition in politics. (with Carter being an exception, perhaps)
This subscription is so worth it. I hope Lee is able to leverage the support of his subscribers to do even more.
Appreciate it, Rob
Good reporting. Interesting to see the nuts of bolts of hypocrisy.
Great reporting! I am a very happy subscriber to your Substack!
Thanks Maria
The tax code should fit on a single page. Three different rates, kicking in at different thresholds. Maybe the elite's widespread contempt for us originates from us letting them get away with this crooked scheme?
Tax capital gains at the same rate--or even higher--as wage income. Impose wealth tax
Problem solved
Problem not solved. Long term capital gains are taxed at a lower rate because much of the gain is often inflation. It would prevent strivers from saving money, discourage responsible financial behavior, and ensure the only people who are ever wealthy are those who are already wealthy today.
Umm...no...not only does the return on capital generally exceed inflation, as Piketty has shown, it significantly exceeds the rate of economic growth
It’s obscene that the tax code would favor speculators over people who actually work for a living.
It is not obscene the tax code favors capital investment. There is no economy without investment. Yes, gains do often exceed inflation, which is why they are taxed, just at a lower rate. Buy hey, what do I know, I am just the tax director at a family services office with people I tax plan for based in several countries and before I cut back to hang with my kids spent 15 years in multi-national income planning for large corporations. Why listen to someone like me who understands the rules, dedicated most of my adult life to mastering them, and sees how they system works daily when you can just listen to politicians who spout narratives with outcomes the opposite of what they claim will happen.
You mean you work for rich people and think they should be taxed at a lower rate than people who actually work for a living
Thanks for the clarification
No, I work for rich people and my job is to lower their tax liability to ensure they pay every penny they own and not one penny more. It also means I see what works, and what doesn't, in terms of policies, in actual practice. I see what gives the people I work for a genuinely unfair advantage over me, and the ones that are structured for the economy to function. Even when the highest marginal rates were 90%, the 1% still paid an average, combined of all taxes (federal, state, property, etc), of around a 44% effective rate. You seem to be more intent on screwing yourself than learning how to make real effective policy changes. All the people I work for, only 1 of the 18 humans being supported by the wealth actually worked. All 18 are dedicated Democrats. I am not. You are supporting these silly narratives that are not based in economic reality. You are being a useful idiot for the ultra-wealthy. At least I'm honest about reality and getting paid to plan based on the laws as they actually are - which has nothing to do with if I agree with them (I often do not).
No buddy...you don’t know crap about policy...you know how to help rich people avoid taxes...and you nor your clients give two craps about people who work for a living
These policies of a favoring capital over work have gutted the middle class, eviscerated domestic production and turned our economy into a casino
You also seem to forget that there is risk involved in investing. Do you risk not getting paid when you go to work?
Working people are far, far more vulnerable that people who live off of their investments
They risk life, limb, exploitation and deprivation on scale that dwarfs any potential monetary loss to investors
Why do you continue to engage with this clown? He cited Piketty and that should have been a big clue. He thinks investment income should be taxed at a higher rate; truly the insane muttering of a Marxist idiot. He reminds me of Compote 2.0. A troll who doesn’t think, just a reactionary who tries to win. He is trusting that government is going to provide for him in his dotage - which could be around the corner for him.
True, he is a Marxist sheep who spews very predictable propaganda. That propaganda is something a lot of especially younger people hear, and don't know how to research or assess. I respond so that other people reading it, particularly those in an ideological bubble, are at least exposed to reality and have some questions they can go investigate and consider for themselves. Though I do have a limit after enough idiotic nonsense propaganda gets spewed, I have no issue plainly stating I am done responding to clear nonsense.
yes thank you. it is complicated for many people. one of them is me
😊. I’m a curious person and on subjects I don’t understand I ask a lot of questions and read a lot of debate to try and I understand. I appreciate when people take the same approach to policies I actually understand because tax policy is more consequential to an economy functioning that many realize. The best source for understanding tax policy is by far the Tax Foundation. You can see actual data from around the globe and in the US, see who pays what, compare policy promises with observed actual outcomes, compare tax systems, etc. Second best is Tax Policy Center. Tax Policy Center engages in more ideological moralizing than Tax Foundation, and approaches tax policy from a decidedly left view so there is less “did this program actually help the people it was intended to help,” but at least Tax Policy Center, unlike much of even the financial media, uses actual data that is real to support their assertions. Finally, when both places agree a proposed policy is bad, there is a 99.9999% chance that policy is really, really bad.
Lee, you have my sustained support as a subscriber. You have been doing excellent investigative journalism for years and deserve sustained support from your many readers. These first few years on substack are important to the success of your endeavour and I hope every reader will pitch in with a paid subscription and distribute your articles so that more will subscribe. The future of journalism now depends on its readers.
One of the difficulties with an income tax is deciding what income is. Though the idea of income is clear conceptually, in practice it is cloudy, if not obscure. I cannot remember his name right now but when the original methodology for NIPA was released one of the earliest criticisms of it was how consumption expenditures are defined. Wage earners have expenses related to going to work and also perhaps clothing for work. These are counted as consumption expenditures but really they are costs of earning income. I would dare to venture that most transportation expenditures are for commuting to and from work and are not really consumption expenditures. When it comes to business income it is even more complicated and this complication is what creates a lot of things that are called loopholes.
It should also be pointed out that capital gains can be eliminated if a taxpayer has a large enough portfolio to have offsetting loses. This is why high capital gains taxes don’t harm the already wealthy but do harm savers who invest in equities or small businesses. Finally, if the rate of inflation is 5% and a person earns an investment return of 10%, the real tax rate on his earnings is higher than the statutory rate. If income is $100, real income is only $50, but taxes are paid on $100 instead of $50. A tax rate if 50% would yield a real after tax income of $0. (I am assuming a $1000 investment.)
Thanks Lee
In the end, the masters all look the same. George Orwell saw that in Animal Farm. Why should the elites, Democrat or Republican, pay their fair share? That's for little people.
I think you’re forgetting that productive, ethical high-income earners generate more absolute tax revenue, than lower wage earners. Why demonize high income earners for being productive?
Beachfront property....ah yes, climate change. Ill be sure to eat the bugs and get rid of my gas stove ASAP. We’re in this together.
Thank you !! “Hope and Change” fraud -- selected and nominated by his alma mater -- CIA.
Choom Gang Barry - A once and forever hypocrite.