The Two Americas

[wonderwench]

Much has been made of John Edwards "Two Americas" speech. Yes, there are "Two Americas" - but not in the way he claims. Rather, the Two Americas are made up of those of use who work hard and play by the rules and those who wish to tell the rest of us how to live while setting up separate rules for themselves.

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.

Mrs. Heinz Kerry's finances remain largely a closed book, since she has so far refused to release her tax returns. What we do know so far is that she has prepaid $750,000 in federal taxes on $5.1 million in income for 2003 -- an effective tax rate of 15%. That is because a significant portion of the income came from tax-free municipal bonds, which is perfectly legal.

Even so, her net income must be much higher. We know that since the death of her husband John Heinz in 1991, Mrs. Heinz Kerry has invested shrewdly and possibly even doubled her inheritance. Even if one takes a conservative estimate of her net worth, say $1 billion, an income of $5.1 million means a paltry return of just 0.5%. More likely, the majority of her investment income is sheltered within trusts so that tax is deferred until she or her family actually wants to spend it. Again, perfectly legal, but this is a luxury that the average middle-class professional working for a wage does not have. These are the non-rich who will pay the bulk of any Kerry tax increase.

So when John Kerry and John Edwards say that they want to tax the wealthiest Americans, let's be clear about what they really mean. They want to tax the most productive people at higher marginal rates and close loopholes for corporations, while they themselves dodge taxes by exploiting loopholes they plan to preserve.

Mr. Edwards is right that there really are two Americas. The people who work for their money and want to keep more of their own paychecks. And wealthy politicians who want to raise taxes on the middle class secure in the knowledge that they won't have to pay.

Link

[tecoyah]

Originally posted by wonderwench
Much has been made of John Edwards "Two Americas" speech. Yes, there are "Two Americas" - but not in the way he claims. Rather, the Two Americas are made up of those of use who work hard and play by the rules and those who wish to tell the rest of us how to live while setting up separate rules for themselves.

Link

I would have to agree100% with this statement....But probably not in the same context as it was made.




Link [/B][/QUOTE]

[cthulu23]

I love how the WSJ isn't afraid to slip into pseudo-populist mode when it suits their purposes. I think that anyone with any memory at all can see through this facade.

Anyway, this opinion piece definitely earns that title, as it is long on opinion and severely short on facts. Have Kerry/Edwards come out for middle class tax hikes? (For the record, one of Kerry's economic planks in middle class tax relief) The article implies that they did but gives no supporting facts. They have very few details of Theresa Kerry's finances, but that doesn't stop them from guessing.

This article is nothing but speculation intended to smear the Democratic candidates.

[wonderwench]

Actually, Kerry and Edwards have campaigned about rolling back the tax cuts, which is a defacto increase on the middle class.

But hey, they have their loopholes to shield their income - so to heck with the rest of us.

I really love how Edwards gamed the system to avoid paying $591K in Medicare taxes. How much blood pressure medication could that have funded?

[Zeld2.0]

I see nothing more than another attempt to start an argument over candidates.

[wonderwench]

I see an attempt to show that the candidates are advocating things for which they themselves are exempt.

[Zeld2.0]

And how is that any different from other candidates? Other politicians? It's just convenient because you don't support them.

Anyways, I don't want to carry this further and see this thread ended.

[cthulu23]

Originally posted by wonderwench
Actually, Kerry and Edwards have campaigned about rolling back the tax cuts, which is a defacto increase on the middle class.

But hey, they have their loopholes to shield their income - so to heck with the rest of us.

I really love how Edwards gamed the system to avoid paying $591K in Medicare taxes. How much blood pressure medication could that have funded?

This was an opinion piece with no interest in fairness. It did not get Edward's or Kerries reaction. It comes to conclusions that it cannot support. It makes assumptions about the Kerry economic plan and the future financial actions of the candidates. It is an empty attack piece and does not deserve any further discussion.

[wonderwench]

Cute. How about that Michael Moore flick, eh?

Edwards' maneuvring to avoid paying nearly $600K in Medicare taxes is a fact, not an opinion. What do you think of candidates who advocate for raising our taxes when they avail themselves of loopholes available only to the extremely wealthy?

[cthulu23]

Edward's "maneuvering" is an unsourced conclusion in an editorial piece, which are notoriously unreliable. Give me some evidence, some reactions, something more than a single opinion.

I haven't seen the M. Moore movie, but I now know how you like to stereotype those of a different opinion. Thanks.

[wonderwench]

Edwards tax filings are a matter of public record.

Here are two news reports from non-conservative publications:

NY Times

SF Chronicle

[cthulu23]

From the NY Times piece:

The campaign said Mr. Edwards created the tax shelter, a so-called S Corporation, on the advice of his accountant, who cited its legal liability protections as well as its tax advantages, about two years after he left a larger firm to start his own practice with a partner.

His use of the tax shelter surfaced in his 1998 run for the Senate against Lauch Faircloth, the incumbent Republican, whose campaign manager called it a "deceitful ploy."

But accountants and tax-law specialists say that S Corporations have grown increasingly popular with lawyers, contractors and entrepreneurs. The IRS received 3,191,108 such filings last year. If anything, these experts said, Mr. Edwards used it rather conservatively.

While most of his income, which included some investments, was labeled dividends on the S Corporation, for which he paid no Medicare tax, Mr. Edwards did designate $360,000 a year as wages on which he was taxed for Medicare.

But even those whose business it is to collect taxes said they could find no fault with what Mr. Edwards did. "Let's face it," said Veranda Smith, a government affairs associate with the Federation of Tax Administrators. "I work for the state tax agencies, and I'm perfectly happy to say that anyone who puts in a structure that pays more taxes than necessary is nuts."

This is old news, apparently. I think that many people in similar circumstances would just follow the advice of their financial advisors.

Regardless, I'm not a huge fan of tax shelters and I'm sure that this won't be the last that we hear of this story, but you still can't assume that the economic plan of Kerry and Edwards will be designed to minimize their own taxes while maximizing the middle classes. There is no evidence of that.

[wonderwench]

Then let them clarify their plan. So far, they have communicated generalities about reversing the tax cuts. They have said nothing about closing the loopholes from which they personally benefit. I would like to here some specifics.

[cthulu23]

I''m sure that they will clarify their points sometime before November. We can continue this discussion then.

[seretogis]

Originally posted by wonderwench
Then let them clarify their plan. So far, they have communicated generalities about reversing the tax cuts. They have said nothing about closing the loopholes from which they personally benefit. I would like to here some specifics.

Campaign promises aren't about specifics -- they're about vague but flashy propositions that will not be followed through on upon election. Hiding behind ones accountant doesn't excuse Enron executives, and it doesn't excuse Edwards. The sad thing is that if Bush had done what Edwards did, we would see a lot more coverage and scorn of it.

[cthulu23]

Edwards committed no crime so your analogy is specious. Standard financial practices are hardly cause for scandal.

[wonderwench]

Leadership is not about doing just what is legal - it is about doing what is right. Edwards' private behavior sets a very poor example when contrasted to his message.

[cthulu23]

As an Edward's detractor, you are apt to come to that conclusion, just as you are apt to defend George Bush. "What is right" is a relative term.

[kutulu]

Similar things can be said about Bush's opinions against affirmitave action. He generally goes with the Republican agenda against affirmitave action while never saying anything about how the only reason he was in Yale was because his family went there.

All in all this article and discussion are pointless.

[clockworkgreen]

I thought about it, and yep....Still voting for Kerry. Thanks for playing though!

[Sparhawk]

I've only heard that Kerry will roll back the tax cuts for those making $200,000 and up. That doesn't sound like middle class tax increases to me, sorry.

[wonderwench]

Originally posted by Sparhawk
I've only heard that Kerry will roll back the tax cuts for those making $200,000 and up. That doesn't sound like middle class tax increases to me, sorry.

That depends upon the geography. Take the major metro areas - and $200K is middle class (ie, the combined income of a marketing director and a nurse). Factor in the continuation of the marriage penalty, the alternative minimum tax, and lack of real indexing for inflation - and within a few years, more and more middle class people will creep into the higher tax brackets.

[cthulu23]

Please, let's not speculate about plans that aren't well defined yet....our arguments are tedious enough.

[tecoyah]

Originally posted by wonderwench
Leadership is not about doing just what is legal - it is about doing what is right. Edwards' private behavior sets a very poor example when contrasted to his message.

I am so very tempted....but alas I have promised myself.

[Sparhawk]

Originally posted by wonderwench
That depends upon the geography. Take the major metro areas - and $200K is middle class (ie, the combined income of a marketing director and a nurse). Factor in the continuation of the marriage penalty, the alternative minimum tax, and lack of real indexing for inflation - and within a few years, more and more middle class people will creep into the higher tax brackets.

the alternative minimum tax is a problem in need of solving, and I did not know that the tax brackets weren't indexed to inflation (which is just common sense). But there is no way you will sell me on a married couple making 200K a year as being middle class. Even in a metropolitan area, with increased housing and living expenses, still puts them smack dab in UPPER middle class. Besides, if this couple has to pay another 4-5 grand in income taxes, I don't really have a problem that, and neither should they - one less vacation overseas subsidizing some other countries' economy, and one more here at home.

[wonderwench]

Incorrect Sparhawk. In the SF Bay Area, the median price of a home exceeds $500K - this includes condos and homes in the outreaches of commute hell. In Silicon Valley proper, $200K puts a couple solidly in the middle class lifestyle definition - just able to qualify for the mortgage on a 3 bedroom 2 bath tract home.

[cthulu23]

The housing market in the Bay Area (and all over California) is a bubble waiting to burst. Thankfully, that is not a true indicator of the cost of living there.

[wonderwench]

Hello? It is an enormous indicator of the cost of living here. Rents are high. Gasoline, thanks to the bright lights in the state legislature, is generally 25%+ higher than the national average, we have some of the highest state income and sales taxes in the nation (as as the "privilege" of property taxes, and on and on.

Whether or not the bubble bursts remains to be seen. The last softening in the NoCal real estate market occured in 1989 after a several year run up. The market went sideways for several years before accelerating in 1996. This contrasts with the declining prices in SoCal when the aerospace industry shed jobs. Considering that SV is rebounding, we may have escaped a true burst.

[cthulu23]

What I'm saying is that other costs of living are not nearly as inflated as real estate. I thought that property taxes were relatively low there in comparison with the cost of a house.

[wonderwench]

Prop 13 sets the assessed value of real estate at the original purchase price and then factors in any improvements and a small inflation factor. If one is a long time homeowner, then the property taxes appear lower; for newer home owners, they are quite high. Some argue that we should get rid of Prop 13 because it "discriminates" against more recent home purchasers; the impact of this would be to force many retired and fixed income people out of their homes due to an inability to afford the taxes.

[Sparhawk]

Originally posted by wonderwench
Incorrect Sparhawk. In the SF Bay Area, the median price of a home exceeds $500K - this includes condos and homes in the outreaches of commute hell. In Silicon Valley proper, $200K puts a couple solidly in the middle class lifestyle definition - just able to qualify for the mortgage on a 3 bedroom 2 bath tract home.

The purchase of which they can then subsidize through tax credits. Here is my violin for that "poor" couple:

-----> . <------

But if you're talking medians, it's pretty worthless to pick out Silicon Valley and the Bay Area - they FAR exceed those of the rest of the country (both income and home value).

[wonderwench]

Right. Allowing people to keep money that they have earned so that they can purchase a home is a "subsidy".

[cthulu23]

Everyone that I've worked with in Silicon Valley was solidly middle class and commuted into work as they couldn't afford housing there. As Sparhawk said, SV is not a median housing mearket, even for California.

[wonderwench]

I know solidly middle class people who do live in San Jose, Fremont, Santa Clara and Mountain View. They live in 1500 square foot homes, drive older cars and live rather frugally so that their children can go to decent schools and they themselves do not have to spend 3 to 4 hours a day commuting. Why should people like that be punished for trying to take care of their families?

[cthulu23]

They shouldn't. Blame the insane vagaries of the market. Taxes wouldn't be such a problem if prices weren't so damn high.

[Zeld2.0]

TBH everytime I go up north it is defenitely true that the prices are insanely high. And do keep in mind this is indeed CA and that Silicon Valley and the Bay Area are hardly representative of the rest of the U.S.

[boatin]

so your position is that the kerry/edwards tax change (that is a long way from happening) is a bad thing because it affects YOUR immediate area?

you are generalizing that that means that it's bad for the american middle class? my understanding is the the true beneficiaries (of the current plan) are the very very rich. kerry/edwards are talking about changing the top end taxes. perhaps that affects the (upper) middle class. would be happy to look at facts that dispute that.


really not sure how you extrapolate "the rest of us" from that.

have you looked at bush/cheney's net worth? they wouldn't be encouraging legislation that benefits them, would they? tell me about leadership again, please.

[apeman]

the original article is a little one sided don't you think? if it was a comparison of GWB and Kerry and their various accounting practices it would be interesting, as it is it's just one side having a dig at the other

yawn

[Locobot]

People making $200,000+ per year where I live would be solidly upper class, I wouldn't mind them sharing a little more.

Wonderwench: lol like we should really base the income tax on the silicon valley economy!

[nanofever]

Originally posted by wonderwench
That depends upon the geography. Take the major metro areas - and $200K is middle class (ie, the combined income of a marketing director and a nurse). Factor in the continuation of the marriage penalty, the alternative minimum tax, and lack of real indexing for inflation - and within a few years, more and more middle class people will creep into the higher tax brackets.

200K is Middle Class? In what world do you live in where 200K is Middle Class? 200K is at least lower-Upper Class if not encroaching on Center-Upper Class. I would suggest that you must be on hallucinogenic drugs to believe 200K is middle class, but I am sure some mod would take offence.

Originally posted by wonderwench
I know solidly middle class people who do live in San Jose, Fremont, Santa Clara and Mountain View. They live in 1500 square foot homes, drive older cars and live rather frugally so that their children can go to decent schools and they themselves do not have to spend 3 to 4 hours a day commuting. Why should people like that be punished for trying to take care of their families?

Are you honestly trying to paint a pity story for people making 200K a year? If you think those people have a rough time, you need to think how FUCKING POOR people feel when it comes to funding their children's college. UC's are in a pretty massive budget crunch and large scholarships are pretty rare, and funny story, BUT THEY DONT GIVE OUT SCHOLARSHIPS BY THE STANDARD INCOME IN SILICON VALLEY. A FAMILY MAKING 200K WILL HAVE NO FUCKING PROBLEM PAYING FOR 20K PER YEAR FOR A UC.