Romney’s CRUT – Updated (10/30 at 7:30 pm)

October 30, 2012 | 40 comments
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Maybe you’ve heard: Bloomberg News reports that Romney escaped taxation on some of his income by donating it to the Church, only that he donated less than he said he did, only that he didn’t have to donate as much as he said he would, or something like that.

Confused? Fair enough. I’ll try to walk through what happened (though estate tax isn’t really my specialty, and I haven’t ever worked with a charitable remainder unitrust (“CRUT”).

A CRUT is an irrevocable trust. What that means, essentially, is that it is a legal entity that an individual can form. As a legal entity it can own property. And a CRUT’s principal purpose is to own (and to distribute) property. In order to qualify as a CRUT, a trust must be set up to pay a fixed percentage of its assets to one or more beneficiaries.1 Upon the beneficiaries’ death, whatever is left in the trust is paid to a designated charity.

Clear? Not entirely? Okay, how about this: I decide to form a CRUT (and am significantly wealthier in this hypothetical world than I am in the current one). I form the trust and contribute stock that is currently worth $1 million. I set it up to pay me 10% of its value every year and, on my death, whatever is left will go to Loyola University Chicago, where I teach.

If, at the end of year one, the assets have not appreciated, I will receive $100,000 from the CRUT, and it will be left with $900,000. At the end of year two, with still no appreciation,2 I get $90,000 and the CRUT has $810,000 left. Etc. Assuming I die after year 3, Loyola will get $729,000.

Note that, over the course of the three years, I’ve received $271,000. How am I taxed on that amount?

In this case, I’m not, because the CRUT hasn’t earned any money–I’m basically getting distributions of my initial contribution back.

But if the CRUT earned money, I’d be taxable on that money. Assume, in year one, that the CRUT had earned $50,000 of interest and $50,000 of long-term capital gains. Note that now the CRUT has assets of $1.1 million, meaning I get a distribution of $110,000 (my 10%). The first $50,000 are taxable to me as ordinary income, the next $50,000 as long-term capital gain, and the final $10,000 won’t be taxable to me (because it’s a return of my money). And the CRUT is left with $990,000.

So what’s the game, then, if Romney’s taxable on the distributions from his CRUT? One game is the deduction. A person who sets up a CRUT gets a deduction when he or she contributes money to the CRUT, not in the amount of the contribution, but in the amount of the present value of the amount calculated to go to the charity.3

That’s a benefit, but pretty insignificant. The bigger benefit is, when you contributed appreciated property to a CRUT, you don’t have to pay taxes on the appreciation. That is, assume I have my $1 million of stock, but I only paid $100,000 for it when I bought it. If I sell it, I pay taxes on a $900,000 gain.4 But if I put it in the CRUT, I never pay taxes on it.

Note that a lot of people (Joanna Brooks5 included) seem to think that the scandal is that Romney’s CRUT will give less to the Church than he promised. Though that’s possible, I doubt Romney made any promise of value to the Church; because the Church is only the default beneficiary if he doesn’t name another, it wouldn’t surprise me if he hadn’t even mentioned the CRUT to the Church.6 Romney may well have expected the value of the CRUT to rise (it was, after all, established in the 90s, when asset prices were increasing). Clearly his CRUT isn’t making the 8.7% or so (because it pays out 8% annually) it needs to maintain its assets—Bloomberg reports that it’s basically all in cash now.7

And, of course, because of when he established the CRUT, he can, without violating the law, die with nothing left in the trust (and thus, with nothing going to the Church). For those of us who want to establish a CRUT today, at least 10% of what we initially put in the CRUT must remain at the end to go to charity.

All of this, though, leaves me with one question: what was this FOIA request that Bloomberg News filed? In general, tax returns aren’t subject to FOIA, and government officials are specifically forbidden from disclosing such information. I’ve written to the reporter and, if he gets back to me, I’ll update this post.

Update: The reporter got back to me (within a couple hours of my question, actually); he confirms that CRUT returns, like 990s filed by non-church tax-exempt organizations, aren’t subject to the Code’s non-disclosure rules. I don’t have time to confirm that this is the case or to tie down how to get there, but it makes intuitive sense: if you can see the returns of a tax-exempt organization, it makes sense that there should be the same obligation on conduits that also provide tax exemptions.

(Thanks to Kevin Barney for alerting me to this controversy and suggesting I write something about it. Of course, I take full responsibility for what I’ve written. Also, I’d love to have any corrections from people who actually know CRUTS, as opposed to people like me who refreshed law school memories with 15 minutes of research to write a blog post!)

Show 7 footnotes

  1. The fixed percentage must be somewhere between 5 and 50%.
  2. Notice that, in this hypothetical world, I’m a pretty bad investor?
  3. Present value because a dollar today is worth more than a dollar in a year. If Romney set up a $1 million trust with the expectation that 8% would go to the Church in 20 years, he couldn’t take a deduction for $80,000. Instead, he would have to calculate the present value of $80,000. Assuming a 5% annual interest rate, the present value would be $30,151.16, which would be his deduction.
  4. Okay, I’m changing the game here: now I’m a pretty darn good investor!
  5. whose perspectives, I should add, I generally enjoy, and who really shouldn’t be expected to have any idea about the ins and outs of CRUTS.
  6. Though, since I’ve never worked in the area, I don’t know what the general practice is—it is certainly possible that donors tell the charity that they’ve set up a CRUT.
  7. And cash, while secure, doesn’t provide any kind of return.

40 Responses to Romney’s CRUT – Updated (10/30 at 7:30 pm)

  1. Julie M. Smith on October 30, 2012 at 2:47 pm

    Well, Kevin beat me to it–I was going to ask you to explain it. I also wondered about the FOIA angle. One more question: does a group (such as the Church) have to give consent for you to form a CRUT with them?

  2. Raymond Takashi Swenson on October 30, 2012 at 2:52 pm

    I had assumed this was a feature of Romney’s income that was mentioned in his published income tax returns for 2010 and 2011. If the IRS is handing out information about individual taxpayers, they are violating the Privacy Act, which trumps the Freedom of Information Act.

  3. Kyle M on October 30, 2012 at 3:11 pm

    This is great, Sam. In Romney’s case, what’s the probably nature of the contribution? Is the CRUT for tithing purposes?

  4. DCL on October 30, 2012 at 4:14 pm

    I set up CRUTs for a living. In many cases, there is no reason that the charity has to know they are named, although every charity would like to know. In practice, though, charities are often the driving force behind establishing a CRUT. The Church has an active planned giving center that would prefer to be involved if a CRUT is being established in the Church’s favor, though I imagine it isn’t in many cases.

    I’m trying to figure out what the controversy is here (and I’m no fan of Romney so wouldn’t mind if there was one). Too lazy to look it up, but I am guessing that the rules on the maximum allowed unitrust payout amount have changed since the 90s.

  5. Jax on October 30, 2012 at 5:00 pm

    I guess the controversy is being able to say, “Look, Romney has set up a CRUT where he can avoid taxes. People should be outraged!” even though everything is legal

  6. Brent on October 30, 2012 at 5:18 pm

    Our civic duty is to avoid paying taxes in any legal manner available. Government doesn’t have a taxation problem, it has a spending problem.

  7. Robert C. on October 30, 2012 at 6:16 pm

    Nice, Sam — thanks.

  8. Kent Larsen on October 30, 2012 at 6:19 pm

    Re: (6) “Our civic duty is to avoid paying taxes in any legal manner available.”

    I’m not sure what logic would lead to this statement being true. “Civic Duty?” why? Most of us have plenty of motivation to reduce the taxes we pay (hopefully legally). I don’t think we need any sense of civic duty to induce us to do so.

    And what if someone decides to pay taxes that they could avoid legally? Why is that wrong? Last I looked money that the government receives is, baring corruption, mismanagement or error, spent for the good of the country.

    Sorry, but your statement seems clearly and patently wrong (as well as a simplistic partisan statement).

  9. Kent Larsen on October 30, 2012 at 6:27 pm

    Jax (5), I can’t help but observe that it is possible for things that are legal to be immoral [e.g. abortion]. Simply put “legal is not the same as moral.”

    It seems to me that the outrage over Romney’s taxes is, while clearly partisan, an objection to a moral violation (in the view of those criticizing).

    I must admit that I haven’t yet thought through the morality of taxes in this sense, so I don’t know if I think Romney’s taxes are moral or not. Is it moral for a rich man to pay a lower percentage of tax than many of the working poor? You may disagree with the view of morality that the critics are expressing. But it seems like it could well be based on an honest conception of morality.

  10. Jeff Hoyt on October 30, 2012 at 6:37 pm

    Kent;

    I wish you would not say that Romney “pay(s) a lower percentage of tax than many of the working poor” as unfortunately too many people believe that to be true. Unless your definition of “poor” is substantially different than mine, it is most certainly not an accurate statement.

    Jeff Hoyt

  11. Jax on October 30, 2012 at 7:08 pm

    Kent,

    While you’re looking at the morality of taxes, ask yourself what makes the percentage of taxes paid inherently better than actual tax dollars paid. Becaue Romney pays many more actual dollars than “the working poor”. Last time I heard, the gov’t functioned with actual dollars. Is there some reason that a comparison of percentages is MORALLY superior to a comparison of actual dollars?

    I would think it wrong to cheat on your taxes, but if you follow the law, why would that be immoral at all? It seems that the group most likely to point out Romney is “immorally” paying fewer taxes would be the same group saying the morality has no place in public discourse of same-sex marriage or abortion.

  12. Chris on October 30, 2012 at 7:08 pm

    I don’t think the IRS is prohibited from disclosing returns from a CRUT in response to a FOIA request. Remember, the CRUT is a legal “person,” like a corporation, and is distinct from the Romneys. CRUTs don’t have as much privacy as individuals.

  13. Sam Brunson on October 30, 2012 at 7:27 pm

    Thanks, everyone. To respond to a couple points: the reporter got back to me about his FOIA request, so I’ve updated the post.

    Brent: please stop. The OP doesn’t mention governmental taxing or spending problems; if there are such problems, they are entirely unrelated to what we’re talking about here. I know that mentioning tax on teh internets brings out anti-tax people in droves, but I really don’t care. If that’s what you want to talk about, please do it somewhere else.

    DCL, thanks for the details. Per the article, the difference between when Romney formed his CRUT and about a year later is that, previously, it really didn’t matter if the trust (and thus the charity) ended up with nothing when the beneficiary died. Now at least 10% of the original amount must go to the charity.

    Kyle M., that’s a great question; I imagine he’s not treating it as tithing, but, instead, as a testamentary bequest (because whatever’s left over doesn’t really correspond to 10% of anything), but I could totally be wrong on that.

    Thanks, all, for reading!

  14. Geoff - A on October 30, 2012 at 8:20 pm

    So how much does he make a year and how much of it is paid to the IRS as tax? A percent would be OK.

    I think the % is important. Widows mite was about the % she donated v the amount.

    Isn’t this a major question in the election, whether the high income people are contributing their fair share? So whether Romney is contributing his fair share (he will have plenty left even if he paid 50% as is required in some countries) is an indication of what can be expected under his leadership.

  15. Sam Brunson on October 30, 2012 at 8:27 pm

    Geoff, I talk about that here and here.

  16. Melissa B. on October 30, 2012 at 9:01 pm

    This is just proof to me that we need an overhaul of our tax system. My head hurts now, I’m going to bed! :)

  17. Jax on October 30, 2012 at 9:21 pm

    I don’t think the widow’s mite was about percentage at all. It was about giving even though you didn’t have any to spare,… giving even though she was in poverty… giving even though it hurt. It was about faith that God will provide me with the food I can no longer afford to buy…

    Do we want everyone to pay taxes until it hurts and they have nothing left? I believe we could/should be paying offerings/charitable contributions in this manner, until it hurts. But paying taxes to the same extent? The government doesn’t replace God for me… I don’t owe the gov’t the same kind of devotion that I owe HIM, so I’ll pay as little in taxes as possible (usually 0% for income taxes- I’m quite poor myself) so that I can continue to give to more worthy causes.

    So I don’t see anything at all immoral in Mitt Romney’s tax returns and tax shelters. I would love to see everyone give more charitably to those people/causes in need, but since I don’t know who/where/what Mitt gives his charity too, I’ll refrain from criticizing his donations. Buts taxes as a “moral” issue seems really, really…hmm…irrelevant/misplaced/confused/petty/narrow-minded/obtuse. Paying a 20% tax rate can’t really be made to sound immoral any more than driving 85mph… there is no threshhold where the speed you drive becomes immoral and same goes for taxes. As long as you are doing it legally then nothing is wrong.

  18. JR on October 31, 2012 at 12:03 am

    The big deal is that Romney is Mormon, and the Church is seen as a corporation. All rich people do stuff like this that is legal because lawmakers favor the wealthy, as most lawmakers are among the wealthy, and the wealthy have great lobby power. I would not be surprised if rich television evangelicals have set up CRUT’s. Being legal can be immoral. God will judge (I hope). Thanks for explaining.

  19. DCL on October 31, 2012 at 9:41 am

    Sam, thanks for the update. I never noticed it before, but now I see right in the instructions to Form 5227 (which CRUTs file annually together with a 1041A) that the 5227 is “open to public inspection.”

  20. Last Lemming on October 31, 2012 at 10:12 am

    Congress has left many loopholes in the tax code deliberately. I have no problem with anybody-even Mitt-taking advantage of those.
    But other times, Congress opens loopholes without intending to. Sooner or later (usually sooner) the accountants and lawyers find them and tell their clients. Once they get used to using them, they lobby to keep the loopholes in place and frequently succeed. Other times, Congress decides to crack down and at least partially close the loophole. It looks like that is what they did with CRUTs–requiring at least 10 percent remain for the charity. Mitt opened his CRUT just before that change and was grandfathered into the old rules.

    The history leads me to believe that Congress never intended the CRUT loophole to be used in a way that did not benefit charities. That it was so used occurred because rich people can pay their lawyers more that the government pays its lawyers. Its not policy-its a game. I find the playing of that game distasteful, and dock Mitt two points for joining in.

  21. Snyderman on October 31, 2012 at 12:44 pm

    Jax (17): “Paying a 20% tax rate can’t really be made to sound immoral any more than driving 85mph… there is no threshhold where the speed you drive becomes immoral and same goes for taxes.”

    I entirely disagree. Now, taxes being a moral issue is a bit murkier, but speeding can absolutely be a moral issue. Let me lay out my logical framework as to why:

    Assumption 1: Harming another, even negligently, is an immoral act. I base my assumption on one interpretation of Luke 15:8-10, where the woman (symbolizing the Church) seemingly negligently loses her coin (symbolizing a member). Christ seems to have described the losing of the coin as immoral, meaning that despite it being negligent, it was still wrong. Now, I grant that this is probably not the ONLY interpretation of this parable, but I think it is one legitimate one that bears thinking about.

    Assumption 2: Acting in a way that puts others at risk of harm–whether purposefully, knowingly, or negligently–is immoral. If we hold that negligently harming another is immoral, I would argue that negligently putting another at risk of harm is also immoral. Whether it’s a mom who leaves her infant unattended in the bathtub or a construction crew who cuts corners on ensuring the stability of their building–even if no one actually does get injured, it is still immoral.

    Assumption 3: Speeding is acting recklessly, meaning one is either purposefully, knowingly, or negligently putting others at risk of harm.

    Now, if my assumptions are true, and I believe that most people would agree with me that they are, then speeding is absolutely a moral issue.

    Now, I’m not sure this framework really applies as much to taxes, but I think a different framework might be possible to describe taxes as a moral issue.

  22. Skeptical on October 31, 2012 at 1:53 pm

    That moral framework for taxes would have to do with the individual’s consumption of public goods. Super hard to quantify an individual’s share of those public goods though, because often the public good consumed is the stability of other people’s lives, not just easy things like roads and parks. Being a free rider seems immoral to me.

  23. Kent Larsen on October 31, 2012 at 2:27 pm

    Jeff (10), I qualified it. I said “working poor” — not poor.

    Most of the poor both work and pay taxes.

    The rate on Romney’s returns, according to published accounts, was below 15%. Anyone earning more than the minimum income pays a 15% marginal rate. I do recognize that since the poor don’t pay tax on large portions of their income, the overall effective rate is lower than that. Still, its hard to see that difference as entirely significant when given how close the rates are.

  24. Kent Larsen on October 31, 2012 at 2:33 pm

    Jax (11):

    Hmmm so if the quantity is more important than the percentage, why does our tax system measure in percentages more than in quantities?

    “I would think it wrong to cheat on your taxes, but if you follow the law, why would that be immoral at all?”

    I think the answer to this depends on how you see taxes. If you take the (morally reprehensible, IMO) viewpoint that taxes are evil and government is stealing from the people, then I guess it isn’t immoral. If, on the other hand, you think that government is necessary and everyone must pay their fair share, then if you haven’t paid your fair share it is morally wrong, isn’t it?

    Of course the tax system can be seen as the way we determine what is a fair share. Or it can be seen as something often manipulated by interest groups, just like most other laws, which makes using the law to determine what is moral and fair questionable, at least.

  25. Jeff Hoyt on October 31, 2012 at 3:52 pm

    Kent;

    “working poor” includes the word “poor”, so I think you are still misleading people into believeing something that is not so. Comparing a theoretical marginal rate to an actual rate is misleading. No one even close to being poor (working or otherwise) pays a higher average income tax rate than Romney. It was reported that Romney pays a higher average income tax rate than 97% of taxpayers. I assure you that none of the “working poor” are included in the 3% that pays a higher rate than Mitt. As one who prepares tax return for a living, I am very sensitive to politicians creating divisions amongst Americans by spreading false information about tax law. Let’s not engage in that here.

    Jeff Hoyt CPA

  26. Jonathan Green on October 31, 2012 at 5:49 pm

    Jeff, focusing only on income taxes is precisely one way of spreading false information and creating divisions among Americans, as it perpetuates the pernicious idea that the poor pay no taxes. Factor in sales taxes and the withholding that starts from the first dollar of minimum-wage jobs and public school textbook fees and all the rest of the ways that the poor and almost poor get taxed along with everyone else, and then you’ll have a comparison worth discussing.

  27. Jax on October 31, 2012 at 6:02 pm

    Kent,

    If a system makes it legal for those on top to pay little and makes those in the middle bear the burden… wouldn’t that qualify as evil for squeezing the middle (making them pay more than their share) and allow the top to benefit? By making the case that it is morally wrong for it to be legal to pay a low percentage are you not also making the case that the government itself is immoral/evil since gov’t is what is enabling that immorality?

    If I make $100,000 and pay 25% and you make $1,000,000 what is the fair tax for you? 25%, 26%, 27%…50% Why pick one number over another, there is nothing self-evident that 27% is unfair but 28% is. According to this website http://www.ntu.org/tax-basics/who-pays-income-taxes.html (wish I knew how to link that in one-word link… any help??) the top 1% pay 37% (top 10% paid 71%) of the tax burden… How much of the tax load do they need to carry in order to be doing their “fair” share? 40%? 50%? 90%??? There is no self-evident/obvious number that is “fair” is there?

    Gov’t IS necessary… but is there a inherent percentage of taxes that is “fair”. Is it self-evident in some way that a progressive tax code is “fair”. Why is not a flat tax fair?… eveyone pays the same percentage but the rich pay infinitely more actual dollars. Then it would be absolutely equal percentages (doesn’t equal = fair?) but the vast majority of actual dollars would come from the wealthy. Or why not a regressive(?) tax rate where the percentage goes down the more you make… the logic going “well, since you pay more actual dollars, and therefore carry more of the burden/load, it is okay for you to pay a lower percentage.” That logic seems just as “fair” as the flat tax or the progressive tax.

    The only place any sort of “fairness” is written down is in the tax code itself… so if someone is honestly paying their taxes in accordance with that code, then nothing immoral is taking place UNLESS the gov’t is codifying benefits to the top and thereby milking the middle – in which case the gov’t IS stealing money from the people in order to allow a few a free ride – but since you abhor that idea…

  28. skyway on October 31, 2012 at 6:16 pm

    Taxes as a percentage of income are almost flat in the US, when all taxes are considered. http://www.economist.com/blogs/democracyinamerica/2012/07/taxes-and-rich-0

  29. Jeff Hoyt on October 31, 2012 at 7:24 pm

    Jonathan;

    I can certainly address social security taxes (progressive) and Medicare taxes (very progressive), as well as sales taxes, which I oppose for their regressive nature among other reasons. But the topic was income taxes, and that was what was addressed in a very misleading manner. Therefore I felt compelled to correct.

    If the left were truly concerned about making the overall tax burden more progressive they might mention gas taxes, or really make a point by noting the unfairness of muni bond interest being totally tax free. That is the exclusive domain of the very wealthy, but it is never mentioned. Why is that?

    By the way, I pay a much higher tax rate than Romney, so I should be outraged according to the left. But I realize that it is necessary to maintain low tax rates on capital transaction in order to assure the movement of capital to its most efficient use. It might not be “fair” to structure taxes in that manner, but adults should realize that “fairness” is not a laudable goal if the result is shared misery.

  30. Kent Larsen on October 31, 2012 at 9:53 pm

    Jax, you seem to be trying to put me in the place of agreeing completely with the critics of how much Romney pays. As I originally said, in (9):

    I must admit that I haven’t yet thought through the morality of taxes in this sense, so I don’t know if I think Romney’s taxes are moral or not.

    While I tend to agree somewhat with the critics, my principal point is that in THEIR view Romney’s tax payments are low, and this is immoral. This was in response to your statement in (5) that seemed to suggest that because Romney’s CRUT was legal it was also moral.

    I am simply trying to say that what is legal is NOT ALWAYS moral. IMO, if you are rich, and somehow not paying taxes at all on that income, there is something immoral going on — either on the part of the taxpayer or the tax laws.

    It is therefore NOT unreasonable for some (not necessarily me) to conclude that, even though he followed the law, Romney hasn’t done right.

    And, at least, from a political standpoint, rich politicians should learn the lesson that some tax strategies, even legal ones, are going to send the wrong message to voters. I think it is clear that this strategy has given critics ammunition that Romney now wishes they didn’t have.

    Which, perhaps, raises the economic question: Did Romney save more money in taxes than he will have to spend to overcome the negative effects of this news?

  31. Cameron N on October 31, 2012 at 10:57 pm

    @ Brent (6)
    I don’t think Brent’s comment is necessarily political. One with motivation and ability to do good can often do more good when they decide how to spend their money than a government can. It all goes back to Milton Friedman.

  32. Jax on October 31, 2012 at 11:25 pm

    Kent,

    Got it…you weren’t saying it was immoral, just that others did.

    In my view, because Romney didn’t write the tax laws, it is completely legal AND moral for him to follow them. If they have been manipulated unfairly then the “immorality” would be on those writing said immoral laws.

    If though, as President, he were to enhance/ignore/embrace that imbalance and allow its continuation (i.e. Obama allowing GE to pay 0 corporate taxes) then, as the chief executive, he would have the lion’s share of the “immorality” for there continued existence.

    Even the lobbyists would have minimal blame (some but not most) compared to those who were influenced improperly to protect the interests of a few rather than the interests of the majority of their constituents… and I don’t think there are many districts were the 1% are the majority…it’s kind of a definition issue. It wrong for a person to offer a bribe, but worse for the person to accepts it… that starts to sound like text-book conspiring/”secret combinations”

    I am curious why you think it is morally reprehensible to look at taxes as evil… if it was codified that a small percentage of the people at the top (say, the top .1%) got to pay nothing while the rest carried their share of the burden… wouldn’t that qualify as immoral and evil? qualify as the gov’t stealing from the people in the middle and enriching the “elite”?

  33. Mark D. on November 1, 2012 at 1:18 am

    No one can avoid taxes using a CRUT. The only thing one can do is defer some of them to a later date, possibly at a lower rate. This sort of tax deferral is common in the tax code with pensions, retirement accounts, and the like. The difference here is the remainder goes to a charitable organization of some sort.

    A CRUT is basically a way to provide for yourself and your family during your life while leaving a tax deductible bequest to a charity when you die. It is the charitable organization that receives the real benefit here, by encouraging such bequests. That is the only reason why we have the law in the first place.

    Tax deferral doesn’t change the total revenue received by the federal government very much, it merely delays it. The delay is compensated by the taxes paid on the additional value accumulated during the deferral period, when withdrawn. Revenue wise, it is pretty much sixes so far as the government is concerned.

    The idea that Romney is benefiting from this somehow is basically an accounting fiction. The only obvious way to benefit from such deferral is if you expect to be in a substantially lower tax bracket in your later years. That is the case with many middle class retirees, but not many others. Certainly not with the Romneys.

  34. Chadwick on November 1, 2012 at 4:42 pm

    To Jeff Hoyt CPA:

    I also am a CPA, mostly focusing on corporate work, but have a smattering of high net worth individuals also. What I don’t like about the current system is the way people like Romney get to pick how much they pay. Most of my clients have decided 20% is a good figure and so they make their itemized deductions work to get them there. I certainly don’t have the ability to play with the numbers to get to a target taxes paid amount. Why should they? (I hope this is not off topic Sam–if so I apologize but it seems quite often the point of a trust is to manage the taxes you pay which seems relevant here).

    Regarding cap gains preferential rates and the movement of capital, we’ll just have to agree to disagree. If capital only moved when all barriers to taxation were removed, there would not be a penny of capital left in this country. But there still is so something other than taxes must be driving people to create wealth. Let’s not let the tax tail wag the dog here.

    Also, above, you call SS taxes progressive. I’m having a hard time understanding how a tax that falls off after you make $116K per year is progressive. That seems regressive to me, but perhaps I’m missing something.

  35. Chadwick on November 1, 2012 at 4:46 pm

    Jax 32:

    Under your premise, my wife didn’t write the abortion laws, so who is responsible if she chooses to have an abortion? The Supreme Court?

    I’m not going to opine on whether or not Romney’s tax dealings are moral or otherwise. I generally think him a moral person and I’m not interested in tearing apart his return, even though I prepare returns for a living.

    But I think your argument is on a slippery slope that could excuse all kinds of unfortunate behavior, which I think Kent argued quite well, but also thought to throw in my two cents on the matter.

  36. Jax on November 1, 2012 at 5:05 pm

    Chadwick,

    The killing of human life is immoral regardless of its legality. It is just inherent in all people that killing is wrong. The spirit of Christ in all of us tells us that; men are instructed sufficiently that they know good from evil.

    Is there an inherent percentage of taxes that a moral person pays?? And can you tell me what that number is? Because that isn’t self-evident, is it?

  37. Chadwick on November 1, 2012 at 5:32 pm

    Jax,

    There are loopholes and then there are loopholes. Again, I’m not going to opine on Romney’s potential use (or not) of loopholes to pay tax. But utilizing resources you use and expecting other people to pay for them is stealing, which could also be called immoral by people who have a conscience. And based on my experience, the wealthy tend to use more resources than the rest of us. So, in my opinion, they should pay for them. And when you have Warren Buffett mentioning that he pays less income tax than his secretary, who most likely uses less resources than he does, I see a problem, as does he.

    You can look at taxes in one of two ways. A payment for resources, like highways, policemen, parks, schools, libraries, air traffic control, etc. Or you can look at it through the eyes of the Tea Party (or any other way that suits you). The choice is yours and I’m not here to convince you one way or the other. But I would think anyone who truly wants to hold themselves as being moral would stop and think about these things when dealing with the government that provided their family the opportunities to create such wealth. Perhaps a feeling of gratitude should exist, rather than a feeling to pay less to use more. And then again, perhaps not.

    Again, I’m not saying this is how Romney is, or this is how the wealthy are in general. But it still strikes me as odd (and immoral) that our country has set up a system where the wealthy get to determine the tax they pay while the rest of us are simply handed the bill. So yes, I do believe there is an inherent percentage of taxes that a moral person pays, though that number may require them to consider what they utilized to determine what they should pay. I would love to have that system apply to me, but it doesn’t, because I don’t have the ability to determine what I pay in the same way a wealthy person does, like Mitt Romney can, by putting money into a CRUT to effectively delay the tax liability.

  38. Jeff Hoyt on November 1, 2012 at 7:17 pm

    Chadwick;

    I guess I do not understand how your high net worth clients “play with the numbers”. If you mean they just make more charitable contributions, then I say great for the charitable organizations, and great for the high net worth people that are willing to give away $1 when they will only save 40 cents in taxes. If you mean they are just making up numbers then you shouldn’t be signing such returns. I certainly do not, and am never asked to.

    Of course capital moves in this country, but increase capital gains rates to equal ordinary income rates and people are much less likely to make changes in their investments. For example, if I have a $100,000 investment (with zero basis) that returns $5,000 income per year and I am presented with an investment that returns 6% per year I cannot come out ahead by making what should seem to be an obvious move unless the tax rates allow me to keep $83,000 to invest in the better investment. Without preferential capital gains rates investors just let investmetns sit where they are. Multiply an entire economy investing at something less than optimum due to tax rates and it is easy to see the drag on the overall economy.

    Regarding social security, the WSJ had a very good article earlier this week on this very topic. Of course, if you think of the social security program as welfare, then it would seem regressive. As it is designed to be a forced retirement program, it is clearly a raw deal for high income earners and a great deal for low income earners. I will never come close to getting back what I put in, while low income earners get back much more than they contributed.

    Jeff Hoyt

  39. Jax on November 1, 2012 at 7:58 pm

    utilizing resources you use and expecting other people to pay for them is stealing, which could also be called immoral by people who have a conscience.

    Meaning you think most of the “social safety net” programs are stealing, right? Because they fit your description too! As I see it, if it is stealing for wealthy people to get benefits they don’t pay for then that has to apply equally to the not-wealthy as well.

  40. Chadwick on November 1, 2012 at 9:58 pm

    Jeff Hoyt & Jax:

    I would love to continue this discussion with you, it’s definitely an interesting one, but I also think we’ve probably moved beyond the scope of the piece so out of respect for Sam I say thank you for your civil and well written responses, you’ve given me some things to noodle on, and leave it at that.

    Cheers.