Tag Archives: Warren Buffett

News, Observation, Politics

Tax-Dodging Billionaire Dynasties Could Cost US $8.4 Trillion: Report

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The wealth-hoarding by ultrarich families would be equivalent to over four Build Back Better plans

Over the next few decades, the richest American families could avoid paying about $8.4 trillion in taxes, or more than four times the cost of the stalled Build Back Better package, according to a report released Wednesday.

“We can fix our broken estate and gift tax system… or we can trust our democracy to a handful of trillionaire trust fund babies.”

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The Americans for Tax Fairness report—entitled Dynasty Trusts: Giant Tax Loopholes that Supercharge Wealth Accumulation—urges Congress to fix the federal tax code to address dynastic wealth.

The new analysis details how loopholes have made the payment of estate, gift, and generation-skipping taxes—collectively called wealth-transfer taxes—effectively optional for the “ultrawealthy” and thereby accelerate the “accumulation of dynastic wealth.”

“Ultrarich families use dynasty trusts—the term for a variety of wealth-accumulating structures that remain in place for multiple generations—to ensure their fortunes cascade down to children, grandchildren, and beyond undiminished by wealth-transfer taxes,” the report explains.

Some U.S. states, such as South Dakota, have even changed their laws on dynasty trusts to attract wealthy residents, as Chuck Collins of the Institute for Policy highlighted last year.

The new report notes that U.S. lawmakers aren’t planning to address the issue, even if the Senate passes a version of a House-approved package:

The Build Back Better (BBB) legislation now before Congress—otherwise a vehicle for significant progressive tax reform—does nothing to directly reverse this toxic accumulation of dynastic wealth. Moreover, some dynasty trust reforms that were included in the bill passed by the House Ways and Means Committee in September 2021 were stripped out before the House voted on the measure in November.

The BBB bill needs full support from Senate Democrats to pass. Sen. Joe Manchin (D-W.Va.)—one of the primary reasons the legislation hasn’t reached President Joe Biden’s desk—said Tuesday that it is “dead.”

However, Americans for Tax Fairness still uses the whittled-down BBB package to illustrate just how much money wealthy Americans can hoard for their families in the years ahead thanks to the U.S. tax system.

“The tax savings for the richest families could be about $8.4 trillion over the next 24 years or so if the current 40% estate tax rate remains in place,” the report states. “That’s the equivalent of more than four Build Back Better plans costing $1.75 trillion each over 10 years.”

The report adds that “about half of the $8.4 trillion is equivalent to the cost of the expanded child tax credit, which was included in the House-passed BBB bill and is estimated to reduce childhood poverty by 40%, for 24 years at $160 billion a year.”

“This hoarding of wealth is inexcusable,” declared the report’s principal author, Bob Lord, who practiced estate law for 30 years before joining Americans for Tax Fairness as tax counsel.

“The BBB legislation now before the U.S. Senate should be amended to close loopholes in the three components of America’s wealth transfer tax system: the estate, gift, and generation-skipping tax,” he asserted. “Effective reforms have already been developed—all that’s needed is for Congress to recognize the urgency to act now.”

The group’s new analysis and call for action come after Americans for Tax Fairness estimated last month that the 10 wealthiest billionaires in the United States have become approximately $1 billion richer collectively every day of the Covid-19 pandemic.

Wednesday’s report contains a warning about that group of ultra-billionaires, mentioning by name Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, and Elon Musk of Telsa and SpaceX.

“As much as familiar fortunes have blossomed in the low-regulation, low-tax, wealth-worshiping environment of the previous 40 years,” the report says, “the next 40 and beyond could see the rise of economic dynasties that will make the old money look small.”

Along with closing dynasty-trust tax loopholes, Americans for Tax Fairness urges reforms that would “curb the year-to-year accumulation of wealth in existing trusts.” Specifically, it calls for a new income-tax bracket “on undistributed trust income in excess of $250,000 that is five percentage points higher than the maximum income-tax bracket for individuals.”

Noting a proposal from Sen. Elizabeth Warren (D-Mass.), the group also encourages U.S. lawmakers to “impose an annual 2% wealth tax on the portion of a dynasty trust’s holdings that exceed $50 million, and an additional 1% on dynasty trust accumulations in excess of $1 billion.”

“The choice is clear,” according to the report. “We can fix our broken estate and gift tax system and stop the concentration of an ever-larger share of America’s wealth inside enormous dynasty trusts, or we can trust our democracy to a handful of trillionaire trust fund babies.”

“Fortunately, we know what needs to be done,” the report concludes. “The sole remaining challenge is to summon the courage to stand up to the holders of dynastic wealth and their enablers.”

Originally published on Common Dreams by JESSICA CORBETT and republished under a Creative Commons license (CC BY-NC-ND 3.0)

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Business, Economics, Finance

The Ultrawealthy Have Hijacked Roth IRAs. The Senate Finance Chair Is Eyeing a Crackdown.

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Senate Finance Committee Chairman Ron Wyden said on Thursday he is revisiting proposed legislation that would crack down on the giant tax-free retirement accounts amassed by the ultrawealthy after a ProPublica story exposed that billionaires were shielding fortunes inside them.

“I feel very strongly that the IRA was designed to provide retirement security to working people and their families, and not be yet another tax dodge that allows mega millionaires and billionaires to avoid paying taxes,” Wyden said in an interview.

Originally published on ProPublica. ProPublica is a Pulitzer Prize-winning investigative newsroom. Sign up for The Big Story newsletter to receive stories like this one in your inbox.Series: The Secret IRS Files Inside the Tax Records of the .001%

ProPublica reported Thursday that the Roth IRA, a retirement vehicle originally intended to spur middle-class savings, was being hijacked by the ultrawealthy and used to create giant onshore tax shelters. Tax records obtained by ProPublica revealed that Peter Thiel, a co-founder of PayPal and an investor in Facebook, had a Roth IRA worth $5 billion as of 2019. Under the rules for the accounts, if he waits till he turns 59 and a half, he can withdraw money from the account tax-free.

The story is part of ProPublica’s ongoing series on how the country’s richest citizens sidestep the nation’s income tax system. ProPublica has obtained a trove of IRS tax return data on thousands of the wealthiest people in the U.S., covering more than 15 years. The records have allowed ProPublica to begin, this month, an unprecedented exploration of the tax-avoidance strategies available to the ultrawealthy, allowing them to avoid taxes in ways most Americans can’t.

Wyden said ProPublica’s stories have shifted the debate about taxes at the grassroots level, underscoring a “double standard” that would have a nurse in Medford, Oregon, dutifully paying taxes “with every single paycheck” while the wealthiest Americans “just defer, defer, defer paying their taxes almost until perpetuity.”

Wyden said, “Now, the American people are with us on the proposition that everybody ought to pay their fair share, and in that sense, the debate about taxes has really changed a lot.”

The focus on recouping lost tax revenue comes at a critical time, Wyden and others say, as lawmakers look for ways to fund President Joe Biden’s infrastructure plan and other domestic spending.

Wyden had worried for years that Roth IRAs were being abused by the ultrawealthy. In 2016, he put forth a proposal that would have reined in the amount of money that could be stowed inside them.

“If I had my way back in 2016, my bill would have passed, there would have been a crackdown on these massive Roth IRA accounts built on assets from sweetheart deals,” Wyden said.

The proposal was known as the Retirement Improvements and Savings Enhancements Act. It would have required owners of Roth accounts worth more than $5 million to take out money over time, capping the accounts’ growth. It also would have slammed shut a back door that allowed the wealthy to move fortunes into Roths from less favorable retirement accounts. This maneuver, known as a conversion, allows a taxpayer to transform a traditional IRA into a Roth after paying a one-time tax.

Ted Weschler, a deputy of Warren Buffett at Berkshire Hathaway, told ProPublica he supported reforms to rein in giant Roth IRAs like his. Weschler’s account hit the $264.4 million mark in 2018 after he converted a whopping $130 million and paid a one-time tax years earlier, according to tax records obtained by ProPublica.

In a statement to ProPublica earlier this week, Weschler didn’t address any specific reform plan but said: “Although I have been an enormous beneficiary of the IRA mechanism, I personally do not feel the tax shield afforded me by my IRA is necessarily good tax policy. To this end, I am openly supportive of modifying the benefit afforded to retirement accounts once they exceed a certain threshold.”

Wyden’s proposal also targeted the stuffing of undervalued assets into Roths, which congressional investigators had flagged as the foundation of many large accounts. Under the Wyden draft bill, purchasing an asset for less than fair market value would strip the tax benefits from the entire IRA.

ProPublica’s investigation showed that Thiel purchased founder’s shares of the company that would become PayPal at $0.001 per share in 1999. At that price, he was able to buy 1.7 million shares and still fall below the $2,000 maximum contribution limit Congress had set at the time for Roth IRAs. PayPal later disclosed in an SEC filing that those shares, and others issued that year, were sold at “below fair value.”

A spokesperson for Thiel accepted detailed questions on Thiel’s behalf last week, then never responded to phone calls or emails.

The RISE Act was never introduced because, Wyden said, Republicans controlled the Senate at the time and made clear they opposed the effort. The proposal was also heartily opposed by promoters of nontraditional retirement investments. One of them wrote, at the time: “Everything about the RISE Act Proposal is opposed to capitalism and economic freedom.”

Following ProPublica’s story on Roths, Sen. Elizabeth Warren, D-Mass., said the way to address the gargantuan accounts would be a wealth tax, which would impose an annual levy on households with a net worth over $50 million.

Warren tweeted a link to the story and wrote: “Yes, our tax system is rigged with loopholes and tax shelters for billionaires like Peter Thiel. And stories like this will keep popping up until we pass a simple #WealthTax on assets over $50 million to make these guys pay their fair share.”

Daniel Hemel, a tax law professor at the University of Chicago who has been researching large Roths, said that Congress should simply prohibit IRAs from purchasing assets that are not bought and sold on the public market.

“There’s no reason people should be able to be gambling their retirement assets on pre-IPO stocks,” Hemel said.

He added that lawmakers should go beyond reforms targeting the accounts directly and address a potential estate tax dodge related to Roths.

If the holder of a large Roth dies, the retirement account is considered part of the taxable estate, and a significant tax is due. But, Hemel said, there’s nothing to stop an American who has amassed a giant Roth from renouncing their citizenship and moving abroad to a country with no estate taxes. It’s rare, but not unheard of, for the ultrawealthy to renounce their U.S. citizenship to avoid taxes.

Under federal law, U.S. citizens who renounce their citizenship are taxed that day on assets that have risen in value but are not yet sold. But there’s an exception for certain kinds of assets, Hemel said, including Roth retirement accounts.

Thiel acquired citizenship in New Zealand in 2011. Unlike the United States, New Zealand has no estate tax. It’s not clear whether estate taxes figured into Thiel’s decision.

A spokesperson for Thiel did not immediately respond to questions on Friday about whether estate taxes factored into Thiel’s decision to become a New Zealand citizen.

In his application for citizenship, Thiel wrote to a government minister: “I have long admired the people, culture, business environment and government of New Zealand, as well as the encouragement which is given to investment, business and trade in New Zealand.”

Patching the hole in the expatriation law, Hemel said, “should be a top policy priority because we’re talking about, with Thiel alone, billions of dollars of taxes.”

by Justin Elliott, Patricia Callahan and James Bandler for ProPublica via Creative Commons.

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Books, Celebrities, Coronavirus, Documentaries, Entertainment, Health and Diet, Lifestyle, Movies

Michael Lewis’ Newest Bestseller “Premonition” is his latest Triumph in Capturing the Zeitgeist

A unique talent for choosing and presenting exactly the theme and subject of the moment, and for posterity

Above:Photo from ‘The Big Short’ courtesy of Paramount

Very few authors have the intense feeling for the “zeitgeist” that Michael has shown throughout his long career. The ability to capture the spirit of the times so well is also possibly the reason why so many of his books have been snapped up and made into successful films. Examples are “The Big Short” (Christian Bale), “Moneyball” (Brad Pitt), “The Blind Side” (Sandra Bullock), all three of these also received Best Picture Oscar nominations.

While perhaps not an author to be remembered as a high literary genius such as James Joyce or William Shakespeare, the body of work, as a chronicle of modern times seen through the lens of his minds eye is, nevertheless, substantive and engaging. While “The Big Short”, both the book and subsequent film, capture with amazing clarity a confusing period that has been in many ways glossed over, even willfully, by those that were partially responsible but never held to account.

Though it remains to be seen how the future will look back on the 2020 novel coronavirus era, “Premonition” has, once more, the same potential to become one, potentially definitive portrait, of the crisis and it’s emergence into a full blown worldwide pandemic.

Now, soon, “The Premonition” is set to be produced by Amy Pascal for Pascal Pictures, with Rachel O’Connor. Directors are slated to be Phil Lord and Chris Miller who are mostly known for lighter fare.

To make it easier a great selection of Michael Lewis’ books are featured front and center, below, along with descriptions, provided courtesy of the Bookshop (and the various publishers), and with some links for a variety of options of where to purchase.

The Premonition: A Pandemic Story

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Fortunately, we are still a nation of skeptics. Fortunately, there are those among us who study pandemics and are willing to look unflinchingly at worst-case scenarios. Michael Lewis’s taut and brilliant nonfiction thriller pits a band of medical visionaries against the wall of ignorance that was the official response of the Trump administration to the outbreak of COVID-19.

The characters you will meet in these pages are as fascinating as they are unexpected. A thirteen-year-old girl’s science project on transmission of an airborne pathogen develops into a very grown-up model of disease control.

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A local public-health officer uses her worm’s-eye view to see what the CDC misses, and reveals great truths about American society.

A secret team of dissenting doctors, nicknamed the Wolverines, has everything necessary to fight the pandemic: brilliant backgrounds, world-class labs, prior experience with the pandemic scares of bird flu and swine flu…everything, that is, except official permission to implement their work.

Michael Lewis is not shy about calling these people heroes for their refusal to follow directives that they know to be based on misinformation and bad science. Even the internet, as crucial as it is to their exchange of ideas, poses a risk to them. They never know for sure who else might be listening in.

The Big Short: Inside the Doomsday Machine

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The real story of the crash began in bizarre feeder markets where the sun doesn’t shine and the SEC doesn’t dare, or bother, to tread: the bond and real estate derivative markets where geeks invent impenetrable securities to profit from the misery of lower- and middle-class Americans who can’t pay their debts.

The smart people who understood what was or might be happening were paralyzed by hope and fear; in any case, they weren’t talking.

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Michael Lewis creates a fresh, character-driven narrative brimming with indignation and dark humor, a fitting sequel to his #1 bestseller Liar’s Poker.

Out of a handful of unlikely-really unlikely-heroes, Lewis fashions a story as compelling and unusual as any of his earlier bestsellers, proving yet again that he is the finest and funniest chronicler of our time.

Liar’s Poker

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Michael Lewis was fresh out of Princeton and the London School of Economics when he landed a job at Salomon Brothers, one of Wall Street’s premier investment firms.

During the next three years, Lewis rose from callow trainee to bond salesman, raking in millions for the firm and cashing in on a modern-day gold rush. Liar’s Poker is the culmination of those heady, frenzied years–a behind-the-scenes look at a unique and turbulent time in American business.

From the frat-boy camaraderie of the forty-first-floor trading room to the killer instinct that made ambitious young men gamble everything on a high-stakes game of bluffing and deception, here is Michael Lewis’s knowing and hilarious insider’s account of an unprecedented era of greed, gluttony, and outrageous fortune.

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Moneyball: The Art of Winning an Unfair Game

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Moneyball is a quest for the secret of success in baseball.

In a narrative full of fabulous characters and brilliant excursions into the unexpected, Michael Lewis follows the low-budget Oakland A’s, visionary general manager Billy Beane, and the strange brotherhood of amateur baseball theorists. They are all in search of new baseball knowledge–insights that will give the little guy who is willing to discard old wisdom the edge over big money. Also made into a hit movie starring Brad Pitt, Moneyball is a book that exposes human nature, and how it can suddenly be overcome when unique perspectives lead to innovative choices.

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The Blind Side: Evolution of a Game

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When we first meet him, Michael Oher is one of thirteen children by a mother addicted to crack; he does not know his real name, his father, his birthday, or how to read or write.

He takes up football, and school, after a rich, white, Evangelical family plucks him from the streets. Then two great forces alter Oher: the family’s love and the evolution of professional football itself into a game where the quarterback must be protected at any cost.

Our protagonist becomes the priceless package of size, speed, and agility necessary to guard the quarterback’s greatest vulnerability, his blind side.

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Flash Boys: A Wall Street Revolt

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In Michael Lewis’s game-changing bestseller, a small group of Wall Street iconoclasts realize that the U.S. stock market has been rigged for the benefit of insiders.

They band together–some of them walking away from seven-figure salaries–to investigate, expose, and reform the insidious new ways that Wall Street generates profits. If you have any contact with the market, even a retirement account, this story is happening to you. Billions have been spent by Wall Street firms and stock exchanges to gain the advantage of a millisecond. “Is it a scam?” 60 Minutes correspondent Steve Kroft asks during his interview with the author, It’s bigger than a scam, Lewis says.

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Lewis further explains how ordinary investors are affected and argues that high-frequency traders have created instability in the stock market — for everyone. A reoccurring metaphor Lewis uses in his book “Flash Boys” is one of “prey and predators.” According to Lewis, the prey is “anybody who’s actually an investor in the stock market.”

The Fifth Risk: Undoing Democracy

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Michael Lewis’s brilliant narrative of the Trump administration’s botched presidential transition takes us into the engine rooms of a government under attack by its leaders through willful ignorance and greed.

The government manages a vast array of critical services that keep us safe and underpin our lives from ensuring the safety of our food and drugs and predicting extreme weather events to tracking and locating black market uranium before the terrorists do. The Fifth Risk masterfully and vividly unspools the consequences if the people given control over our government have no idea how it works.

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The Undoing Project: A Friendship That Changed Our Minds

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Forty years ago, Israeli psychologists Daniel Kahneman and Amos Tversky wrote a series of breathtakingly original papers that invented the field of behavioral economics.

One of the greatest partnerships in the history of science, Kahneman and Tversky’s extraordinary friendship incited a revolution in Big Data studies, advanced evidence-based medicine, led to a new approach to government regulation, and made much of Michael Lewis’s own work possible. In The Undoing Project, Lewis shows how their Nobel Prize-winning theory of the mind altered our perception of reality.

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Business, Economics, Finance, Observation, Tech

There’s more to Money than Dead Presidents: Crypto is Alive and Well

Above: photo – Dead Presidents Collage – Lynxotic

Haters like Buffet and Mark Cuban’s cheerleading are off base and spreading confusion

Disclaimer first: This opinion article is not investment advice and does not advocate buying any investment vehicle or currency

There are so many misconceptions propagated far and wide these days that it’s hard to choose a place to start. First it’s important to recognize that crypto currencies are not stocks or companies, yes that’s obvious but one of the biggest “anti” argument these days is that there’s an absurdity to the aggregate total value of a “coin” being more than the market cap of the stock of a particular company.

“Ethereum is now worth more than Bank of America”, this nonsense comparison goes, as if the market cap of a stock and the price of a coin times the number of coins in existence has any meaning whatsoever.

Following this logic, however, beneath all the hype, both pro-crypto and anti-crypto, lies a hidden thread to an actual underlying truth.

Though based on obvious common sense, this thread is potentially confusing and convoluted, to say the least. But without seeing it clearly the misconceptions will just keep getting more ridiculous.

In order to illustrate the conundrum a bit of background is needed. For example:

Stocks, in the US are priced in dollars. But how are dollars priced? Isn’t just as accurate to say that when the “price” of the DJIA moves higher (3,4050 at this writing) it is the value of the dollar, in relation to the DJIA that went down?

While this requires a kind of mental gymnastics, these are only due to the constant bombardment meant to keep you from seeing this 100% valid way of viewing stock valuations based in dollars.

There’s another kind of tacit misinformation and that is stating that “inflation” is only relevant when it’s measured by the government. For example if the “bull market” that began in 2009 and continues into 2021 represented a huge increase in stock prices, that is asset inflation.

The inverse of asset inflation is a reduction in dollar value. Less shares of a given stock can be bought for the same number of dollars. The dollars are worth less.

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And further, crypto, such as BitCoin is measured as having more or less value in dollars. Who is to say the massive rise in the dollar “value” of BitCoin is not representative of a decline in the “intrinsic” value of dollars.

The truth is often hidden in plain sight and that is what drives traditional markets

And that is precisely the point. BitCoin’s existence, which is locked in the mind of Satoshi Nakamoto (if he indeed exists) was indicated cryptically (no pun intended) to be a kind of answer to the instability of the global financial system as was evidence in the crisis of 2008. Taking place nearly concurrently with the birth of the idea of BitCoin.

Seeing the dollar as having a “stable” value and measuring a companies value, via it’s share price, is, let’s just say, perhaps 100 times more absurd than the Dogecoin dog.

Why? Because, for nearly a century the dollar is not backed or moored to anything but the government’s hope that it will retain value and laws that prohibit you and I from using other vehicles as “legal tender”.

The data (and opinions) on this are seemingly endless and yet absolutely critical to understanding our monetary system and where crypto may or may not fit in.

Horseshoe Nails and The Isle of Yap

Many interesting historical facts point toward the reality that money and coinage has always been just as much about the abstract belief in the system, more than any particular “intrinsic” value.

On the Micronesian Isle of Yap there was a functioning monetary system based on huge stones. A New York Times article, published in 1971 described the curious system:

“Every piece has an owner, and everyone knows who the owner is. Even when the money changes hands, it usually stays put. Yapese stone money is the largest and heaviest “coin” in the world.

In earlier days, brave islanders paddled by canoe 300 miles across open ocean to Palau where they cut slices from huge stalactites and brought them back as money. The value depended on how many men were drowned bringing them back. Nowadays, value is usually determined by measurements. We heard various versions, ranging from $10 radial inch to $42 a foot.”

Another article explains that many “wealthy” home (hut) owners displayed their money by leaving it leaning against the front of the house, where all could see the prosperity.

And, as for the prevention of fraud and corruption in any monetary system? Could any be more corrupt than the one that led to credit default swaps and mortgage-backed securities imploding and all the BS that nearly brought down the world’s banking system?

And that is not new either. In the 1800s traveling bank examiners journeyed throughout the US to check on the gold reserves claimed by various banks. More often than not, they found far less gold than was claimed (in today’s fractional banking system little attempt is made to reduce the leverage in the system).

A common, clever, trick to try to “leverage” what little gold was actually on hand was to pile gold coins and ingots on top of a bed of horseshoe nails, hoping that the examiner would weigh the entire concoction only, and never notice the bogus hidden attempt to bolster the weight.

Bitcoin’s system at least attempts to circumvent this typically human brand of fraud and corruption.

In the article “What is Cryptomining” on Techspot a chart was published to illustrate how Satoshi Nakamoto tried to solve the classic trust delimma with the proof of work mining system.

“For example, if Alice has $100 at the beginning of the day, she could promise Bob, Charlie, and David independently that she’d send them each $100 by the end of the day. While Alice could show them that she owns $100 and they’d all be content and agree to the transaction, Alice only has $100. Thus, if at the end of the day, the public ledger (which once finalized is set in stone, so to speak) includes 3 transactions initiated by Alice for $100, the system would be broken and no one would want to use it.

With a centralized system such as in modern day banks, there would exist a single ledger that can validate how much money a certain individual has, and thus it can guarantee that the customer cannot spend more than they own. When talking about a decentralized, peer-to-peer system, however, who’s there to stop a clever individual from spending their money multiple times quickly before getting caught?

To address this potential issue, crypto miners enter the playing field. Essentially, miners play the role of the decentralized banker, and will perform the required gruntwork to ensure that the system is functioning as expected without double-spending. In return for their work, they will be rewarded with some cryptocurrency.”

Buffet, Cuban, Musk & Munger

In clonclusion, Buffet, Munger and The Wall Street Journal may have knowledge and experience but they have also derived benefit from a system that favors those already holding capital, one that also has a tendency to crush those trying to build it.

So, it’s fairly obvious that they are “talking their book” and data mining to produce a self-congratulatory outcome, when they expound on all the reasons that they hate crypto (Munger even called it “disgusting”).

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As for Musk and Cuban, what’ve they got to lose? At least they “get it”, at least they are open to the idea of a future that has crypto as a part of the financial system. But where will they stand if there is government resistance in a big way, and if attempts to stop the entire crypto movement or “de-fang” it in ways that make it less viable as a true alternative to the status quo? That, my friend, will be the 1000 BitCoin question.

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