The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

[ZiprHead]

My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it.
Ruth

Legally it should have been.

Tax should have been paid on its fair market value at the time of receipt. At the time of sale any gain or loss would have been realized and taxed.

In most cases, you would have been right. But the cryptocurrency he was given was considered valueless at the time of receipt. Each share was worth only thousandths of a cent. They did anticipate that the value would grow exponentially, which it did.

What ZiprHead is proposing would have caused my son to owe taxes at the end of the year for the increase in value of the cryptocurrency since his acquisition even though he had realized no actual useful cash income. That is where my objection lies.

Ruth

He would owe taxes on the value the day it was issued just as income is taxed at your payday.

And yes, the gains in the value of his income should also be taxed

 

[Rhea]

And as I tried to mention earlier, Loren is wrong. Banks do take stock as collateral, if you've got enough of it. Wiki Archegos...

I worked at a bank a few years ago that did not take stock as collateral. But you're right, many banks do take direct assignments of company stock (publicly traded of course).

What banks do take, is the fact that you have lots of stock as a reason to extend unsecured debt. You get a benefit from owning a lot of sock. A tangible, cash benefit. They use your “net worth” to determine their lending policy.
- availabiliy and size of unsecured loans
- loan and mortgage interest rates
- credit card interest rates.

It’s absolutely certain that my equity in my house and my equity in stocks have brought me cash benefits from banks. If I’m short on being able to pay my kid’s college tuition this semester, you can bet the bank will float me, and for a fairly low interest rate.

 

[Swammerdami]

A few days ago I made a key point, on which only Loren Pechtel has commented.

Do you also agree with me on the following?

Charging a tax on the borrowings is unnatural; and taxing wealth has disadvantages. But, if the wealth has the form of shares in a profitable corporation, then there is a simple approach which achieves a similar end (as a wealth tax) without these problems. Simply place a 12% surcharge on the corporate income tax already in place. If the company is being taxed 8%, increase that to 8+12 = 20%. This VERY ROUGHLY may act like a one-time (NOT annual) 12% tax on wealth.

We need not cover the details. Obviously the exact net tax (including the effect from the surcharge on market-appraised wealth) would not generally equal the total tax paid in other schemes. But that doesn't necessarily make this scheme wrong; and it may be a good starting-point.

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

You have taken zero units of college-level economics. What do I win for deducing that? (Weren't you also the one in another thread that said doubling minimum wage would double ALL prices?)

This sort of glib thinking is very common; there are many ways to refute it; I'm not sure where to start. SOME of the costs may be passed onto consumers; estimating exactly what portion "SOME" is may be difficulty. But the reasoning "I can't estimate SOME so will assume it to be 100%" is NOT the solution!

What do you think of the following argument:
There's no point in taxing executives' income; that tax just gets passed on to the consumer. Increase the executive's tax and his employer will increase the gross pay to cover that added cost. And increase the prices it charges to compensate.

There's no point in increasing the tariff on imported gidgets. Workers will unionize and demand a higher wage to cover the higher cost of their gidgets. The employer will compensate by increasing the cost of the widgets it sells. Widget consumers, who work for a company that makes flidgets, will demand higher wages to compensate. ...

 

[Ruth Harris]

What do you think of the following argument:
There's no point in taxing executives' income; that tax just gets passed on to the consumer. Increase the executive's tax and his employer will increase the gross pay to cover that added cost. And increase the prices it charges to compensate.

On this one point, I find your argument less than persuasive. I have worked with numerous large corporations over the past 20 or 30 years and I have never seen executive pay increased due to their purported personal tax burden. Cost of living raises, yes, for all employees - but their personal tax liability has never been a factor in a company's executive pay increases. Virtually all of them base pay increases on performance.

Ruth

 

[Swammerdami]

What do you think of the following argument:
There's no point in taxing executives' income; that tax just gets passed on to the consumer. Increase the executive's tax and his employer will increase the gross pay to cover that added cost. And increase the prices it charges to compensate.

On this one point, I find your argument less than persuasive. I have worked with numerous large corporations over the past 20 or 30 years and I have never seen executive pay increased due to their purported personal tax burden. Cost of living raises, yes, for all employees - but their personal tax liability has never been a factor in a company's executive pay increases. Virtually all of them base pay increases on performance.

Ruth

You did understand that the paragraph you quoted was a parody, right? A parody of the glib "reasoning" we see too much of when the topics turn to economics.

 

[Ruth Harris]

What do you think of the following argument:
There's no point in taxing executives' income; that tax just gets passed on to the consumer. Increase the executive's tax and his employer will increase the gross pay to cover that added cost. And increase the prices it charges to compensate.

On this one point, I find your argument less than persuasive. I have worked with numerous large corporations over the past 20 or 30 years and I have never seen executive pay increased due to their purported personal tax burden. Cost of living raises, yes, for all employees - but their personal tax liability has never been a factor in a company's executive pay increases. Virtually all of them base pay increases on performance.

Ruth

You did understand that the paragraph you quoted was a parody, right? A parody of the glib "reasoning" we see too much of when the topics turn to economics.

Actually, no, I did not know that. It was not clear that you were being ironic. Sorry.

Ruth

 

[Jarhyn]

And as I tried to mention earlier, Loren is wrong. Banks do take stock as collateral, if you've got enough of it. Wiki Archegos...

I worked at a bank a few years ago that did not take stock as collateral. But you're right, many banks do take direct assignments of company stock (publicly traded of course).

What banks do take, is the fact that you have lots of stock as a reason to extend unsecured debt. You get a benefit from owning a lot of sock. A tangible, cash benefit. They use your “net worth” to determine their lending policy.
- availabiliy and size of unsecured loans
- loan and mortgage interest rates
- credit card interest rates.

It’s absolutely certain that my equity in my house and my equity in stocks have brought me cash benefits from banks. If I’m short on being able to pay my kid’s college tuition this semester, you can bet the bank will float me, and for a fairly low interest rate.

I think if banks can estimate value of net worth in their interest of security, so can the government can estimate value in interest of security of the public fund.

So, we should absolutely be able to tax such "property".

 

[Loren Pechtel]

Do you also agree with me on the following?

Charging a tax on the borrowings is unnatural; and taxing wealth has disadvantages. But, if the wealth has the form of shares in a profitable corporation, then there is a simple approach which achieves a similar end without these problems. Simply place a 12% surcharge on the corporate income tax already in place. If the company is being taxed 8%, increase that to 8+12 = 20%. This VERY ROUGHLY may act like a one-time (NOT annual) 12% tax on wealth.

We need not cover the details. Obviously the exact net tax (including the effect from the surcharge on market-appraised wealth) would not generally equal the total tax paid in other schemes. But that doesn't necessarily make this scheme wrong; and it may be a good starting-point.

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

There is no consensus that a corporate income tax is passed on to consumers. None. While you are entitled to your opinion, your belief in something does not make it true.

And your belief that it is paid by fairies doesn't make it true.

 

[Loren Pechtel]

My son was given renumeration for software reviews in cryptocurrency. It was not taxed until he sold it.
Ruth

Legally it should have been.

Tax should have been paid on its fair market value at the time of receipt. At the time of sale any gain or loss would have been realized and taxed.

In most cases, you would have been right. But the cryptocurrency he was given was considered valueless at the time of receipt. Each share was worth only thousandths of a cent. They did anticipate that the value would grow exponentially, which it did.

What ZiprHead is proposing would have caused my son to owe taxes at the end of the year for the increase in value of the cryptocurrency since his acquisition even though he had realized no actual useful cash income. That is where my objection lies.

Ruth

Barter is taxable. Being paid in a thing is still being paid, you owe taxes as if you had received cash equal to the market value of the thing on the day it was received.

However, if the value was low enough the tax at the time of receipt would be zero.

 

[Loren Pechtel]

And as I tried to mention earlier, Loren is wrong. Banks do take stock as collateral, if you've got enough of it. Wiki Archegos...

I worked at a bank a few years ago that did not take stock as collateral. But you're right, many banks do take direct assignments of company stock (publicly traded of course).

What banks do take, is the fact that you have lots of stock as a reason to extend unsecured debt. You get a benefit from owning a lot of sock. A tangible, cash benefit. They use your “net worth” to determine their lending policy.
- availabiliy and size of unsecured loans
- loan and mortgage interest rates
- credit card interest rates.

It’s absolutely certain that my equity in my house and my equity in stocks have brought me cash benefits from banks. If I’m short on being able to pay my kid’s college tuition this semester, you can bet the bank will float me, and for a fairly low interest rate.

Margin loans are not unsecured debt!

If the loan amount becomes too great a percentage of the value of the shares securing it the broker will sell the shares to close out the loan. Some of the idiots on Robinhood recently got an unpleasant lesson in that.

 

[Loren Pechtel]

A few days ago I made a key point, on which only Loren Pechtel has commented.

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

You have taken zero units of college-level economics. What do I win for deducing that? (Weren't you also the one in another thread that said doubling minimum wage would double ALL prices?)

This sort of glib thinking is very common; there are many ways to refute it; I'm not sure where to start. SOME of the costs may be passed onto consumers; estimating exactly what portion "SOME" is may be difficulty. But the reasoning "I can't estimate SOME so will assume it to be 100%" is NOT the solution!

What do you think of the following argument:
There's no point in taxing executives' income; that tax just gets passed on to the consumer. Increase the executive's tax and his employer will increase the gross pay to cover that added cost. And increase the prices it charges to compensate.

There's no point in increasing the tariff on imported gidgets. Workers will unionize and demand a higher wage to cover the higher cost of their gidgets. The employer will compensate by increasing the cost of the widgets it sells. Widget consumers, who work for a company that makes flidgets, will demand higher wages to compensate. ...

All your examples miss.

You tax incomes because you can tax higher incomes more highly. (Although I would consider an ideal system a progressive consumption tax.) To some extent any tax just gets passed on, you have to decide at which point it's the most fair to apply the tax.

As for your gidgets, you can't pass on a cost that applies to only some of those involved--trying to do so just drives the market away from the higher cost providers.

However, when a cost applies to everyone (for example, corporate income taxes) it gets passed on basically 100%.

 

[RVonse]

Barter is taxable.

I did not know this. I thought the IRS only took US dollar for payment.

You mean I can send the US treasury butter and eggs next year for payment on my 1040 federal taxes?

 

[RVonse]

However, when a cost applies to everyone (for example, corporate income taxes) it gets passed on basically 100%.

Only if the demand is perfectly inelastic (example auto gasoline). Otherwise, an increase in price (attempted by passing along tax to consumer) causes less overall consumption. Which then creates more competition for market share among producers...in which case some competitive producers willing to reduce internal profits in order to maintain sales.

Swammerdami is right about this.

 

[jonatha]

Barter is taxable.

I did not know this. I thought the IRS only took US dollar for payment.

You mean I can send the US treasury butter and eggs next year for payment on my 1040 federal taxes?

No.

But if you and your neighbor swap enough eggs for butter you both have to send the US Treasury cash to cover the taxes on the fair market value of what you received.

 

[RVonse]

Barter is taxable.

I did not know this. I thought the IRS only took US dollar for payment.

You mean I can send the US treasury butter and eggs next year for payment on my 1040 federal taxes?

No.

But if you and your neighbor swap enough eggs for butter you both have to send the US Treasury cash to cover the taxes on the fair market value of what you received.

Neither party will have any cash. Where will they get the US currency to send to the IRS? Neither party will have any cash coming to them. At best if they want to be honest (a huge assumption) all they can do is either send eggs or butter to the IRS.

 

[jonatha]

No.

But if you and your neighbor swap enough eggs for butter you both have to send the US Treasury cash to cover the taxes on the fair market value of what you received.

Neither party will have any cash. Where will they get the US currency to send to the IRS? Neither party will have any cash coming to them. At best if they want to be honest (a huge assumption) all they can do is either send eggs or butter to the IRS.

They will have to find the cash somewhere (if they want to be honest).

Just as US residents trading Euros for Yen will have to find dollars...

 

[Loren Pechtel]

Barter is taxable.

I did not know this. I thought the IRS only took US dollar for payment.

You mean I can send the US treasury butter and eggs next year for payment on my 1040 federal taxes?

You owe tax on barter transactions the same as you do on other transactions.

 

[Loren Pechtel]

However, when a cost applies to everyone (for example, corporate income taxes) it gets passed on basically 100%.

Only if the demand is perfectly inelastic (example auto gasoline). Otherwise, an increase in price (attempted by passing along tax to consumer) causes less overall consumption. Which then creates more competition for market share among producers...in which case some competitive producers willing to reduce internal profits in order to maintain sales.

Swammerdami is right about this.

When the profit margin in an industry is driven too low the number of new entrants declines and as existing businesses fail there are not enough replacements. This persists until the profit margin goes back up.

In the long run that pool of profits can't be raided.

 

[laughing dog]

Do you also agree with me on the following?

I dislike corporate income tax, period. In the end it just gets passed on to the consumer and thus it's a regressive tax.

There is no consensus that a corporate income tax is passed on to consumers. None. While you are entitled to your opinion, your belief in something does not make it true.

And your belief that it is paid by fairies doesn't make it true.

I made no claim about who or who does not pay the corporate income tax, so you can stop babbling about fairies.

The Tax Foundation provides a simplified explanation the possible incidence of the corporate income tax that ought to be understandable to most people here (https://taxfoundation.org/who-really-pays-corporate-income-tax/).

This site (https://www.taxpolicycenter.org/taxvox/corporate-taxes-are-they-fair-who-really-pays-them-and-when) explains

It turns out there is an ongoing debate among economists over the incidence of the corporate income tax. TPC assumes that 80 percent of the burden falls on capital and shareholders, while labor bears about 20 percent. This view is roughly shared by the Congressional Budget Office and the Congressional Joint Committee on Taxation. TPC explains why in this paper.

The reality is that there is no consensus about this among the many people who spend their time and effort trying to trace the incidence of the corporate income tax. There are many complicating factors involved.

You have presented no evidence to support your claim that the entire corporate income tax is passed on to consumers. You have not presented any studies to support your claim. And your argument has been shown to be full of errors.


All of which strongly suggests the simplistic "it is entirely passed onto consumers" is wrong.

 

[DBT]

Should practically all human activity be commodified, commercialized and taxed? So what if there is small scale bartering, probably by those on low incomes, should the government have their fingers in every pie? Perhaps the fear of something being overlooked may give the peasants ideas?