Wealthiest 400 Pay More Tax

Jim Gust wanted tax data more current than 2012. It's here, and it shows that the top 400 taxpayers took a heavy hit.

Bashing Billionaires, Front-Paging Affluenza

The MSM, or at least the NY Tines, has decided: Great wealth is uncool. 

For the Wealthiest, a Private Tax System That Saves Them Billions, the article Jim Gust spotted online, was the front-page lead in today's print edition. Below the fold, surely not by coincidence (and not the sort of tabloid fodder the Times generally front-pages) was the capture of Ethan Couch, ‘Affluenza’ Teenager.

His case made national headlines twice: The first time was when a psychologist testified for the defense that Mr. Couch had “affluenza” and was too influenced by privilege and his parents’ permissiveness to know right from wrong.

The second was when a judge appeared to accept the argument, handing down a sentence of 10 years' probation, not prison.

We'll be watching a number of trends in the new year: The demand for lower investment costs. The rise of socially responsible investing.  The craze for unicorns, Warhols and other alternative assets. Could the growing distaste for people making $10 million, $100 million or more prove to be a bigger wealth-management story in 2016?

NYTimes takes aim at family offices

In an article filled with more heat than light, the NYTimes complains that the rich are not paying enough in taxes.  It's a familiar story for them, of course.  The chief villains include family offices, the carried interest rule, charitable trusts and efforts to reduce or eliminate death taxes.  It's a Bernie Sanders road map for tax policy.

The biggest tax favor of them all for the wealthy goes unmentioned—complete tax freedom for muni bond interest.  Neither is there a mention of the enormous drain on the Treasury caused by the freedom from taxes for multi-billion dollar endowment funds.

But the complaint isn't really about the loss of tax revenue, it's about the absence of progressivity in the tax burden.  The article never mentions that the top 1% already pay more in total income taxes than the bottom 90%—that seems pretty progressive to me. No, the problem is that as a share of total income the rich are paying less than 20% of their total income in taxes, and that's just no fair, that's not enough tax pain.

To achieve this, they must spend millions on sophisticated tax advice, but it's obviously well worth it.

One phrase jumped out at me in the article.  The data from the IRS is for 2012, "the latest year for which data is available."  Really, the IRS hasn't started tabulating 2013, let alone 2014? Maybe if they spent less time on influencing the political process and targeting conservatives they'd have enough time to do their real jobs?

Two Tax Breaks for the Well-Heeled

On the morning of Friday, December 18, the President signed the major tax and spending bill passed by a remarkably compliant Congress. (The legislation, the NY Times explained, "showed just how easily a fractious legislature can seem functional again when there is agreement to spend more money....")

Not until 5:21 P.M. did the email from my Alma Mater arrive.

Make a Tax-Free Gift from your IRA: 

Congress passed legislation that would extend the Charitable IRA Rollover incentive for gifts completed in 2015 and future years…. The law allows individuals age 70 1/2 and older to make qualified charitable distributions of up to $100,000 each year from their traditional or Roth IRAs directly to charities…. While you cannot claim a charitable deduction for an Charitable IRA Rollover, this distribution from your IRA counts towards your minimum required distribution and will not be treated as taxable income.

What took them so long?

The renewed exemption for charitable transfers from IRAs is "permanent." That's tax speak for "at least the next few years."

Another tax break, another show

Also of interest to high-net-worthers, kinder tax treatment for investments in Broadway shows. For instance, show-biz investors no longer will be taxed on “phantom profits,” money returned to investors that is less than the amount they had initially invested.

Everybody knows that investing in Broadway shows is a loser's game. But then, who knew Hamilton would be a smash hit?

Do Democrats in the White House Mean Higher Stock Returns?

Over the last 50 years, according to a Democrat promo making the Internet rounds, stocks averaged an 11% annualized return when a Democrat occupied the White House. And when a Republican sat in the Oval Office? Less than 3%.

Democrat Commanders in Chief do go hand in hand with better stock returns. Here we linked to a 2008 NY Times comparison going back to 1929.  The performance gap is pronounced. Even so, "hand in hand" isn't necessarily the same as cause and effect.

Because the Republicans retain a reputation as the party of fat-cat billionaires, the gap in stock market returns is counter-intuitive. Which may explain why some investors don't believe it.

Current example, this Well Fargo survey of investors: Only 15% believed a Democrat in the White House would be better for the stock market. Twice as many thought they would profit more from a Republican.

Did a JPMorgan Broker Turn Fiduciary?

After losing his job, a JPMorgan broker turned whistle-blower, saying Morgan had pressured him to put clients into the bank's funds when better choices were available. The New York Times has jumped on his story, here and in a James B. Stewart column.

After JPMorgan fired the broker, client complaints concerning his behavior showed up. The complaints were not written by disgruntled clients. That's the sort of fun fact that draws media attention.

They Retired at 40. But Not Really.

Retire at 40? Some Do, With a Small Fortune. That's the provocative headline on a 1996 WSJ article I came across while cleaning out old files.

Examples mentioned in the article included Eugene Bernosky, who sold the company he co-founded and planned to take it easy and do a little consulting, and a married couple, Lee Leslie and Terri Evans, who quit nine-to-nine work after five years of running a small ad agency.

How have they fared after almost two decades? Googling suggests that modern retirement looks a lot like work.

Bernosky has done a bit of investment banking and helped launch various ventures. Recent project: Zaavy, a company that produces custom jerseys and related items for cycling teams.

Leslie and Evans, according to Linkedin, are still open to marketing/advertising assignments, but perhaps not nine to nine.

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Most boomers didn't get to retire at 40. But these days they're quitting the rat race in great numbers, and many of them think 60 is the new 40. Wealth managers should not expect them to act like traditional retirees.

Rather than "retire," affluent boomers want to declare financial independence, free at last to work or play at whatever turns them on.