Sure they do. Looking forward to the press finding out the identity and ideological agenda of the folk(s) who accessed these tax returns.
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Seems to me that the correlation is tenuous at best, forced narrative at worst. Texas was actually middle of the pack in % AGI gained and still is one of the less favorable states for total taxation level so the migrations could well be explained by many other things than income tax rate.
IMO what would be more useful is correlation with state tax law changes across the same states. If tax laws havenât changed dramatically, attributing AGI gains to tax levels seems a bit random. What would also have been nice is looking at how each state total tax revenues changed as result of migration. If you gained AGI but lowered taxes, revenues could still be neutral or decreasing. For example, AGI gains have no direct impact for states that do not have income tax.
Certainly lack of state income tax may be a factor for some moving to FL or NV (or some snow birds electing to become residents of these states by spending half the year there). But itâs also far from the only one. Take AK which has no state tax and was the second largest tax base loser in % AGI. Vice versa the biggest gainer in % AGI was Idaho which does have income tax.
Hereâs another site that compiled taxation levels across states. Bottom line, the picture is more complicated when you look at total taxation levels. Wallet Hub Best/Worst States for taxation
I think this is the part that grates most people including myself. Borrowing to fund lifestyle is IMO the most glaring loophole and one which Iâd look to plug first if I were after raising tax revenues. Maybe via a consumption tax so that at least what they spend on lifestyle gets taxed. Donations to your own foundation is another layer of cheese on this wealthy tax avoidance playbook. Cap deductions from charitable donations to a low number like $1M/yr and youâd see this nonsense disappear. Iâd rather see them plug these two loopholes than hike rates on capital gains or play around with a wealth tax, stock market transaction tax, etc.
I think whatâs driving a lot of the moves is the combination of
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itâs the rich who can easily move, esp with remote work / covid, so tax policy on the high end matters most, and
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the removal of the SALT deduction at the Federal level significantly increased the net cost of living in a high tax rate state, since for those paying 1/3 of their income in federal taxes, this corresponded to a 33% discount on their state tax bills (and a corresponding subsidy to those high tax states).
With that discount gone, a hypothetical 37% Fed + 13% state such as NYC/CA would have a 50% marginal rate now, but with the SALT deduction that would be only 45%. Thatâs a 10% raise on your after tax take home for leaving some states that seem to be having crime and fiscal problems anywayâŚ
While TX has other taxes (no income tax but property, sales etc), the combination of the lower property values compared to expensive high COL states where many rich people live (NYC, SF, Seattle) means that even if the % property tax rate is similar or even higher, the absolute dollars could well be significantly lower given the lower valuations. Likewise, sales tax matters less for those with lots of money since most of their money isnât getting spent.
Bidenâs estate tax implications. Real estate especially gets hit on death.
https://www.wsj.com/articles/bidens-new-death-tax-and-a-new-york-widow-11623616078?mod=hp_opin_pos_3
The American Families Plan would result in negative value at death for many long-held leveraged real-estate assets. Ignoring the exemptions, if a $12 million estate included a long-held building with a fair market value of $5 million, debt of $4 million and a tax basis of $900,000, the capital gains tax at death would be nearly $1.7 million. The $672,800 in excess of the fair-market value after debt would be a liability against the remaining estate.
Scenarios in which the new death tax would significantly reduce, nearly eliminate or even totally eliminate the net worth of decedents who invested and held real estate for decades wouldnât be uncommon.
Now consider an actual couple who would likely escape the new tax entirely. Joe and Jill Biden have an estimated net worth of $8 million, according to Forbes. Mr. Bidenâs disclosures indicate that their assets consist of two personal residences along with several annuities and life insurance policies. The only assets that would be subject to a capital-gains tax at death would be their two homes, the appreciation on which likely amounts to less than the $2.5 million in exemptions for a married couple.
If you think taxing unrealized gains, on death or otherwise, looks bad now, wait til inflation from all those federal trillions shows up. The headline 40-50% wealth confiscation rate could be much higher on a real, inflation adjusted basis.
Could anyone run the numbers of what the estate looks like practically? Iâm reading this as a $12M estate with a $5M McMansion with a $4M mortgage. Thatâd still leave a consider amount of other assets in the estate for heirs to inherit.
And just for perspective, whatâs the percentile of that $12M estate in the US? I thought net worths over $11M were 99th percentile in 2017 based on Federal reserve data. If you extrapolate that to estate sizes, Iâd assume that the âmodestâ $12M estate is close to top 1% of estates. Even $8M estate like the Bidensâ would probably be considered pretty wealthy by most and yet theyâd be able to avoid capital gain tax on death. If $12M unfavorably-structured estate is the threshold above which you may start feeling a hit on multi-generational wealth, maybe Iâm fine with it. Besides, Iâm sure these estates would get competent lawyers to structure the estate differently to be able to escape most of the tax if that law came into effect.
More tax changes proposed, various trusts targeted.
Bidenâs so-called âGreen Book,â the Treasury document laying out these details, specifically takes aim at dynasty trusts â vehicles that are able to exist for generations without incurring gift, estate, or generation-skipping transfer taxes. The proposal would force trusts to pay capital gains tax on appreciated assets every 90 years, but itâs drafted in a way that would impose taxes as early as Dec. 31, 2030.
Bidenâs proposed plan would also charge a capital gains tax when assets are transferred into, or distributed from, certain kinds of trusts. A Treasury official said that aspect of the plan specifically targets tools like the intentionally defective grantor trust â a common, if complicated, technique that can allow the wealthy to move money out of their taxable estates to benefit heirs.
The measures are designed to plug potential loopholes in Bidenâs plans to boost capital gains taxes on the wealthy to ordinary income rates, and to tax gifts and large unrealized gains at death. The president has also proposed raising levies on corporations and increasing the enforcement budget of the IRS.
The ProPublica PR campaign for higher taxes on the Evil Rich continues. First they leaked a bunch of illegally obtained tax returns from rich people and made up a fake âtrue tax rateâ which had nothing to do with the laws to highlight the fact you donât owe taxes on unrealized investment gains.
Next they targeted conservative tech investor Peter Thiel for the sin of making good investments in his Roth IRA (Paypal, Facebook, and Palantir successively), claiming his Roth IRA with several billion in it was a tax shelter and should be taxed somehow.
Now theyâre targeting sports team owners, claiming they get some special tax break when really itâs just depreciation on the purchased asset in the same way if you buy a real estate investment property you get depreciation write off each year independent of realized cashflow from rent. Sure, this is nice in front loading the deductions, but all that depreciation is due and taxable when you sell (unless you own it until you die). Near they end, they admitâŚ
Advocates for team owners point out that when owners sell their teams, they have to pay back the taxes they avoided by using amortization. But even if owners ultimately repay the taxes they skipped, deferring payment of those taxes for years, sometimes decades, essentially amounts to an interest-free loan from taxpayers. An owner could reap huge gains by investing that money.
Not at 0% risk free rates they couldnât. Regardless, the campaign against the Evil Rich must continue until they can raise taxes enough for a multi-trillion Green New Deal and lots more IRS funding so the enemies of the current administration can be preferentially investigated. Bring Lois Lerner out of retirement!
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Hey! The money for those reparations has to come from somebody.
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Wouldnât be possible to set a limit to the tax-free growth of Roth IRAs? If the intent of IRAs is to build retirement nest eggs - as evidenced by the capped annual contribution limits -, maybe a limit on how much they could hold in tax-free fashion could be implemented. If your Roth IRA balance is less than say $20M or $50M, your withdrawals and gains are tax-free. If your balance is over that $20M or $50 limit, the excess over that limit is treated as if it were a normal taxable account on which you pay capital gain annually. This way, you donât penalize very smart investors who grew their Roth IRAs with amazing returns and built themselves a more than comfortable nest egg, but you donât allow these accounts to grow way beyond their intended purpose just because a few found exploitable loopholes.
But they didnât exploit any loopholes. They paid their taxes up front, as is required for Rothâs, and they invested well and per the Roth terms, those profits are tax free if taken out at retirement age or under a few other circumstances. Thiel put in $2k when his salary was $70k and he was under the Roth contribution limit back before they had Roth conversions just like I used to. He just helped start multiple multi-billion dollar companiesâŚ
Sure the government can change the rules and just steal all the money in the Rothâs over $1M (good enough for your retirement, peon), just like they can steal all the money from white folks for slavery reparations or print trillions of virtual dollars to pay for wildly uncontrolled spending (because âcovidâ, or âclimate changeâ or whatever) and have the USD follow Zimbabwe into hyperinflation, but that doesnât really follow the rule of law or the standards of fairness where retroactive changes to tax policy are frowned upon if not actually disallowed.
But all those progressive wish lists wonât pay for themselves, so someone leaked all the billionaire tax returns to these guys and they keep running dishonest hit jobs to try to gin up anti-rich sentiment and try to pass super high taxes so the government can be an even bigger part of our lives than it is now.
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Loophole does not mean illegal. Having shell companies accounts off-shore is often not illegal either. Youâre defending the legality of what Thiel did which is not debatable. Iâm sure heâs been audited for it multiple times even so itâs for sure 100% legal.
But that does not mean that it validates that the Roth IRA vehicle should be allowed to hold assets of $5B and stay true to its original purpose. The annual contribution limit and the annual income contribution threshold clearly point to a purpose of not building massive generational wealth in those. For comparison, if one invested $6k/yr and got 20% annual returns (which is seriously beating any market) over 40 years, theyâd have built a $5.3M Roth IRA. Even in that unlikely scenario, theyâd have accumulated only 0.1% of what Thiel did in half the time.
We can argue over what an acceptable limit should be. The $1M figure you mentioned for hyperbole is too low IMO since absent other income streams, you could not support much of a lifestyle with it. Limit should be something very generous and indexed on inflation. Personally, I think $10-20M per person would be large enough that anyone could maintain a very wealthy lifestyle. At 3% withdrawal rate, even only $10M would generate $300k/yr tax-free income stream which would be 97-98th percentile of all incomes in 2020. Making the limit $20M or more would guarantee only very wealthy individuals hit that limit in rare scenarios. In any case, exact limit is negotiable but lack of any limit to the tax-free benefit sounds like a loophole to me. I cannot think of a fair argument to keep that capless tax-exemption feature, certainly not from pity for Thiel et al whoâd have to pay capital gains on multi-billion fortunes. And I donât see such a tax-free limit on Roth IRAs dissuading others from trying to follow in Thielâs footsteps (investing in startups) either. I think heâd live ok paying capital gains on $5B going forward.
My main fear is more doing nothing about these loopholes and continuing to promote ever increasing wealth gaps. Anti-rich sentiment does not come out of nowhere. The inequality is there for all to see, leaks or not. Sure the media feeds it but itâs hard for me to argue that itâd be better if this kind of stuff was not out in the open. But for me, the risk for the US is more that of eventually mirroring Venezuela because a majority of the population is so pissed off by the inequality that they go full socialism/communism and ruin the country long-term. To me, thatâs not a remote scenario. Possibly one senate fillibuster repeal away in fact. And IMO doing nothing about these blatant loopholes and pretending everything is fine and dandy in the country, feeds into the sentiment that drastic measures are the only solution to curbing the growth of wealth inequality.
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Indeed not - America is (was?) a place where everyone aspired to get rich themselves, and hence they supported more capitalist laws than they might have if we were a nation of pessimists or socialists. And this is why weâve succeeded far more than the rest of the Western world in terms of both wealth and freedoms.
So the progressive press has to create that anti-rich sentiment by lying about things and making it seem like the rich are cheating when they arenât, which is very much the theme of these recent articles even tho the laws they cite apply to everyone (no tax on paper profits, depreciation on investment property, IRAâs being tax free if you follow the rules, etc). They want to make it sound like following the rules when youâre rich is somehow Evil when doing the same thing as a less wealthy person is just fine.
The same types of people in the press played up a certain fake dossier and a Russian collusion narrative that were not only false but known to be false by all the relevant parties espousing them. This is no different, except here laws were actually broken to further their deceptions.
The rich arenât âjust following the rulesâ. They are also making the rules.
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The IRA rules werenât written for the rich or they wouldnât have had a non-inflation adjusted $2,000 contribution limits for decades. The fact someone out there turned their few thousand of IRA contributions into billions is a combination of luck and good investing, and should be celebrated rather than demonized. Anyone who makes that much has created very valuable, successful businesses that employ lots of people and provide valuable products or services to their customers.
I could tell you the story of how I turned $0.22 into over $4k in about a year, but somehow that would be more impressive if it had another 4 zeros after it⌠making money in scale definitely gets harder.
I donât agree that the press is solely responsible for the rise of resentment towards the extremely wealthy. Maybe for the rise in awareness though. But this is not a wag the dog campaign without any basis. The leaks have not been denied as reporting erroneous facts, only inconvenient ones for those whoâd prefer to keep their wealth and effective tax rate private. Theyâre not making up that Thiel pays no tax on a very large portion of his net worth.
So IMO the press simply highlight - for fun and profit since it sells well with the masses - exhibits A, B, C⌠of why measures of inequality (Gini coefficient, Lorenz curve, Palma ratio, etcâŚ) point the way they do regardless of which you use.
Where the press fails regularly though is on offering potential workable solutions to what they expose. They do seem more interested in building up outrage for pushing clicks and ads than suggesting realistic improvements to what caused the inequalities in the first place.
I concur with celebrating his success, just not the total lack of taxation on his billions of wealth. And I donât blame him for abusing the system either. Iâd totally do the same if I were in his position. But all the limitations on Roth IRAs were put in place to prevent too much sheltering of wealth/income from taxation. The fact that the intent was utterly defeated by some is not something worth celebrating, it simply proves that the law was not designed carefully enough to enforce its intent through all potential scenarios and thus requires changes to account for these.
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They said:
Yet, from the start, a small number of entrepreneurs, like Thiel, made an end run around the rules: Open a Roth with $2,000 or less. Get a sweetheart deal to buy a stake in a startup that has a good chance of one day exploding in value.
How much you want to bet that he did not invest in startups that had a good chance of of one day exploding in value, but he rather invested in a bunch of startups, the vast majority of which turned into $0.00, but he got very lucky with just a few investments? Meaning he took a huge risk that most people donât do with their retirement accounts, for good reason.
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If I was a gambler, Iâd bet that he invested exactly in things that were set to explode. And by that I mean undervalued pre-IPO private shares of something that was already making money and was certain to go public.
Youâd lose that bet. Hereâs the early history
From an eBay sec filing,
PayPal, Inc. was incorporated in Delaware in March 1999. In 2002, PayPal, Inc. was acquired by eBayâŚ
They didnât even have their Delaware corporation yet when he bought his shares. They didnât even have a working product until July 1999 and launched it to the public in Sept.
It was the Tech bubble and everything was going crazy. Hereâs more of early company history -
https://www.thestreet.com/technology/history-of-paypal-15062744
PayPalâs growth path rose in the companyâs early years, and soon it began racking up some impressive growth benchmarks along the way.
August 1998 . Peter Thiel meets Max Levchin after Thiel gives a speech at Stanford University on global market opportunities. Later that year they come with the idea of digital wallets.
December 1998 . PayPal is founded, although its original name is Confinity.
October 1999 . A company engineer produces an email-based payment technology.
January 2000 . PayPalâs founders and managers notice that end users are out there on the Internet asking commercial partners and other buyers to sign up for PayPal, to foster quicker payments. Almost immediately, PayPal paves the way for eBay payments on the site, giving PayPal a significant user-base boost.
March, 2000 . PayPal clears the 1 million customer mark.
Hereâs an employee telling the story of how he joined as a CSR in the fall of 1999 and got $0.07 stock options.
Things were moving so fast â I worked there for a week, and then we moved to a bigger office on Embarcadero Road.
When I started out as a customer-service representative I made $32,000 a year plus stock options. That was a pretty decent customer-service salary, and the promise of stock options was the big selling point.
The two brothers who brought me in, Damon and Jason Billion, were very nice and friendly. They got to me in a hurry too â I told them I had to think about it, and they said I needed to sign the contract in a day or two, as the options would be reevaluated.
If I waited another week, the options would have been priced differently with the additional funding we were about to secure⌠I was told by Damon Billion that if I joined immediately, I would get another significant percentage of the company.
At the same time, I remember being told we were losing $60,000 a monthâbut that could only have happened in that meeting, because in Eric Jacksonâs book âPayPal Wars: Battle with eBay, the Media, the According to âMafia, and the Restâ of Planet Earth, âWe were losing $150,000 every day from simple business operations. So we had to raise more money or go out of business.
So much for being âalready profitableâ. As for âundervaluedâ, if Thiel paid $0.001/share at the start, before they had anything more than an idea, and now theyâve got a working product and are giving (likely out of the money) entry level employee stock options out at $0.07, Iâm not sure you can say the stock was âundervaluedâ at the time he bought in, just that they had made big gains in terms of fundraising in the tech boom and successful product development that was by no means guaranteed to work.
And hereâs a quote from a tax commenter on these early venture shares generally
IRS went through a lengthy saga of trying to litigate valuation and taxation of equity interests with purely speculative value in the context of partnership profits interests issued to service providers (often referred to colloquially as âcarried interestâ). After getting beat up in court, they gave up and issued a pair of safe harbors that effectively treat these as having zero value when issued. It is very hard for them to establish high valuations for speculative interests and courts have been pretty skeptical of leaning purely on hindsight. Founderâs shares present related issues (all the time, not just when held in a Roth IRA) that may be even harder for the IRS to win, and I donât think they have been looking to fight this battle again.
You really have to read anything from ProPublica with the assumption itâs full of lies by omission and innuendo, not trying to present the unbiased facts about a situation.
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So heâs way smarter than every single venture capitalist firm in the world specifically with his Roth money?