Thursday, January 12, 2012

Class Conflict


The Pew Research Center is reporting that more Americans see fundamental conflict between upper and lower economic groups in society

Personally I do not know how people cannot see it, given news headline after news headline.

For example, on Jan 10, 2012 p. A1, A10 the Wall Street Journal ran an article titled, "More Firms Enjoy Tax-Free Status."

The article examines how a growing number of corporations are structured as "pass-throughs," a legal status that allows the corporations to avoid paying taxes on profits.

The profits essentially pass through to the investors who pay the taxes.

Although taxes are eventually paid, the amount of taxes paid is significantly LESS than the taxes that would have been paid if the corporation had been taxed directly. The article demonstrates this fact using the example of Kinder Morgan's 2010 taxes. At least $277 million in taxes were cut overall by the pass-through status.

The article explains that pass-through structures are found mainly in corporations financed privately with relatively few owners.

Essentially what this means is that corporations held by relatively small groups of wealthy financiers and/or funds can avoid higher tax rates. 

The article mentions that many hedge-funds are now organized this way, including Blackstone Group and the Carlyle Group.

Hedge funds and hedge-fund managers only pay 15% tax as compared to the 35% corporate tax-rate.

What is not clear in the article is whether the hedge funds are themselves structured as the pass-through, or whether corporations owned by the hedge-funds are set up as pass-throughs.
However, despite this ambiguity, it is clear that the pass-through structure is designed to avoid taxes.

Private equity firms set up as pass-throughs, and/or holdings of pass-through corporations by private equity firms, pay reduced tax rates, as compared to other types of for-profit incorporation.

In contrast, most small businesses are structured as LLCs that are taxed at 35%.

The article notes that the appeal of pass-throughs has grown, for obvious reasons.
There is little wonder why class conflict is rising when the rich pay less taxes than the rest, when laws are set up to benefit the rich, and when the poor are increasingly impoverished and subject to authoritarian policing.

 

1 comment:

  1. Fully, investing in oil gives a 80% tax deduction in the first year, but you need to have 1.5M liquid or you cant do the investment, talk about structured for the "rich", although 1.5M is barely rich.

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