tag:blogger.com,1999:blog-7481330.post108959190951206047..comments2023-10-24T11:05:25.288-04:00Comments on Mark Rauterkus & Running Mates ponder current events: Fox Chapel SettingMark Rauterkushttp://www.blogger.com/profile/17157914569686528007noreply@blogger.comBlogger1125tag:blogger.com,1999:blog-7481330.post-1089857185334014822004-07-14T22:06:00.000-04:002004-07-14T22:06:00.000-04:00Liberal Loopholes * The Wall Street Journal
Tuesd...Liberal Loopholes * The Wall Street Journal<br /><br />Tuesday, July 13, 2004<br /><br />REVIEW & OUTLOOK (Editorial)<br /><br />In embracing John Edwards, John Kerry has also<br />endorsed his populist "two Americas" rhetoric and has<br />put tax increases at the center of the election<br />campaign. So it's fair to ask the two Democrats: How<br />much of those tax increases will actually hit the<br />super-rich like yourselves, and how much will end up<br />on the backs of upper middle-class wage earners? For<br />an answer, let's look at what the two Senators have<br />themselves been paying in taxes. It turns out that the<br />Kerrys and Edwards have exploited plenty of tax<br />loopholes over the years. Of course, nobody is<br />obligated to pay more than what the letter of the law<br />requires. But the complex tax code benefits the<br />wealthy, who can afford tax attorneys and complicated<br />schemes to skirt the law. And high marginal rates give<br />them plenty of incentive to do so.<br /><br />Senator Edwards talks about the need to provide health<br />care for all, but that didn't stop him from using a<br />clever tax dodge to avoid paying $591,000 into the<br />Medicare system. While making his fortune as a trial<br />lawyer in 1995, he formed what is known as a<br />"subchapter S" corporation, with himself as the sole<br />shareholder.<br /><br />Instead of taking his $26.9 million in earnings<br />directly in the following four years, he paid himself<br />a salary of $360,000 a year and took the rest as<br />corporate dividends. Since salary is subject to 2.9%<br />Medicare tax but dividends aren't, that meant he<br />shielded more than 90% of his income. That's not<br />necessarily illegal, but dodging such a large chunk of<br />employment tax skates perilously close to the line.<br /><br />The Internal Revenue Service takes a dim view of such<br />operations and "may collapse the structure entirely<br />and argue the S corporation is not truly a separate<br />entity," in the words of Tax Adviser magazine.<br />Attorney CPA magazine lists it as No. 11 of its "15<br />best underutilized tax loopholes," but warns that the<br />IRS "has successfully litigated cases against<br />individuals, particularly sole shareholders of<br />personal service S corporations, reclassifying such<br />deemed distributions as wages subject to social<br />security taxes."<br /><br />As a political matter, the dodge is especially<br />hypocritical because the income limits on which<br />Medicare taxes are paid were lifted by Democrats in<br />1993 specifically to hit "the rich," as Mr. Edwards<br />likes to call people in his tax bracket. And the<br />supreme irony? Mr. Edwards has claimed that he set up<br />the subchapter S company to protect himself from legal<br />liability. You know it's time for tort reform when<br />even the trial lawyers say they're afraid of getting<br />sued.<br /><br />Senator Kerry's personal finances are not so<br />complicated, since most of his income comes from his<br />government salary and a modest inheritance. But he<br />owes his jet-setting lifestyle and indeed some of his<br />political success to the wealth of his wife, Teresa<br />Heinz Kerry. Her personal assets have been estimated<br />at up to $3.2 billion, and the couple travel among<br />their five houses scattered around the U.S. on a $35<br />million Gulfstream V jet. During a tough election for<br />the Senate in 1996, Mr. Kerry sidestepped a<br />gentleman's agreement with opponent William Weld to<br />limit the spending of personal wealth on either side<br />to $500,000 by having his campaign borrow $1.7 million<br />from his wife.<br /><br />Mrs. Heinz Kerry's finances remain largely a closed<br />book, since she has so far refused to release her tax<br />returns. What we do know so far is that she has<br />prepaid $750,000 in federal taxes on $5.1 million in<br />income for 2003 -- an effective tax rate of 15%. That<br />is because a significant portion of the income came<br />from tax-free municipal bonds, which is perfectly<br />legal.<br /><br />Even so, her net income must be much higher. We know<br />that since the death of her husband John Heinz in<br />1991, Mrs. Heinz Kerry has invested shrewdly and<br />possibly even doubled her inheritance. Even if one<br />takes a conservative estimate of her net worth, say $1<br />billion, an income of $5.1 million means a paltry<br />return of just 0.5%. More likely, the majority of her<br />investment income is sheltered within trusts so that<br />tax is deferred until she or her family actually wants<br />to spend it. Again, perfectly legal, but this is a<br />luxury that the average middle-class professional<br />working for a wage does not have. These are the<br />non-rich who will pay the bulk of any Kerry tax<br />increase.<br /><br />So when John Kerry and John Edwards say that they want<br />to tax the wealthiest Americans, let's be clear about<br />what they really mean. They want to tax the most<br />productive people at higher marginal rates and close<br />loopholes for corporations, while they themselves<br />dodge taxes by exploiting loopholes they plan to<br />preserve.<br /><br />Mr. Edwards is right that there really are two<br />Americas. The people who work for their money and want<br />to keep more of their own paychecks. And wealthy<br />politicians who want to raise taxes on the middle<br />class secure in the knowledge that they won't have to<br />payAnonymousnoreply@blogger.com