MtnBiker
Senior Member
Edwards and Kerry want to raise taxes, but aren't wild about paying them.
Tuesday, July 13, 2004 12:01 a.m. EDT
In embracing John Edwards, John Kerry has also endorsed his populist "two Americas" rhetoric and has put tax increases at the center of the election campaign. So it's fair to ask the two Democrats: How much of those tax increases will actually hit the super-rich like yourselves, and how much will end up on the backs of upper middle-class wage earners?
For an answer, let's look at what the two Senators have themselves been paying in taxes. It turns out that the Kerrys and Edwards have exploited plenty of tax loopholes over the years. Of course, nobody is obligated to pay more than what the letter of the law requires. But the complex tax code benefits the wealthy, who can afford tax attorneys and complicated schemes to skirt the law. And high marginal rates give them plenty of incentive to do so.
Senator Edwards talks about the need to provide health care for all, but that didn't stop him from using a clever tax dodge to avoid paying $591,000 into the Medicare system. While making his fortune as a trial lawyer in 1995, he formed what is known as a "subchapter S" corporation, with himself as the sole shareholder.
Instead of taking his $26.9 million in earnings directly in the following four years, he paid himself a salary of $360,000 a year and took the rest as corporate dividends. Since salary is subject to 2.9% Medicare tax but dividends aren't, that meant he shielded more than 90% of his income. That's not necessarily illegal, but dodging such a large chunk of employment tax skates perilously close to the line.
The Internal Revenue Service takes a dim view of such operations and "may collapse the structure entirely and argue the S corporation is not truly a separate entity," in the words of Tax Adviser magazine. Attorney CPA magazine lists it as No. 11 of its "15 best underutilized tax loopholes," but warns that the IRS "has successfully litigated cases against individuals, particularly sole shareholders of personal service S corporations, reclassifying such deemed distributions as wages subject to social security taxes."
As a political matter, the dodge is especially hypocritical because the income limits on which Medicare taxes are paid were lifted by Democrats in 1993 specifically to hit "the rich," as Mr. Edwards likes to call people in his tax bracket. And the supreme irony? Mr. Edwards has claimed that he set up the subchapter S company to protect himself from legal liability. You know it's time for tort reform when even the trial lawyers say they're afraid of getting sued.
Senator Kerry's personal finances are not so complicated, since most of his income comes from his government salary and a modest inheritance. But he owes his jet-setting lifestyle and indeed some of his political success to the wealth of his wife, Teresa Heinz Kerry. Her personal assets have been estimated at up to $3.2 billion, and the couple travel among their five houses scattered around the U.S. on a $35 million Gulfstream V jet. During a tough election for the Senate in 1996, Mr. Kerry sidestepped a gentleman's agreement with opponent William Weld to limit the spending of personal wealth on either side to $500,000 by having his campaign borrow $1.7 million from his wife.
Full Article
Tuesday, July 13, 2004 12:01 a.m. EDT
In embracing John Edwards, John Kerry has also endorsed his populist "two Americas" rhetoric and has put tax increases at the center of the election campaign. So it's fair to ask the two Democrats: How much of those tax increases will actually hit the super-rich like yourselves, and how much will end up on the backs of upper middle-class wage earners?
For an answer, let's look at what the two Senators have themselves been paying in taxes. It turns out that the Kerrys and Edwards have exploited plenty of tax loopholes over the years. Of course, nobody is obligated to pay more than what the letter of the law requires. But the complex tax code benefits the wealthy, who can afford tax attorneys and complicated schemes to skirt the law. And high marginal rates give them plenty of incentive to do so.
Senator Edwards talks about the need to provide health care for all, but that didn't stop him from using a clever tax dodge to avoid paying $591,000 into the Medicare system. While making his fortune as a trial lawyer in 1995, he formed what is known as a "subchapter S" corporation, with himself as the sole shareholder.
Instead of taking his $26.9 million in earnings directly in the following four years, he paid himself a salary of $360,000 a year and took the rest as corporate dividends. Since salary is subject to 2.9% Medicare tax but dividends aren't, that meant he shielded more than 90% of his income. That's not necessarily illegal, but dodging such a large chunk of employment tax skates perilously close to the line.
The Internal Revenue Service takes a dim view of such operations and "may collapse the structure entirely and argue the S corporation is not truly a separate entity," in the words of Tax Adviser magazine. Attorney CPA magazine lists it as No. 11 of its "15 best underutilized tax loopholes," but warns that the IRS "has successfully litigated cases against individuals, particularly sole shareholders of personal service S corporations, reclassifying such deemed distributions as wages subject to social security taxes."
As a political matter, the dodge is especially hypocritical because the income limits on which Medicare taxes are paid were lifted by Democrats in 1993 specifically to hit "the rich," as Mr. Edwards likes to call people in his tax bracket. And the supreme irony? Mr. Edwards has claimed that he set up the subchapter S company to protect himself from legal liability. You know it's time for tort reform when even the trial lawyers say they're afraid of getting sued.
Senator Kerry's personal finances are not so complicated, since most of his income comes from his government salary and a modest inheritance. But he owes his jet-setting lifestyle and indeed some of his political success to the wealth of his wife, Teresa Heinz Kerry. Her personal assets have been estimated at up to $3.2 billion, and the couple travel among their five houses scattered around the U.S. on a $35 million Gulfstream V jet. During a tough election for the Senate in 1996, Mr. Kerry sidestepped a gentleman's agreement with opponent William Weld to limit the spending of personal wealth on either side to $500,000 by having his campaign borrow $1.7 million from his wife.
Full Article
