Time for the Rich to Shut Up on Taxes

What commonality binds Haim Saban, Penny Pritzker, and Warren Buffett, aside from membership in the billionaire's club?  Guilt, and not the quotidian variety -- unfulfilled potential, disappointing behavior, lost love -- that afflicts most of us.  Theirs is a guilt that only afflicts the very rich -- a guilt that arises from wanting more equitable outcomes coupled with an unwillingness to pay the requisite taxes to achieve those outcomes.  It's the same guilt that has plagued Rockefeller, Kennedy, and Mott progeny for decades.

Messrs. Saban and Buffett and Ms Pritzker are newcomers to the world of self-imposed tax-deficiency guilt, but they have adapted fast.  A few years ago, Mr. Buffett excoriated U.S. tax policy, claiming he was taxed at a measly 17.7 percent rate on his 2006 income of $46 million, while his coolie secretary was taxed at a 30 percent rate on her $60,000 annual stipend.  (Mr. Buffett included FICA taxes in the calculation, though he shouldn't have; FICA is an insurance program that will directly benefit his secretary, and he excluded the corporate taxes extracted from his dividends and capital gains.)

Mr. Saban and Ms Pritzker also believe the rich should pay more.  "Higher taxes for people like me to help others who are less fortunate -- that's okay by me," Mr. Saban was quoted in the now-defunct Portfolio magazine.  "Warren said that over the last 20 years, the net worth of the 400 richest Americans has grown seven times and the average American's net earnings are flat.  He said that's not right, and that's why he's a Democrat.  I agree.  It's not good for our democracy," Ms Pritzker was quoted by Bloomberg.

There is a hypocrisy, if not psychosis, at work in the minds of the tax-demanding rich: Mr. Buffett shielded $31 billion of his wealth by transferring it to Bill Gates' philanthropies.  The Pritzker family is famous for employing a skein of trusts and offshore accounts to obfuscate their wealth.  When the patriarch, Abram Pritzker, died, in 1986, his heirs claimed an estate worth $25,000.  The Internal Revenue Service saw it differently, valuing the estate a few dollars north of that figure and sued to collect $53 million in back taxes.  The two sides settled for $9.5 million in 1994.

Mr. Saban's actions suggest a passive-aggressive relationship with taxes.  Four years ago he settled with the IRS after admitting to using offshore tax shelters to avoid paying $300 million on the $1.5 billion he realized after selling his share of Fox Family Worldwide to Disney.  Mr. Saban told Senate investigators: "You have before you a very disappointed person, who feels misled, lied to, cheated."

Ms Pritzker sees no contradiction, much less irony, in the need to pay taxes and the desire to avoid taxes.  In fact, she readily justifies the practice of demanding more taxes and then getting out of Dodge with this creaky riposte to Bloomberg: "Our family has done more than just good tax planning.  What we're good at is building businesses, creating jobs and supporting our economy.''

Most income earners -- salary and wage earners, in particular -- are stuck with their onerous tax burden (which, by the way, is why they rarely bitch about paying too little tax).  The very rich, in contrast, enjoy the economy of scale to defer and avoid taxes through trusts, off-shore accounts, property exchanges that resemble barters, and myriad manipulations of the tax code.  Their tax-importuning subset are like the chatty members of a group dinner who convince everyone to order the foie gras, caviar, and truffles but skip out before the bill arrives.

There are solutions to this vexing tax problem.  There is the obvious: The whiny woeful rich could simply write an additional tax check each year.  But that solution doesn't allow the rich to step down from their pedestals when the mood strikes to commiserate with the lesser rich, nor does it allow them to join idiotic self-congratulatory Web sites like Patriotic Millionaires for Fiscal Strength.  As for the psychosis, it is really a fear of being the lone patsy writing addition checks to the government. 

If Mr. Buffett et al were serious about getting more of their money into government's hands, they would discipline themselves by promoting a wealth tax.  They have it in Europe, where some governments require tax payers to prepare a balance sheet from which to extract their pounds of flesh.  Spain, Greece, Norway, Switzerland, and Liechtenstein impose their own version of wealth taxes, just not with France's taxation fervor.

The beauty of a wealth tax for the tax-deprived rich is that it can be worded to eliminate deductions and loopholes.  Transfers to trusts, charities, off-shore accounts, or legal persons; to spouses; to children; to relatives; to friends; to anyone or anything anywhere won't reduce the tax burden a dime.

A wealth tax could state that transferred assets (including the assets transferred from years past) and the return they generate would always be counted toward the rich's net worth when calculating tax liability.  Reductions would only occur through loss in market value.  There would no lawyering, accounting, or financial planning a way out of the tax.

Would there be costs?  Perhaps the United States would experience a financial and intellectual drain from those rich less enthusiastic about paying taxes.  According to a 2006 Washington Post article, France loses a millionaire a day to friendlier tax regimes.  One circumspect pundit referenced in the Post, Eric Pinchet, estimated the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.  Not exactly a favorable benefit-cost paradigm.

But let's be honest: The very rich don't want to pay more tax, they want you to pay more taxes.  The very rich simply want to indulge in proletarian rhetoric and in the notoriety of proclaiming to want to pay more taxes.  These rich tax agitators know that the real cost of any tax freight is borne by the comfortable and very comfortable, the almost rich and nearly rich income earners.  The pro-tax very rich are prevaricators as much as they are hypocrites. 

Stephen Mauzy is a financial writer and principal of S.P. Mauzy & Associates. He can be reached at steve@spmauzyandassociates.com.
What commonality binds Haim Saban, Penny Pritzker, and Warren Buffett, aside from membership in the billionaire's club?  Guilt, and not the quotidian variety -- unfulfilled potential, disappointing behavior, lost love -- that afflicts most of us.  Theirs is a guilt that only afflicts the very rich -- a guilt that arises from wanting more equitable outcomes coupled with an unwillingness to pay the requisite taxes to achieve those outcomes.  It's the same guilt that has plagued Rockefeller, Kennedy, and Mott progeny for decades.

Messrs. Saban and Buffett and Ms Pritzker are newcomers to the world of self-imposed tax-deficiency guilt, but they have adapted fast.  A few years ago, Mr. Buffett excoriated U.S. tax policy, claiming he was taxed at a measly 17.7 percent rate on his 2006 income of $46 million, while his coolie secretary was taxed at a 30 percent rate on her $60,000 annual stipend.  (Mr. Buffett included FICA taxes in the calculation, though he shouldn't have; FICA is an insurance program that will directly benefit his secretary, and he excluded the corporate taxes extracted from his dividends and capital gains.)

Mr. Saban and Ms Pritzker also believe the rich should pay more.  "Higher taxes for people like me to help others who are less fortunate -- that's okay by me," Mr. Saban was quoted in the now-defunct Portfolio magazine.  "Warren said that over the last 20 years, the net worth of the 400 richest Americans has grown seven times and the average American's net earnings are flat.  He said that's not right, and that's why he's a Democrat.  I agree.  It's not good for our democracy," Ms Pritzker was quoted by Bloomberg.

There is a hypocrisy, if not psychosis, at work in the minds of the tax-demanding rich: Mr. Buffett shielded $31 billion of his wealth by transferring it to Bill Gates' philanthropies.  The Pritzker family is famous for employing a skein of trusts and offshore accounts to obfuscate their wealth.  When the patriarch, Abram Pritzker, died, in 1986, his heirs claimed an estate worth $25,000.  The Internal Revenue Service saw it differently, valuing the estate a few dollars north of that figure and sued to collect $53 million in back taxes.  The two sides settled for $9.5 million in 1994.

Mr. Saban's actions suggest a passive-aggressive relationship with taxes.  Four years ago he settled with the IRS after admitting to using offshore tax shelters to avoid paying $300 million on the $1.5 billion he realized after selling his share of Fox Family Worldwide to Disney.  Mr. Saban told Senate investigators: "You have before you a very disappointed person, who feels misled, lied to, cheated."

Ms Pritzker sees no contradiction, much less irony, in the need to pay taxes and the desire to avoid taxes.  In fact, she readily justifies the practice of demanding more taxes and then getting out of Dodge with this creaky riposte to Bloomberg: "Our family has done more than just good tax planning.  What we're good at is building businesses, creating jobs and supporting our economy.''

Most income earners -- salary and wage earners, in particular -- are stuck with their onerous tax burden (which, by the way, is why they rarely bitch about paying too little tax).  The very rich, in contrast, enjoy the economy of scale to defer and avoid taxes through trusts, off-shore accounts, property exchanges that resemble barters, and myriad manipulations of the tax code.  Their tax-importuning subset are like the chatty members of a group dinner who convince everyone to order the foie gras, caviar, and truffles but skip out before the bill arrives.

There are solutions to this vexing tax problem.  There is the obvious: The whiny woeful rich could simply write an additional tax check each year.  But that solution doesn't allow the rich to step down from their pedestals when the mood strikes to commiserate with the lesser rich, nor does it allow them to join idiotic self-congratulatory Web sites like Patriotic Millionaires for Fiscal Strength.  As for the psychosis, it is really a fear of being the lone patsy writing addition checks to the government. 

If Mr. Buffett et al were serious about getting more of their money into government's hands, they would discipline themselves by promoting a wealth tax.  They have it in Europe, where some governments require tax payers to prepare a balance sheet from which to extract their pounds of flesh.  Spain, Greece, Norway, Switzerland, and Liechtenstein impose their own version of wealth taxes, just not with France's taxation fervor.

The beauty of a wealth tax for the tax-deprived rich is that it can be worded to eliminate deductions and loopholes.  Transfers to trusts, charities, off-shore accounts, or legal persons; to spouses; to children; to relatives; to friends; to anyone or anything anywhere won't reduce the tax burden a dime.

A wealth tax could state that transferred assets (including the assets transferred from years past) and the return they generate would always be counted toward the rich's net worth when calculating tax liability.  Reductions would only occur through loss in market value.  There would no lawyering, accounting, or financial planning a way out of the tax.

Would there be costs?  Perhaps the United States would experience a financial and intellectual drain from those rich less enthusiastic about paying taxes.  According to a 2006 Washington Post article, France loses a millionaire a day to friendlier tax regimes.  One circumspect pundit referenced in the Post, Eric Pinchet, estimated the wealth tax earns the government about $2.6 billion a year but has cost the country more than $125 billion in capital flight since 1998.  Not exactly a favorable benefit-cost paradigm.

But let's be honest: The very rich don't want to pay more tax, they want you to pay more taxes.  The very rich simply want to indulge in proletarian rhetoric and in the notoriety of proclaiming to want to pay more taxes.  These rich tax agitators know that the real cost of any tax freight is borne by the comfortable and very comfortable, the almost rich and nearly rich income earners.  The pro-tax very rich are prevaricators as much as they are hypocrites. 

Stephen Mauzy is a financial writer and principal of S.P. Mauzy & Associates. He can be reached at steve@spmauzyandassociates.com.