Sic Transit Capital Gains

The NY Times editors bleat about tax injustice and the need for a Buffett Rule, citing this recent Congressional Research Service study (link).  They ignore this study documenting tha tmost "millionaires" (by their definition) are just passing through.

The bleating:

We Thought They Wanted to Be Like Buffett

When Warren Buffett pointed out that the American tax system was so egregiously rigged that he paid a smaller share of his income in taxes than his secretary, very few of his peers chimed in. It was so quiet that one might have thought Mr. Buffett’s case was a fluke. It wasn’t.

The Congressional Research Service found that 200,000 millionaires — almost two-thirds of taxpayers with taxable income above $1 million — paid a lower tax rate (combining income and payroll taxes) than the typical taxpayer making less than $100,000.

This is mostly because the rich make a huge chunk of their income from stocks and other investments, in the form of capital gains and dividends. Those are not subject to payroll taxes and are taxed at 15 percent, lower than the 25 percent marginal rate paid by a family earning wages of $100,000 a year.

This approach relies on a very broad definition of "millionaire", namely, anyone earning more than a million dollars in a particular year (the CRS study looked at 2006).  The problem, obvious to anyone not parroting Administration talking points, is that many "millionaires" report one year of high income due to some sort of predictable lifetime event.  For example, a retiring executive cashing in ten years worth of accumulated stock options might easily have one-time capital gains in excess of $1 million; or, back in 2006, people could still imagine exceeding the $250,000 exclusion on the sale of a home.  In either case, this CRS study will depict them as a millionaire relying on the favorable capital gains rate.

Per this study, which looked at tax returns from 1999 to 2007, roughly 50% of "millionaires" reported income in excess of $1 million just once in that nine year period.  Look, that is still a lot of money, but it is not Warren Buffett money nor are we talking about a lifestyle involving private jets, as Obama always does.

Unlike the Times editors I am not so sure that a person who just cashed out and retired and is looking down a twenty or thirty year road of uncertain health care costs with a couple of million in the bank and kids and grand-kids to think about is really representative of what the Times calls the "undertaxed" rich.  

LIKE TWO PAPERS IN ONE:  By eerie concidence, NY Times reporter Jane Gross has a column today titled "How Medicare Fails the Elderly" making the point that the elderly can spend a lot of money in a hurry on uninsured health care costs:

In the case of my mother, who died at 88 in 2003, room and board in various assisted living communities, at $2,000 to $3,500 a month for seven years, was not paid for by Medicare. Yet neurosurgery, which I later learned was not expected to be effective in her case, was fully reimbursed, along with two weeks of in-patient care. Her stay of two years at a nursing home, at $14,000 a month (yes, $14,000) was also not paid for by Medicare. Nor were the additional home health aides she needed because of staffing issues. Or the electric wheelchair after strokes had paralyzed all but the finger that operated the joy stick. Or the gizmo with voice commands so she could tell the staff what she needed after her speech was gone.

She paid for the room. My brother and I paid for the private aides and bought her the chair and the “talking board.” What would her life have been like without the skilled care she required and the ability to get around her floor and communicate her needs? I shudder to think. But none of this was Medicare’s responsibility.

Yet Medicare would pay for “heroic” care for a woman who was dying of old age, not a disease that could be treated: Diagnostic tests. All manner of surgery. Expensive medications. Trips to the emergency room or the hospital — had she not refused all of them, in the last year of her life. So, in less than a decade, by my low-ball estimate, my mother spent $500,000 of her own money and uncalculated sums from her two children before winding up what she considered, with shame, “a welfare queen.”

Depending on whether her mother collected that $500,000 in savings from a one-time event, she may have been a undertaxed millionaire.

 

Comments

[Danube of Thought]

What would Ms. Gross recommend?

[jimmyk]

Per this study, which looked at tax returns from 1999 to 2007, roughly 50% of "millionaires" reported income in excess of $1 million just once in that nine year period.

If we're not going to get back to the relatively flat tax we had after the '86 reforms, we should bring back income averaging. That would presumably eliminate a lot of these cases.

The NYT also ignores the fact that people have already paid taxes on the income that they saved and invested, plus the small point that maybe tax policy was designed not to penalize investment. Whatever.

[Forbes]

Don't know about some of the claims in the article. My sister in law, permanently disabled with MS, got a gov't paid ($20,000+) motorized wheelchair. Can't say I know the ins and outs of these programs, as they are complex and confusing, but there it is.

[Uncle BigBad]

Maybe Jane Gross would like for Medicare to trade "heroic procedures" for reimbursement for assisted living and nursing homes. Medicare will not pay for both any time soon.

I know, when the time comes, I want to be placed in a $14,000 per month facility, and I want somebody else to pay for it.

[MarkO]

Had it been Obama's grandmother, she should simply have died and saved eveyone money. You know, no matter what else we have learned about him, he is a heartless bastard.

[Rick Ballard]

"Whatever."

Precisely. A compilation of the current trend of propaganda in the NYT would justifiably merit the title of An Ode to Stupidity. It's not just Ms. Gross whining about being suckered into paying $14K per month and thereby blowing more than half the $500K total she claims spent. That's just a Death of CLASS piece), it's also Elizabeth Rosenthal decrying the Death of the Skydragon (that's the CO2 Monster's real name) plus a heartfelt whinge on the high cost of living in a Deep Blue Cesspool.

Whatever squared.

[maryrose]

How about taking care of MS Gross's mother at home? We did that with both my mother and m-i-l.

[~FR]

Why not lower the tax rate of Mr. Buffet's secretary? She is more likely to spend the extra money, thus helping the economy.

Or would that threaten the socialist-welfare programs...

[Sara (Pal2Pal)]

Maryrose:

The point is that Medicare will pay for expensive out of home stranger care, nursing homes, etc., but won't budge a dime if you try to save the gov't money and take care of a loved one at home.

I didn't pay out $14,000 mo to have her at home, but over 6 years, it did cost me personally all my own savings and all of hers plus when she died, I had 10s of thousands of dollars of medically-related, care-related bills to pay off. Most of that would have been covered in a hell-hole in-patient facility.

Forbes: Don't let Stephanie know about your sister's electric wheelchair, paid for by the gov't, as she is convinced that only loser weasels are gaming the system with the electric wheelchair scam.

Trying to avoid gov't care with someone who needs 24/7 care is stacked against you from the git go. They get you coming and going as you not only assume the costs that Medicare would cover with stranger care, but the caretaker takes a bath too if she/he cannot work outside the home and still do the caretaking necessary so not only do you not have a paycheck, but you lose all those quarters toward your own retirement. And then when you do return to work, you are expected to justify why you have a multi-year gap on your resume where you just sat at home being a couch potato, with no credit for the skills you used or learned as a result. I felt like I earned a degree in elder care by the time my Mother died. The problem, at least for me, was that once you've done it once, you never ever want to do it again. I know I must have been running on adrenaline during the time I cared for her, because after she died, I was wiped out, completely mentally and physically exhausted, all I wanted was to sleep (without hearing my name being yelled 8 to 10 times a night) for a year.

[Neo]

The way to game the Medicare system is to keep having surgeries every 90 days, then the 90 day rehabilitation period is covered. Repeat every 90 days to keep Medicare on the hook.

[Freddie Sykes]

There are three major forms of investment income: interest, dividend and capital gains.

Dividends get special treatment because they are doubly taxed. I would change this by making dividends tax deductible to corporations but taxed as ordinary income.

Tax revenues from capital gains are somewhat offset by tax deductions for losses especially in a bad economy. This make no sense: we punish those who increase the wealth of our country and reward those who decrease it. Phase out capital gain taxes and eliminated the subsidy for losers.

[Tully]

Sara, been there done that, and I never ever want to do it again. Sympathies.