Actually, it already has been destroyed. Despite declaring $18 billion in profits in 2010, Apple paid just 17 percent in federal taxes. It socked away another $74 billion offshore and tax-free. Who covers the difference when Apple pretends to be Irish? That would be you.


9. How to lower your taxes by sitting on your ass.

Back in the 1970s, "hard work" wasn't just something candidates yammered about during campaigns. It was actually imbedded in the tax code. Capital gains — investment income created by things like stock dividends — were taxed at a higher rate than wage income for a very simple reason.

Thanks to the luxury sailing industry, taxpayers helped subsidize Microsoft co-founder Paul Allen’s $200 million yacht, Octopus.
Wikimedia Commons
Thanks to the luxury sailing industry, taxpayers helped subsidize Microsoft co-founder Paul Allen’s $200 million yacht, Octopus.
Republican presidential nominee Mitt Romney is the poster child of off-shore tax schemes.
Austen Hufford/Creatives Commons
Republican presidential nominee Mitt Romney is the poster child of off-shore tax schemes.

"The theory was that it was tougher to dig a ditch than to watch somebody do it," says Robert McIntyre, director of Citizens for Tax Justice.

Even Ronald Reagan knew that someone shouldn't pay less for sitting on his ass. He made the capital gains tax the same as the highest personal rate.

But heavy protection payments have since whittled that notion of "hard work" down to a toothpick. George W. Bush finally hacked it to its current low of just 15 percent.

Officially, the theory is that lowering capital gains will spur investment, creating new companies, new jobs, and prosperity for all. But most economists have found it does little to spur savings and investment.

What it does do is deliver a fortune to investment bankers and financiers like Romney and Warren Buffett, both of whom pay lower rates than their secretaries.

Over 70 percent of the $100 billion that capital gains tax breaks cost the government each year goes to those with incomes in excess of $1 million, according the Joint Committee on Taxation. Even more shocking, the 400 highest-income Americans received 16 percent of all net capital gains in 2009, a total of $37 billion. Rep. Sander Levin (D-Mich.) has tried to shear this golden lamb by requiring those taking capital gains breaks to prove they actually invested. Yet Dave Camp, (R-Mich.), chairman of the House Ways and Means Committee, has blocked the bill from ever coming up for a vote.

It's probably just coincidence that since Camp entered Congress in 1998, he's taken a whopping $631,916 from the financial industry. Camp did not respond to repeated interview requests.


8. The Sheryl Crow loophole.

It pays to have low friends in high places. Six years ago, legislators from Tennessee, Kentucky, and Texas wanted to reward the musicians providing the star power to their fundraisers. So they passed a law allowing songwriters to avoid income taxes and sell their publishing catalogs at capital gains rates.

Suddenly, Nashville's elite could not only avoid the taxes everyone else must pay, they could also skirt their Social Security and Medicare bills. Three years later, Sheryl Crow sold her publishing rights to one of Australia's largest banks for nearly $10 million. Her estimated savings courtesy of this congressional giveaway: $2 million.

The law, however, curiously omitted other creative types who weren't playing politicians' rallies. Authors, for example, still must pay standard income taxes for selling their copyrights. The same goes for painters, photographers, screenwriters, and sculptors.


7. Getting rich, Facebook style.

Before Facebook offered its first publicly sold stock in May, CEO Mark Zuckerberg grabbed 120 million shares for himself, then threw another 67 million shares to his employees. It may have seemed an unusual act of generosity for a man not known for his grace. That's because it was also a multi-billion-dollar tax scam.

The public paid $38 a share for Facebook stock in initial trading. Yet via a sweet little loophole created by Congress, Zuckerberg claimed the shares he gave employees were worth just 6 cents apiece. By law, Facebook was allowed to deduct the difference — over $7 billion — as a business expense.

In reality, the employee giveaway cost Facebook nothing, neither expanding the company's expenses nor increasing its liabilities. McIntyre compares it to an airline letting workers fly free in seats that would otherwise have been empty. The airlines don't receive a break because it doesn't cost them anything.

But thanks to some inventive paper-shuffling, Facebook will receive a $500 million tax refund next year.

A similar loophole encourages companies to offer executives those bloated compensation packages. When CEO wages began to spur outrage in the early Clinton years, Congress decided that companies could no longer deduct executive salaries over $1 million as a business expense.

But it also created a loophole that rendered its crackdown meaningless. Exempted were "performance-based" bonuses that surpass that $1 million threshold. A grand new corporate giveaway was born.

Suddenly, CEOs were being slathered with stock options. Companies expensed the giveaway without ever opening their wallets, leaving taxpayers to subsidize caviar compensation plans.

Last year, the five highest-paid CEOs collectively took home $232 million — while their companies received a tidy $81 million in tax breaks.


6. My other home's a yacht.

Established in 1913, the mortgage interest deduction is one of the oldest and most sacred breaks in the code. It's meant to encourage home ownership and stabilize communities.

It doesn't really work, since most people will buy homes whether they receive a break or not. Countries like Australia and Canada have similar ownership rates to ours without offering the deduction.

But at least Congress back in 1913 occasionally tried to do something beneficial to the country. Today's Washington is more interested in exploiting such beneficence.

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22 comments
rgracom
rgracom

No wonder everything is made overseas!! Thats where the money goes...... and stays!! Close these black holes now!! Excellent reporting!! You never really know just how badly your gettin' screwed until someone steps up and says "what the hell is this?"

mtnplover
mtnplover

This is a refreshing article about tax policy that describes some of the tricks used by tens of thousands of companies and wealthy individuals to reduce their tax obligations. The techniques described are a little broad and overstated, but for a relatively short, well-explained article about complex tax issues, the author should be highly commended.

 

Most of the "loopholes" described involve tax deductions, which is one reason to support a gross receipts tax. It's fairly difficult to evade any tax based on gross receipts. Questionable tax deductions and loopholes are irrelevent under a gross receipts tax system and progressive tax rates can apply by exempting small businesses and taxing the largest businesses higher tax rates.

 

Another discussion worth having is whether any company or corporation actually "pays" taxes. My thought is that only "people" pay taxes. Thus, any taxes imposed on a business are actually paid by the business owners, employees, and/or business customers. For example, if Apple's effective tax rate goes from 17% to 35%, the company will send more money to the government, but it's really the investors and/or Apple customers/employees who will pay the tax.  Companies may be very efficient for collecting taxes for us, but that doesn't mean the companies are actually "paying" the tax.

 

Over the next year or two there are significant proposed changes to federal and state tax systems being proposed, including a national VAT (a sales tax on steroids) and "territorial taxation" of businesses that would exclude US taxation on any foreign sales made by US companies. Neither tax will benefit the lower and middle income groups in the US, but since there is very little consensus among the lower-income groups for alternative taxing systems, it's quite likely these negative taxes will be imposed at the federal level.

 

Of the hundreds of policy issues that face local, state and federal governments every week, tax issues may be the most important of all. Tax policy helps determine the cost of housing; how much working people have left from their paychecks; and whether business invest locally or shift jobs overseas.

CourtenayGass
CourtenayGass

@AdmStrange @LucasLilieholm "the uygur" cannot stop laughing

csalt
csalt

Will closing the loopholes cause companies to locate off shore? Costing the ecomony jobs, jobs, jobs? And costing the government what little taxes it collects now from them?

abys37
abys37

Where did you get that 1% tax rate for FedEx? I don't think that number is supported.

red.marcy.rand
red.marcy.rand topcommenter

There's nothing wrong with selfishness which merely means concern with one's own self-interest.

Why should anyone be forced to pay for government miseducation in the schools and government mismanagement of roads ? Taxation is legalized theft and there is nothing fair about it. Producers are being forced to support nonproducers or even anti-producers. Vote NO on 39.

red.marcy.rand
red.marcy.rand topcommenter

Why does my refutation to manylessons keep disappearing ?

manylessons
manylessons

If Proposition 39 closes these bogus tax loopholes for the rich, It has my vote.  While our state and nation wither away, these companies continue to rake in immense profits and hide away  their fair portion of taxes.  Money used to protect their companies in case of Fire, Theft or Threat, money used to pave roads for their trucks, money used to maintain schools to educate their children.  Plain selfishness is the cancer of the rich and their ultimate destruction.

red.marcy.rand
red.marcy.rand topcommenter

Why would any sane person have any interest in the government getting more of our money ?

These 'loopholes' are all that's left of our freedom and money. We need more of them !

This is the kind of nonsense that caused me to stop reading the Bay Guardian and the East Bay Express aka The Gammon Gazette, mostly one man's recycled boring leftism.

csalt
csalt

 @mtnplover

 The corporate tax rate is supposed to be 35%. That is why they try to get out of with loopholes and deductions. The other thing that everyone confuses is the 15% capital gains tax. That tax is on already-taxed money that purchased the capital to begin with. I am not for taxing the middle class more, either, it is just everyone is muddying the waters with misinformation. I have a small business, an LLC and I definitely get taxed both ways, personally and in the company.

cliche_guevara
cliche_guevara

 @abys37

I guess you missed the very first sentence in the article? Here I copy and pasted it for you.

"A year ago Citizens for Tax Justice, a Washington, D.C., nonprofit, studied the tax returns of 280 corporations..."

 

cliche_guevara
cliche_guevara

  Okay, I don't think I can put crazy back in the bottle for you.

Taxation is a necessity for a advancing society. Where do you think the roads come from, the street lights, clean drinking water, your sewer system, etc... It's called taxation. Some of it is misappropriated, that's why there are watchdog groups to point out extravagances and errors, but a majority does what it needs to in order to keep order.

If you don't like taxation then move to a third world country and live off the land, but if you don't like the politics here, believe me it doesn't get any better in a less advance society.

As for nothing being wrong with selfishness you couldn't be more wrong. But a point for your side, you are being a great example of it.

 

"Every man must decide whether he will walk in the light of creative altruism or in the darkness of destructive selfishness."  (Martin Luther King Jr.)

 

"Great achievement is usually born of great sacrifice, and is never the result of selfishness." (Napoleon Hill)

 

 

 

red.marcy.rand
red.marcy.rand topcommenter

 @manylessons Selfishness means concern with one's own self-interest. It's a great thing. Stealing money via the legalized theft of taxes is evil. The government miseducation and road maintenance is something no one should be forced to pay for. It should be totally privatized with no strings. We need more companies with more profits, not more lousy government services. I wasn't aware of Prop 39 but I will now vote against it because of your recommendation.

powertothepeople
powertothepeople

 @red.marcy.rand

 Here is an excellent example of pure unadulterated greed, with no  trace of compassion or empathy.  Some people can only think of themselves, but  thank goodness its limited to the 1%.   Fortunately the 99% is dumping the 1% and their self serving tax exemptions, by voting yes on Propostion 39.

cliche_guevara
cliche_guevara

 @csalt  "...everyone is muddying the waters with misinformation", including yourself.  A capital gains tax is just that a tax on gains made from capital.  If you invest $100,000 and that investment doubles to $200,000 you get taxed on the gains of $100,000 not the entire amount. The next year if it doubles again you get taxed on the increased $200,000 not the entire amount of now $400,000.  If you are... you need a better accountant.

abys37
abys37

 @cliche_guevara ...and yet it appears no to be an accurate percentage.  Financial statements are publicly available.  I didn't mean to ask who provided that number. I meant to ask how.....

cliche_guevara
cliche_guevara

 @red.marcy.rand  Actually the word that means concern for one's own interest or welare is egoist, but what do I know, I didn't make that up, I got that from the Oxford English Dictionary. 

jefemuygrande
jefemuygrande

 @powertothepeople  @red.marcy.rand 

PTP, ARE YOU AWARE THAT THE TOP 1% OF EARNERS PAY OVER 37% OF ALL FEDERAL INCOME TAX WHILE EARNING ONLY 22% OF THE INCOME? AND THAT THE TOP 10% PAY OVER 70% OF ALL FEDERAL INCOME TAX? OR DOES THAT EVEN MATTER TO YOU AS THERE IS NO SUCH THING AS THE "GREEDY RICH" EVER PAYING THEIR FAIR SHARE? TO WHICH GOVERNMENT  TEAT(S) ARE YOU  ATTACHED? 

jefemuygrande
jefemuygrande

 @cliche_guevara  @csalt CHE, YOU TOTALLY MISSED THE POINT (OR ARE COMPLETELY IGNORANT OF THE DIFFERENCE) THAT THE INITIAL INVESTMENT OF CAPITAL WAS ALREADY TAXED, EITHER AS ORDINARY INCOME OR CAPITAL GAINS.

 
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