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| Kerry, Edwards Use Tax Loopholes They Condemn |
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October 5, 2004 |
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Listen to Rush…
(…illustrate the blatant hypocrisy of the liberal mindset when it comes to taxes)
BEGIN TRANSCRIPT
John Edwards, the wealthy son of a textile mill owner and consultant, will go up against the super-wealthy Dick Cheney, he of the dour Halliburton past in the billing vice presidential debate tonight in Cleveland, Ohio. Now, many of you are wondering how I opened the program, what is this business about sub-S's and he doesn't pay Medicare taxes and all that. And many of you are wondering, "What do you mean, Teresa Heinz Kerry pays an effective 15% tax rate?" Wall Street Journal had an editorial back in July, on the 13th, in fact, called, "Liberal loopholes: Edwards and Kerry want to raise taxes, but they aren't wild  about paying them." And that's the whole point. None of what they're doing skirts the law. I don't want anybody to misunderstand. None of what they're doing is illegal. May be loopholes, but they're taking advantage of the loopholes that every rich person they condemn takes advantage of. The difference is that everybody else is not out there condemning everybody for doing it. Edwards and Kerry are out there telling us that the rich aren't paying their fair share while they themselves are doing everything they can to avoid paying what they owe. They're being blatantly hypocritical about it. They want one set of rules for themselves, another set of rules for you.
"In embracing John Edwards, John Kerry has also endorsed his populist 'two Americas' rhetoric and has put tax increases at the center of the election campaign. So it's fair to ask the two Democrats: How much of those tax increases will actually hit the super-rich like yourselves, and how much will end up on the backs of upper middle-class wage earners? For an answer, let's look at what the two Senators have themselves been paying in taxes. It turns out that the Kerrys and Edwards have exploited plenty of tax loopholes over the years. Of course, nobody is obligated to pay more than what the letter of the law requires. But the complex tax code benefits the wealthy, who can afford tax attorneys and complicated schemes to skirt the law. And high marginal rates give them plenty of incentive to do so."
May we also point out who writes this code? It's people like Kerry and Edwards. They write the tax code. They are members of Congress and the Senate, and we all know that a lot of members of Congress and the Senate are not paupers. They're not hardware store owners who take a couple years off and go serve and then go back home and sell Flexible Flyer sleds in the wintertime and hope for a lot of snow. They are wealthy people, and they're the ones that write these laws. |
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Now, Senator Edwards talks about the need to provide health care for all and that's where he is really exposed. He's out there talking about health care, he himself has done more to damage health care by raising costs because of his actions as a trial lawyer. And he has also compounded that by structuring his own personal finances to avoid paying Medicare taxes on 90% of the nearly $27 million he earned over four years.
 "Senator Edwards talks about the need to provide health care for all, but that didn't stop him from using a clever tax dodge to avoid paying $591,000 into the Medicare system. While making his fortune as a trial lawyer in 1995, he formed what is known as a 'subchapter S' corporation, with himself as the sole shareholder. Instead of taking his $26.9 million in earnings directly in the following four years, he paid himself a salary of $360,000 a year and took the rest as corporate dividends. Since salary is subject to 2.9% Medicare tax but dividends aren't, that meant he shielded more than 90% of his income. That's not necessarily illegal, but dodging such a large chunk of employment tax skates perilously close to the line. The Internal Revenue Service takes a dim view of such operations and 'may collapse the structure entirely and argue the S corporation is not truly a separate entity,' in the words of Tax Adviser magazine." Because of things like what Edwards is doing, the IRS is looking into this. "Attorney CPA magazine lists it as No. 11 of its '15 best underutilized tax loopholes.'" Attorney CPA magazine, you ever heard of that? Attorney CPA magazine lists the Edwards loophole as number 11 of its 15 best underutilized tax loopholes. They warned that the IRS "has successfully litigated cases against individuals, particularly sole shareholders of personal service S corporations, reclassifying such deemed distributions as wages subject to social security taxes."
Now, about that. Well, I don't have time to explain this, but I got an e-mail from a very friendly CPA, "Hey, Rush, keep in mind, however, that an S corporation owner does pay double Social Security." That's one of my favorite arguments, and I love to nuke this, just hit this out of the ballpark. You know, how many of you think that your employer matches your FICA contribution? That's your Social Security. You look at your pay stub and you take your FICA, and you think, whatever it is, 12%, 15% a year, I'm not even sure even though I pay "both sides", but you probably think your employer is paying half of it and you're paying half of it. And of course the CPA wants us to feel sorry for his S Corp. clients because they're paying both sides, they're paying it all. Well, if John Edwards is going to pay himself $360,000 he's going to pay both sides and still max out and not owe any more because, unlike Medicare, Social Security taxes have a ceiling. Once you earn a certain amount, you stop paying the tax. That ceiling rises every year. Medicare, you pay it on the whole amount of your earnings. But it's a myth that your employer is matching your Social Security contribution. You're paying it all, too, just like this lowly sub-S guy is. The difference is you never see half of it. It just gets withheld before it ever gets to your hands.
Now, if you have any doubts about this, I urge you to call me. I urge you to ask me to walk you through this. Because if you think -- just like you think you're screwing the government when you get a big refund check every year -- you are the screwee, not the government.
END TRANSCRIPT |
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Read the Article... |
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Headline: Liberal Loopholes
Subhead: Edwards and Kerry want to raise taxes, but aren't wild about paying them.
Date: Tuesday, July 13, 2004
Source: The Wall Street Journal
In embracing John Edwards, John Kerry has also endorsed his populist "two Americas" rhetoric and has put tax increases at the center of the election campaign. So it's fair to ask the two Democrats: How much of those tax increases will actually hit the super-rich like yourselves, and how much will end up on the backs of upper middle-class wage earners?
For an answer, let's look at what the two Senators have themselves been paying in taxes. It turns out that the Kerrys and Edwards have exploited plenty of tax loopholes over the years. Of course, nobody is obligated to pay more than what the letter of the law requires. But the complex tax code benefits the wealthy, who can afford tax attorneys and complicated schemes to skirt the law. And high marginal rates give them plenty of incentive to do so.
Senator Edwards talks about the need to provide health care for all, but that didn't stop him from using a clever tax dodge to avoid paying $591,000 into the Medicare system. While making his fortune as a trial lawyer in 1995, he formed what is known as a "subchapter S" corporation, with himself as the sole shareholder.
Instead of taking his $26.9 million in earnings directly in the following four years, he paid himself a salary of $360,000 a year and took the rest as corporate dividends. Since salary is subject to 2.9% Medicare tax but dividends aren't, that meant he shielded more than 90% of his income. That's not necessarily illegal, but dodging such a large chunk of employment tax skates perilously close to the line.
The Internal Revenue Service takes a dim view of such operations and "may collapse the structure entirely and argue the S corporation is not truly a separate entity," in the words of Tax Adviser magazine. Attorney CPA magazine lists it as No. 11 of its "15 best underutilized tax loopholes," but warns that the IRS "has successfully litigated cases against individuals, particularly sole shareholders of personal service S corporations, reclassifying such deemed distributions as wages subject to social security taxes."
As a political matter, the dodge is especially hypocritical because the income limits on which Medicare taxes are paid were lifted by Democrats in 1993 specifically to hit "the rich," as Mr. Edwards likes to call people in his tax bracket. And the supreme irony? Mr. Edwards has claimed that he set up the subchapter S company to protect himself from legal liability. You know it's time for tort reform when even the trial lawyers say they're afraid of getting sued.
Senator Kerry's personal finances are not so complicated, since most of his income comes from his government salary and a modest inheritance. But he owes his jet-setting lifestyle and indeed some of his political success to the wealth of his wife, Teresa Heinz Kerry. Her personal assets have been estimated at up to $3.2 billion, and the couple travel among their five houses scattered around the U.S. on a $35 million Gulfstream V jet. During a tough election for the Senate in 1996, Mr. Kerry sidestepped a gentleman's agreement with opponent William Weld to limit the spending of personal wealth on either side to $500,000 by having his campaign borrow $1.7 million from his wife.
Mrs. Heinz Kerry's finances remain largely a closed book, since she has so far refused to release her tax returns. What we do know so far is that she has prepaid $750,000 in federal taxes on $5.1 million in income for 2003--an effective tax rate of 15%. That is because a significant portion of the income came from tax-free municipal bonds, which is perfectly legal.
Even so, her net income must be much higher. We know that since the death of her husband John Heinz in 1991, Mrs. Heinz Kerry has invested shrewdly and possibly even doubled her inheritance. Even if one takes a conservative estimate of her net worth, say $1 billion, an income of $5.1 million means a paltry return of just 0.5%. More likely, the majority of her investment income is sheltered within trusts so that tax is deferred until she or her family actually wants to spend it. Again, perfectly legal, but this is a luxury that the average middle-class professional working for a wage does not have. These are the non-rich who will pay the bulk of any Kerry tax increase.
So when John Kerry and John Edwards say that they want to tax the wealthiest Americans, let's be clear about what they really mean. They want to tax the most productive people at higher marginal rates and close loopholes for corporations, while they themselves dodge taxes by exploiting loopholes they plan to preserve.
Mr. Edwards is right that there really are two Americas. The people who work for their money and want to keep more of their own paychecks. And wealthy politicians who want to raise taxes on the middle class secure in the knowledge that they won't have to pay.
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