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Ultra rich can shelter their income

An article in the June 08 issue of the New York Times revealed that the 25 richest Americans, including Jeff Bezos, Michael Bloomberg and Elon Musk, paid relatively little — and sometimes nothing — in federal income taxes between 2014 and 2018, according to an analysis from the news organization ProPublica based on Internal Revenue Service tax data.

The analysis showed that the nation’s richest executives paid just a fraction of their wealth in taxes — $13.6 billion in federal income taxes during a time period when their collective net worth increased by $401 billion, according to a tabulation by Forbes.

The ultra rich don’t have income like you and I do. They get paid in stocks, investments etc. that are not taxed until “realized.” They could die without realizing those gains. No income, no taxes.

They basically take out loans with their investments as collateral and voila they have money to spend and live on, untaxed. Not only that, but the interest on those loans can be deducted from any taxes due.

Unlike the ultra rich, the average American has no way to shelter income. For most of us the only way that we can hope to build wealth is through rising property values or through retirement savings in a 401-k or 403-b account.

But, unlike the uber-rich, the IRS has designed a regulation that keeps plan participants from deferring taxes indefinitely. This tool is called the Required Minimum Distribution or RMD.

Each year, beginning at 70-1/2 years of age – retirees are required to sell off ever increasing amounts of their IRA’s and pay tax on the proceeds; there is no way to evade this requirement; If an account owner fails to withdraw a RMD, fails to withdraw the full amount of the RMD, or fails to withdraw the RMD by the applicable deadline, the amount not withdrawn is taxed at 50%! The amount of the RMD is calculated each year and it increases substantially every year based on the taxpayer’s age.

So, for those arguing that the Feds can’t touch unrealized capital gains: how do you square your claim with the IRS tax provisions that force retirees to annually sell a defined percentage of assets in retirement accounts? Why are the super-wealthy with assets in other investment types not similarly burdened?

I speak from experience since I’m 76 years old and I’ve have had to make six RMD’s totaling over 100k; I would have preferred to have left the money in my IRA untaxed, but my name is not Bezos or Musk or Buffett so I had to withdraw the IRS calculated RMD and pay taxes – at income rates – not at the lower capital gains rate!

Jim Porter

Danville

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