Very Rich People Pay No Taxes, Surprise!
June 9, 2021: Bezos probably needed that tax credit + rich people move to Raleigh + Raleigh wants to move elections + why Trump screwed Pat + infrastructure talks collapse + the Capitol riot cluster
+TODAY’S TOP 7
1. How the Uber Wealthy Stiff the Taxman
File this under Shocking, Not Surprising. ProPublica obtained a trove of tax records of the richest people in the U.S.—the records were almost certainly provided illegally, but that’s beside the point—and found that they pay very little in taxes compared to their wealth.
In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes.
Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row.
Because they are Not Like Us, they have access to tax-avoidance strategies we do not have. Basically, they don’t live off income, which is taxable.
Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell. … The top 25 wealthiest Americans reported $158 million in wages in 2018, according to the IRS data. That’s a mere 1.1% of what they listed on their tax forms as their total reported income. The rest mostly came from dividends and the sale of stock, bonds or other investments, which are taxed at lower rates than wages.
They don’t even have to sell these assets to benefit from them.
So how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money—lots of it.
For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax.
The tax math provides a clear incentive for this. If you own a company and take a huge salary, you’ll pay 37% in income tax on the bulk of it. Sell stock and you’ll pay 20% in capital gains tax—and lose some control over your company. But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income. Banks typically require collateral, but the wealthy have plenty of that.
In theory, if they hold on to their money until they die, the government gets its share through the estate tax. But they have ways around that, too.
It’s clear, though, from aggregate IRS data, tax research and what little trickles into the public arena about estate planning of the wealthy that they can readily escape turning over almost half of the value of their estates. Many of the richest create foundations for philanthropic giving, which provide large charitable tax deductions during their lifetimes and bypass the estate tax when they die.
Wealth managers offer clients a range of opaque and complicated trusts that allow the wealthiest Americans to give large sums to their heirs without paying estate taxes. The IRS data obtained by ProPublica gives some insight into the ultrawealthy’s estate planning, showing hundreds of these trusts.
The result is that large fortunes can pass largely intact from one generation to the next. Of the 25 richest people in America today, about a quarter are heirs: three are Waltons, two are scions of the Mars candy fortune and one is the son of Estée Lauder.
Earlier this year, Sens. Elizabeth Warren and Bernie Sanders proposed a 2% annual tax on wealth over $50 million, rising to 3% on wealth over $1 billion. During the pandemic, these uber-rich added $1.2 trillion to their fortunes.
Back-of-napkin math: Had the wealth tax been in place during the pandemic, these 25 people alone would have added about $35 billion to the Treasury. That’s nearly half of what the federal government spent on food stamps in 2020.
2. Raleigh Is Taking (Wealthy) Migrants, Not Making Babies
The six Triangle counties—counting Chatham, Franklin, and Johnston, for some reason—added 337,000 people between 2010 and 2019, about two-thirds of whom live in Wake. Mostly, these aren’t babies, but migrants.
Over the past decade, Wake saw a natural increase of 68,543 people (from births) while it saw 140,893 people move into the county. Durham had the closest to an even split between people moving in (29,512) and a natural increase (21,625).
In every other Triangle county, the number of people moving in far outpaced the number of people having children.
This surge in newcomers is one reason the region, and North Carolina overall, is seeing its population demographics rapidly getting older.
A lot of those migrants, it seems, are pretty wealthy. By moving here, they can buy a bigger house for much less than they paid wherever they came from. Good for them, bad for those trying to get into the housing market here.
An analysis from real estate data firm Zillow says that the average long-distance mover, or those movers who leave one metropolitan area for a new one, relocated into Raleigh zip codes where average home values were nearly $70,000 less from the average home price in the zip codes they were departing.
And the houses they purchased in Raleigh were much bigger, by 370 square feet, on average, than the homes they left. …
Zillow data shows that the typical Raleigh home is now worth $327,048, up 12.3% or $35,700 over last April and 1.5% since March, which is outpacing the national average that Zillow tracks. Nationally, home appreciation is up 11.6% compared to this time last year.
3. Raleigh Wants to Change Its Election Years
Delaying Raleigh’s elections until next year was inevitable. Without data from the Census Bureau, the city can’t draw new districts, and without new districts, it can’t hold elections. The data is coming in September, the elections are scheduled for October. The calendar is not on their side.
The twist is that the city council wants the legislature to permanently move their elections to even years.
The local bill Raleigh is pursuing would also change the election type from a nonpartisan election and runoff to a nonpartisan plurality. That means Raleigh’s elections will no longer be held in October and instead in November.
Upside: An election in November of an even year would definitely get better turnout than the 10–13% city council races get now.
Downside: Nonpartisan plurality elections are less than ideal. Whoever gets the most votes wins, no matter how few votes that is. So in crowded fields of five or six or seven candidates—not unheard of—winners can be chosen by less than 30% of the electorate.
4. Why Trump Knifed Walker and McCrory
I’ve been a bit busy this week—my better half’s birthday was Monday—so I missed a few things, including Donald Trump’s speech to the state Republican conference and, more important, his endorsement of Rep. Ted Budd for U.S. Senate.
What it means: This basically ends the GOP primary. Pat McCrory and Mark Walker can downplay it all they want, but when Trump says jump, MAGA asks how high.
Why Budd: As much as he tries to act like a true believer, McCrory is an old-school business Republican at his core—and besides, he criticized Trump’s efforts to overturn the election. Walker … well, he had the misfortunate to not be in Congress on Jan. 6, when Budd earned Trump’s endorsement by voting not to certify Biden’s victory. (Yes, Trump really is that uncomplicated.)
McCrory somehow winning the primary would have been the best possible outcome for Cheri Beasley or Jeff Jackson. But Budd isn’t far behind. Walker would be toughest to beat.
▶️ SPEAKING OF STORIES I MISSED
Lt. Gov. Mark Robinson had some thoughts about abortion that probably should have remained in his head. From his speech to the NCGOP Convention, courtesy of The East Carolinian:
[Robinson said] once a woman is pregnant, “it’s not your body anymore.” …
He compared the pro-choice stance of abortion in the case of incest and rape to arguments on seat belt enforcement that he had when he was younger.
“You know what that argument reminds me of? It reminds me of the argument about seatbelts. I can remember this as a young man when we were arguing whether or not we should be required to wear seatbelts or if we should wear seatbelts. I can always remember there would be one person who would say ‘what if I get stuck on the railroad tracks and my seatbelt won’t come off.’ Number one, if you are stuck on the train tracks, that is Darwin, that’s not any of my concern, that is Darwin. I cannot help you.”
One heartbeat away from the Executive Mansion, folks.
5. State House and Senate Agree on a Budget Number
$25.72 billion for the 2021-22 fiscal year.
$26.7 billion for the 2022-23 fiscal year.
No to borrowing to pay for construction projects (federal COVID money will cover that). No to Medicaid expansion. Yes to tax cuts.
Governor Cooper proposed spending $26.6 billion this fiscal year and $26.9 billion next year.
Now Republicans have to figure out how to spend that money, they figure out if Cooper will go along with it, then figure out if they want to compromise with Cooper or simply forgo a budget, as they have since 2018.
Cooper’s spox called it an “opening announcement.” (N&O)
6. The Feds Messed Up Badly on Jan. 6
A report from two Senate committees finds that the Jan. 6 Capitol insurrection was the result of a breathtakingly massive screwup.
Top federal intelligence agencies failed to adequately warn law enforcement officials before the Jan. 6 riot that pro-Trump extremists were threatening violence, including plans to “storm the Capitol,” infiltrate its tunnel system and “bring guns,” according to a new report by two Senate committees that outlines large-scale failures that contributed to the deadly assault.
An F.B.I. memo on Jan. 5 warning of people traveling to Washington for “war” at the Capitol never made its way to top law enforcement officials. The Capitol Police failed to widely circulate information its own intelligence unit had collected as early as mid-December about the threat of violence on Jan. 6, including a report that said right-wing extremist groups and supporters of President Donald J. Trump had been posting online and in far-right chat groups about gathering at the Capitol, armed with weapons, to pressure lawmakers to overturn his election loss.
7. The Infrastructure Talks Collapsed. (Who Saw That Coming, Right?)
On Tuesday, bipartisan talks between the White House and Senate Republicans led by Shelley Moore Capito over the infrastructure bill fell apart. This ending was obvious. Republicans were replaying the Obamacare Greatest Hits album: stringing Democrats along, knowing they’d bail before offering any halfway serious compromises.
To his credit, President Biden saw the game for what it was and cut it off. Or so it would seem, were it not for the fact that he’s now trying to work a new deal with a different bipartisan group.
Senate Majority Leader Charles E. Schumer (D-N.Y.) now faces a crucial decision over how to proceed. He could try to advance a measure with only Democratic votes through a process called “reconciliation,” but there would be little room for error because the Senate is split 50-50. Biden’s outreach to Republicans on Tuesday suggests he still wants to find a way to assemble a bipartisan coalition, only now it appears possible that Capito might not be part of it.
Speaking to reporters Tuesday before talks collapsed, Schumer said Democrats are proceeding on two paths.
On one track are newly emerging conversations between Biden and the bipartisan group of lawmakers, including [Democratic Sen. Krysten] Sinema and Sen. Rob Portman (R-Ohio), who are “trying to put something together that might be close to what the president needs.” It’s unclear what size that package might be. At the same time, however, Schumer said Democrats are getting to work on a reconciliation package that might only need support from Democrats, acknowledging that their party is unlikely to accomplish everything they hope in a bill crafted alongside the GOP.
“It may well be part of the bill that’ll pass will be bipartisan, and part of it will be through reconciliation,” Schumer said. “But we’re not going to sacrifice the bigness and boldness in this bill.”
That’s some weird messaging:
Hey Republicans, we want to reach a deal.
Whatever compromises you make, we’re going to roll you in reconciliation anyway.
Part of the calculus is massaging Sinema and Manchin, who have resisted pushing infrastructure through reconciliation. If either decides they won’t support a bill that doesn’t go through regular order, the Dems are screwed.