As Congress advances the tax plan of Democrats, America's rich eye loopholes impede their wealthy interests

As Congress advances the tax plan of Democrats, America's rich eye loopholes impede their wealthy in ...

New York, Nov 16 - As Congress anticipates extending its $1.75 trillion spending package this week, wealthy people are planning on ways to avoid paying for it.

The Senate will approve a proposal to approve a proposed social spending bill for the US House of Representatives this week, laying the foundation for a Senate victory.

The package would be the biggest expansion since the 1960s, and Democrats propose paying for it by imposing tax on individuals with more than $10 million in annual income and an additional 3% tax on individuals with more than $25 million in annual income.

This new surtax could generate 230 billion dollars to pay for the spending bill, but experts say many people may find ways to avoid it and that it would raise less than an earlier proposal for a billionaires tax.

As much as on paper, the bill looks like the tax increases on billionaires, otherwise it will not work, said Emmanuel Saez, a professor of economics at the University of California at Berkeley.

The proposed billionaires tax, targeted approximately 700 Americans, landed the headlines in recent weeks and left Elon Musk, the world's richest man.

That proposal, which taxed unrealized share gains, was ditched after moderate Democrats opposed the plan, arguing that it was unfairly targeted wealth creators.

Although it did not exist, Musk sought to get ahead of any future Democratic plans to hike taxes by selling $6.6 billion in Tesla Inc. (TSLA.O) stock last week. read more, it's interesting to see how the economy is going.

Bankers, lawyers and academics expect it would include the White House proposal for the up-to-8% surtax, but not the billionaires tax.

The ontax is easy for wealthy taxpayers to plan around, said Alvina Lo, a wealth planner at Wilmington Trust.

Lo said the goal is to raise your adjusted gross income at the above level and the tax doesn't apply.

The billionaires tax wouldn't be very difficult to avoid, said Lisa Featherngill, executive director of wealth planning at the Comerica Bank.

If the levy hadn't been paid, individuals would have cut their income or assets by at least half.

"If you have a billion in assets, getting to $500 million is not easy," said Featherngill.


Some wealthy people seek to reduce their personal income as low as 10 million for 2022 by changing their earnings into C corporations or pass through tax structure.

In the case of Wall Street, investors and hedge funds owners, S corporations are famous - as their own personal income, a structure allows them to declare their earnings from the business as personal income - reducing the additional premium of corporate income tax.

In the proposed bill, S corps are taxed at a top rate of 48.8% at the federal level and at a more high rate in California and New York after adding state income taxes.

By transforming their corporation tax structures to a C corporation, wealthy people should be able to keep their annual personal income at the low 10 million threshold but the downside is that earnings will not always be retained in the business, where they pay a corporation tax of 21%.


Bankers say Wealthy people are selling stock this year before the surtax rises and plan to spread out future stock sales over several years to avoid hitting the $10 million rate tame threshold.

Lo said. With the spending bill passed, everyone will pay capital gains and investment tax totaling up to 23,8%, but it's less than the 31,8% tax the highest earners would pay next year overall.

It is not clear if democratic lawmakers know the potential loopholes.

Frank Clemente said the tax surcharge was a major improvement, but not enough.

The billionaires tax doesn't solve the problem of realized capital gains, he said. "The billionaires tax, on the other hand, would solve the issue of tax-free billionaires.

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