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Thread: How The Rich Beat The Taxman

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    Veteran Member Citychick's Avatar
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    Default How The Rich Beat The Taxman

    A new 'Dispatches' series on 4od has just started and there's a show on
    'How the rich beat the Taxman'.
    I'm about to watch it sure it will be inacurate/sensationalised/nonsense but it's better than watching the X-Factor
    http://www.channel4.com/programmes/dispatches/4od

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    Banned Melonie's Avatar
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    Default Re: How The Rich Beat The Taxman

    ^^^ your video link apparently checks the location of would-be viewers, and won't stream to internet addresses outside of the UK.

    At any rate, while the details of various legal tax 'shelters' for the rich vary somewhat from country to country, there are quite a few that are shared ...

    - most countries tax capital gains / dividends / investment income at a far lower rate than they tax 'ordinary' business / salary income. Thus if someone already HAS money, that money can grow at a faster rate.

    - most countries offer tax preferred investment options, which coincidentally have high minimum price tags that only the rich can afford. In the US, a favorite is tax free municipal bonds issued by state and local government entities, the income from which is totally exempt from federal plus state plus local taxes ( but which carry a US$50,000 price tag per ). Another favorite in the US and western europe are tax-favored targeted investments in alternative energy, where rich investors ponying up hundreds of thousands of dollars / Euros to buy a 'partnership share' receive not only dividend income from operations but also receive tax credits ( that can be used to directly reduce taxes due on other forms of income )

    - those rich enough to travel by private means have the option of shifting their money into a 'tax haven' country where it can reside in comparative secrecy, and where dividend / interest / capital gains earnings are beyond the reach of the home country's taxman. Along these lines, the UK is located much closer to 'tax haven' countries than America is ... and arguably the British Crown channel islands are only a short boat ride away.

    - most countries allow the formation of trusts, whose income is taxed at much lower rates and in some circumstances not at all ( i.e. inheritance taxes ). But as with other tax shelters, the costs / overhead associated with establishing and maintaining a trust only make it worthwhile if you're talking about a million dollars / pounds / Euro.

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    God/dess chanzep's Avatar
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    Default Re: How The Rich Beat The Taxman

    Gonna have a look.
    xoxo

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    Default Re: How The Rich Beat The Taxman

    Quote Originally Posted by Melonie View Post
    ...- most countries offer tax preferred investment options, which coincidentally have high minimum price tags that only the rich can afford. In the US, a favorite is tax free municipal bonds issued by state and local government entities, the income from which is totally exempt from federal plus state plus local taxes ( but which carry a US$50,000 price tag per ). Another favorite in the US and western europe are tax-favored targeted investments in alternative energy, where rich investors ponying up hundreds of thousands of dollars / Euros to buy a 'partnership share' receive not only dividend income from operations but also receive tax credits ( that can be used to directly reduce taxes due on other forms of income )
    Just a point on this - small investors can garner the same benefits by purchasing into municipal and state bond funds. Many of the large fund companies offer funds covering a variety of states.

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    Default Re: How The Rich Beat The Taxman

    ^^^ in point of fact this is only partially true. Yes a number of companies offer municipal bond based mutual funds, of which 'average' investors can purchase shares affordably. However, where spending $50k to directly purchase, say, a new 7% California Muni bond involves a couple of hundred dollars worth of bond broker commissions and provides the full 7% as tax free interest income to the bond owner, purchasing shares of a mutual fund that owns such a bond will cost you a stockbroker commission PLUS a 2-3% imputed fund management fee ( i.e. the 'average' investor only gets a 4-5% return whereas the bond owner gets the full 7% return ). Given that the 'rich' bond buyer is avoiding perhaps a 40% federal plus state income tax rate ( meaning that the muni bond equivalent rate of return approaches that of a 7%*1.4= 10% taxable investment ), whereas the 'average investor' is avoiding perhaps a 30% federal plus state income tax rate ( meaning that the muni bond equivalent rate of return approaches that of 4.5%*1.3=6% taxable investment), the muni bond mutual fund option is of far less 'value' to average investors.

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    God/dess rickdugan's Avatar
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    Default Re: How The Rich Beat The Taxman

    Quote Originally Posted by Melonie View Post
    ^^^ in point of fact this is only partially true. Yes a number of companies offer municipal bond based mutual funds, of which 'average' investors can purchase shares affordably. However, where spending $50k to directly purchase, say, a new 7% California Muni bond involves a couple of hundred dollars worth of bond broker commissions and provides the full 7% as tax free interest income to the bond owner, purchasing shares of a mutual fund that owns such a bond will cost you a stockbroker commission PLUS a 2-3% imputed fund management fee ( i.e. the 'average' investor only gets a 4-5% return whereas the bond owner gets the full 7% return ). Given that the 'rich' bond buyer is avoiding perhaps a 40% federal plus state income tax rate ( meaning that the muni bond equivalent rate of return approaches that of a 7%*1.4= 10% taxable investment ), whereas the 'average investor' is avoiding perhaps a 30% federal plus state income tax rate ( meaning that the muni bond equivalent rate of return approaches that of 4.5%*1.3=6% taxable investment), the muni bond mutual fund option is of far less 'value' to average investors.
    I should have responded sooner but I missed the post...

    Many of these funds can be purchased directly through a no-load fund family, meaning that there is no commission. Additionally, some of these funds have total expenses (advisory, administrative, etc.) of 1% or less. Now while it is true that the richer investor can access these benefits without the layer of fund-level expenses, the spread between the direct purchase return and the return of the fund can be somewhat narrower than portrayed above.

    From the relative tax benefit standpoint, your initial comment was aimed at the availability of this (and other) tax free options rather than the impact of those options for the rich vs. the middle class. Of course someone who pays a marginal rate of 40% will save more than someone who pays 20%, but that does not mean that the tax exemption benefit is significantly less available, just less of a draw vs. other potential investment options. But of course the same logic would hold true for all of the other examples that you mentioned.

    Just my

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    Default Re: How The Rich Beat The Taxman

    RichDugan is accurate here. Melonie is unduly pessimistic again.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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    Default Re: How The Rich Beat The Taxman

    you said
    small investors can garner the same benefits by purchasing into municipal and state bond funds
    i said in essence that small investors garner less benefits

    you said
    Now while it is true that the richer investor can access these benefits without the layer of fund-level expenses, the spread between the direct purchase return and the return of the fund can be somewhat narrower than portrayed above.

    From the relative tax benefit standpoint, your initial comment was aimed at the availability of this (and other) tax free options rather than the impact of those options for the rich vs. the middle class. Of course someone who pays a marginal rate of 40% will save more than someone who pays 20%,
    relayer said
    Melonie is unduly pessimistic again
    the fact remains that small investors garner less benefits ... both in terms of having to pay some element of mutual fund expenses AND in terms of a lower effective income tax rate being avoided.

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    Default Re: How The Rich Beat The Taxman

    Lower income peoples' tax rates are a part of their choice to invest or not in muni funds. The "less benefits" still doesn't prevent them from investing in such to sometimes great advantages.
    Last edited by threlayer; 11-17-2010 at 09:39 PM.
    I loved going to strip clubs; I actually made some friends there. Now things are different for the clubs and for me. As a result I am not as happy.

    Customers are not entitled to grope, disrespect, or rob strippers. This is their job, not their hobby, and they all need income. Clubs are not just some erotic show for guys to view while drinking.

    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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