For those that have served the wealthy like I have in the insurance industry, it’s laughable when hearing about George Soros, Warren Buffett, and other wealthy people calling for the government not to cut their taxes.
A recent letter from a group of wealthy big-government supporters, appealed to Congress to not lower their tax liabilities. There are so many distortions in the letter that it’s mind-boggling. Since few people really understand the extant of the virtue signaling and why it has no chance of extracting more money from the wealthy.
Here’s an excerpt from the letter:
“We believe the key to creating more good jobs and a strong economy is not tax breaks for those of us who have plenty, but investing in the American people. Our civic institutions that help people meet basic living standards and protect the climate are critical to supporting our prosperity as a nation. Yet, Congress is already shortchanging the investments needed to strengthen our economy, and the Administration and some in Congress are looking for deeper cuts. Current federal funding for non-defense discretionary spending was slashed overall by more than 13% (adjusted for inflation) over the past seven years, leaving many programs severely underfunded.”
I’ll get into the fake tax break concerns a little later in the article. I first want to tackle the “civic institutions” the wealthy were allegedly worried about. First, government has never been for the purpose of providing people with “basic living standards.”
The extreme idiocy surrounding the next statement about protecting the climate is irrelevant as it relates to government, to the point of absurdity. Keep taxes high to provide protection for a non-existent problem? What of course is really being said concerning the big-government welfare programs and the climate change hoax, is they want to be sure government isn’t subject to in some small way being shrunk, or the resultant growth of the economy from the tax cuts, which would reveal the importance of business as the key driver of the economy.
That these wealthy people would even tie in the prosperity of the nation with giving people handouts that bring about total dependence on the government to survive, rather than improving themselves and becoming more productive, is schizophrenic to say the least. What they did to produce wealth, in most cases, is the exact opposite of what they are calling for.
Concerns over “underfunded programs?” Again, their pretense of concern over the cutting back on programs that cause people to be look to the government as savior and healer, is very faulty and wrong. There’s more to it than that though.
One highly probable reason for this silly letter is the fact big business in particular, are the recipient of corporate welfare. They get it from the artificially depressed interest rates, where they can take out loans that cost very little. That allows them to spend on business growth with a potentially high rate of return because of low costs of servicing the loan.
We also don’t have to go back very far to see consistent calls from Warren Buffett to not cut taxes on the wealthy. Yet one of his major investments – Wells Fargo, was bailed out by taxpayers during the Great Recession after the mortgage fiasco. You didn’t hear him whining then.
There are almost an endless number of similar scenarios that could be pointed out. Large corporations and the wealthy don’t want to appear to cut off the hand that’s feeding them.
Also, by calling for no tax cuts, it ingratiates them to most politicians that believe businesses exist to feed the coffers of monstrous governments, and also, to a limited degree, those poorer people who may continue to fester anger over the growing disparity between the very rich and the poor.
Wealthy pay little in taxes
A big reason there’s little risk to the wealthy in calling for no tax cuts upon them, is they employ tax experts that put together strategies that limit their tax liabilities in significant ways.
In other words, they don’t benefit that much from tax cuts because they already use tactics to limit tax exposure liability. They’ll be able to do that under any type of tax plan outside of a flat tax where everyone pays the same percentage on their income.
So when sending a letter to politicians saying they don’t want tax cuts, it’s nothing more than a public relations stunt to generate the idea they are being good liberals. They don’t want to give the impression they support smaller government, or rely on an increase in productivity in businesses to generate more tax revenue. That wouldn’t sit well with the Democrats or establishment Republicans.
All this is true, but there’s an even more powerful way they protect there wealth without the fear of reduction of the value of their assets and estate.
Charitable Remainder Trust
In the past, one of the things I did was work as a financial adviser, with my primary emphasis being on wealthy individuals that needed to think through the implications of their assets and estate in light of their eventual death.
My job was to show them the value and need of a Charitable Remainder Trust, which protects against losing the value of the assets they will eventually pass on to their children and/or grandchildren.
I’m going to give a basic overview of some of the element of a CRT, with the understanding there’s a lot more to them. This is for the idea of giving people understanding of the lack of risk on the estate side of taxes by the wealthy, not advice on doing it yourselves. The point is to be aware what is available and used by the wealthy, for the purpose of pointing out what a joke their letter to Congress is.
What a CRT essentially does is provide a place to transfer the assets of the wealthy while allowing them to generate an income for as long as they are alive, but no longer than 20 years.
The assets placed in the trust are to generate a minimum of 5 percent, but as high as 50 percent. Based upon a number of variables, there are immediate tax deductions that can be taken. If deductions can be used beyond one year, they can be taken for up to five years. What a CRT does is reduce or eliminate estate and income taxes on assets.
When selling assets within the trust, it can be done without incurring capital gains taxes as well.
Some of you may have already identified the obvious question people ask at this time, which is this: “What happens to the value of my assets held in a CRT?” The answer is the value isn’t reduced when donating it to charity. The asset will be surrendered, but not the value of the asset.
For example, if someone wealthy had real estate holdings in the CRT valued at $10 million, they take out a certain type of life insurance policy that pays out the value of the asset to their heirs.
Being insurance, it isn’t subject to income or estate taxes. The deductions mentioned earlier may even pay for almost all of the insurance policy premiums.
I’ve said all that to point out that almost all wealthy people have something like this as part of their estate management, and when passing it on, the value of the assets of estate aren’t reduced from confiscatory taxes.
When the wealthy call for no tax cuts, they lose little or nothing from the declaration. They have experts on the payroll to find strategies or loopholes to limit their tax exposure, and for on the other side of the grave, they usually use a CRT to pass on the value of their assets to their heirs.
This is one of the reasons you always hear about the charities the wealthy contribute to. It’s a marketing ploy, but also a way to almost completely remove their taxes when the time for the estate to be passed on comes about from their death.
Next time you hear the wealthy give the impression they’re acting humble in calling for themselves to not have their taxes cut, remember what you read here. The truly wealthy rarely have to pay much in taxes, and likely never will.
As for the increasing disparity between the rich and poor, it means little anyway. The media will of course attempt to keep that narrative going in order to pressure politicians to increase dependence of people on the government by offering more perks, and of course grow the size of government itself.
As for the Federal Reserve, it represents a form of corporate welfare that increases liquidity to the markets without having to boost productivity. It’s one of the numerous reasons it produces booms and busts. You don’t hear the wealthy calling for the Federal Reserve to be shut down. That’s because they enjoy the benefits of all that liquidity being thrown into the market, even though the government will eventually collapse under the weight of the unsustainable debt load it carries, included the $200 trillion plus in unfunded liabilities.
As the maxim goes: follow the money. If the wealthy are calling for something that appears to be detrimental to them, you can be sure when you dig a little deeper into it, somehow it will prove to be something that has little or no impact on their net worth. That’s definitely the case with the call for keeping taxes high on them.