The rich are different from you and me: they pay less taxes

Think you pay too much in taxes compared to the ultra-wealthy?

Guess who agrees with you: Warren Buffett.

In this New York Times op-ed piece, Buffett points out that people who make most or all of their money from investments may pay only 15% in federal income tax, and that overall federal taxes on the wealthiest 400 Americans has dropped by more than one-quarter in the past 20 years. This, on people with incomes averaging more than $227.4 million apiece.

warren buffett The rich are different from you and me: they pay less taxesBuffett himself paid $6,938,744 in federal taxes last year–only 17.4% of his taxable income, and a lower percentage than everyone else working in his office, including his secretary.

“I would leave rates for 99.7 percent of taxpayers unchanged…bur for those making more than $1 million…I would raise rates immediately on taxable income in excess of $1 million, including, of course, dividends and capital gains. And for those who make $10 million or more–there were 8,274 in 2009–I would suggest an additional increase in rate,” says Buffett. “My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice.”

Couldn’t agree more.


Three ways the budget deal is an underhanded scam

The so-called ‘compromise’ on raising the federal debt ceiling debt ceiling is fine if you’re not worried about being able to keep your job, don’t think you’ll need Medicare benefits someday, and live in a state that can raise all of the revenue it needs. For the rest of us, here are three ways the deal is bad social and tax policy:

–No extension of emergency unemployment benefits.
Fully 3.8 million people have received benefits after being out of work more than 26 weeks; these extended benefits are now set to end on December 31–and anyone who gets laid off after July 1 will get no more than 26 weeks of unemployment under the current regimen. Don’t ask me how eliminating around $60 billion of consumer spending on groceries, clothes, rent and other necessities is supposed to be good for the economy.

–Cuts in Medicare benefits stay on the table. The deal requires Congress to eventually find another $1.5 trillion in long-term budget cuts. Senators Tom Coburn (R-OK) and Joe Lieberman (I-CT) (about as scary a duo as you could want to encounter in a dark alley of regressive social policies) have floated a proposal to cut $600 billion from Medicare spending. It would increase Medicare premiums as well as deductibles and co-pays and raise the age at which you would first qualify for Medicare. Appallingly, President Obama backed such changes during the so-called compromise negotiations in July.

–State funding and programs remain under attack. Since states get about one-third of their funding directly or indirectly from the federal government, federal cutbacks will tend to cascade down to the state level, where the programs that benefit citizens are carried out. Road programs, education, public assistance, and Medicaid cuts could be coming to a town near you. Meanwhile any efforts at simplifying the tax code or closing egregious loopholes get kicked down the road yet again.


IRS backs off from challenging political heavyweights

Should big political donors pay gift tax? IRS won’t say

Earlier this year the story broke that the IRS had notified five bigfoot political donors that they could owe gift taxes on secret contributions made to nonprofit political advocacy groups which then shuttle the money over to political campaign efforts. The New York Times weighed in with an editorial, saying, “The Federal Election Commission should be policing some honest disclosure here, but it has abdicated its responsibility. So it is commendable that the tax agency has the will to enforce existing law, particularly if it puts some caution in the minds of donors preparing to flood the next elections with secret money.”

Eh, never mind.

This month the IRS did a rarely-seen bureaucratic backbend, dropping any audit programs aimed at bigwig political moneybags. In a three-paragraph memo, an IRS deputy commissioner said, “This is a difficult area with significant legal, administrative, and policy implications with respect to which we have little enforcement history.”

Translation: IRS is backing off, and another barrier is removed to a 2012 flood of political advertising beyond anything we’ve ever seen. Did the agency come under political pressure? Who knows. But when Senator Orrin Hatch says in a statement, “The decision today ensures that the IRS remains free from even the hint of undue political influence,” does it make you think that maybe there was some political influence?

Derek Jeter, generous fan Christian Lopez, and the cheap-o Yankees

Following the last post, here are three scenarios for the possible tax consequences to Christian Lopez, the Yankees fan who caught Derek Jeter’s 3000th-hit home-run ball and gave it back to the Yankees. The Yankees gave Lopez a pile of swag, including signed jerseys, and tickets for the rest of the season.

Scenario #1: Lopez owes tax on the full face value of the tickets.

This is the simplest calculation and the one that The New York Times used in its story . The four “Legends” seats tickets the Yankees gave Lopez for a game last week sell for up to $1358.90 each. They also gave him four “Champions Suite” seats for every remaining game, which could be bought through the Yankees website for a total of somewhere between $44,000 and $75,000, depending on exact location. So Lopez under this calculation could owe tax on somewhere between $50,000 and $80,000 of income.

Scenario #2: But, in the real world, Yankee Stadium tickets aren’t so precious.

Anyone who has seen a Yankees game on television in the past two years has probably also seen an embarrassingly vast sea of blue behind home plate. These are the empty overpriced seats that the Yankees first tried selling for up to $2,625 per game (that is not a typo). Those tickets have been Bronx Bombs with fans who think that any seat selling for $1,000 or more should at least have a flight attendant and transatlantic movies.

What are these seats really worth in the marketplace? Well, you can buy those $1,358.90 Legend tickets in Suite 25 directly from the Yankees’ website to see New York play the Seattle Mariners on Monday, July 25. Or you could get them on Stubhub at more than 60% off, where seats in the same section were being offered as of July 12 for $500 apiece. Prices for less desirable games tend to drop further as game day approaches.

Then there are the four “Champions Suite” tickets the Yankees gave Lopez for every remaining game. These are less desirable than the Legends seats. That’s right, the Yankees cheaped out and didn’t give him tickets in the best sections THAT THEY HADN’T SOLD ANYWAY. Again, a quick check on StubHub shows tickets in the same sections selling for anywhere from 25% to 60% below face value.

So the actual market value of all these tickets could be closer to $25,000 than $80,000, depending on just how good the seats were that the Yankees parted with.

This is a gray area, just as it is for game show contestants. People win a trip to an all-inclusive Jamaican resort, or a washer-drier combo–they have to pay tax on the value of that prize. It’s pretty easy to figure out what an appliance is worth. But there can be a significant difference between the “value” of a trip as quoted on a game show and what consumers are actually paying for the same trip on discounters like Expedia. These are the kinds of issues that keep tax pros like me fully employed.

Scenario #3: Lopez doesn’t owe anything.

It’s possible! Columbia University law professor Michael J. Graetz, who helped advise the IRS on the tax treatment of Mark McGuire’s 70th home run ball (sold at auction for $3 million), told the Times that it might be able to make the case that the Yankees gave Lopez everything out of, “detached and distinterested generosity,” and without any business motive. In that case, Lopez might have received tax-free gifts, and would owe nothing.

The New York Yankees. Generous to their fans. Why do I think that one’s not gonna fly?

A potentially costly catch

Derek Jeter’s slog to 3,000 hits mercifully ends, and with a home run no less. A fan, Christian Lopez, is in the stands for his 23rd birthday and catches the ball. Fan agrees to give the ball back to Jeter. Yankee management buries fan in a pile of swag, including signed jerseys, bats, and premium seats for the rest of the Yankee’s home games this year, including any postseason games.

Just a sweet feel-good story all the way around, right?

derek jeter 150x150 A potentially costly catchHa! As Kay Bell pointed out on her blogsite, Don’t Mess with Taxes, Lopez may owe taxes on the value of everything he received in exchange for the ball.

Paul Caron, a tax professor at the University of Cincinnati’s Law School, told The New York Times, “Pretty clearly he’s going to have to report as income the value of all the stuff he got for the ball.”

Three thoughts on this:

1. Mr. Lopez sounds like a heck of a nice guy to be willing to give the ball to Jeter instead of auctioning it off.

2. Mr. Lopez also has $100,000 in student loans. Derek Jeter makes $17 million annually playing baseball. The New York Yankees are worth more than $1 billion. Are the Yankees really going to leave this kid with a potential five-figure tax bill for the stuff they gave him?

3. Do you have any idea how hard it is going to be for me to feel bad for anyone who’s a Yankees fan?

More on this later this week.