In 2009, 1,470 households reported income of more than $1 million but paid no federal income tax on it, through their use of various tax loopholes and shelters. Tax rates for millionaires have fallen by 25 percent since the mid-’90s, while one quarter of millionaires currently pay lower tax rates than the average middle-class household.
Numbers like these are the driving force behind the Buffett rule, the administration’s proposal aimed at ensuring that millionaires can’t pay lower tax rates than middle-class families. To add to the pile of evidence that such a rule is necessary, Bloomberg News ran a segment today on billionaires who manipulate the tax code to lower their tax rate all the way down to one percent:
Warren Buffett became the de facto face of the effort to increase taxes for the nation’s wealthiest when he proclaimed his secretary had a higher tax rate than he does, his being 17 percent. But the real figure for billionaires is often a lot smaller than that. Sometimes they even have a tax rate as low as 1 percent. That’s because they derive the bulk of their income from stock appreciation, and they use complicated strategies — some of them — to make sure those gains don’t get classified as taxable income. Basically what they do is enter into transactions known as “variable pre-paid forward contracts” and it can enable them to defer paying capital gains tax until a later date…Much of the wealth never converts into income on a tax return.
Watch it:
The tax code is full of provisions that help the very wealthy, like the pernicious carried interest loophole or the preferential treatment of investment income. And the end result is a tax code that advantages the 1 percent over the 99 percent.