The two most popular games for the very wealthy will be running their income through pass-through companies, which pay a lower rate, or using a corporation to pay themselves a tiny salary and huge dividends, which will be taxed at the lower capital gains rates. (Watch for this headline in 2018: “Record Number of New Start-Ups.” But don’t necessarily take that as good news; many of those “new” start-ups will be individuals incorporating themselves.)
And private equity and real estate executives, as has been well documented, will make out like bandits under the new system.
According to the Tax Policy Center, 5 percent of taxpayers would pay more in taxes in 2018; 9 percent in 2025 and 53 percent in 2027, if the plan is signed into law.
That 5 percent paying more is not the top .01 of the 1 percent.
A real estate investor, Jason Harbor, who will probably be a beneficiary of the tax plan, wrote on Twitter: “Why are my taxes going down and my assistant’s is going up? Can someone explain how that is fair?”
In the world of public company chief executives — many based in states like New York, New Jersey, Massachusetts and California, where a big chunk of the largest companies in the country reside — several told me they expected their federal taxes to increase substantially because, unlike some of their wealthy peers in other industries, they cannot turn themselves into pass-through companies or other tax-dodging entities.
At least one executive told me he wished he could turn himself into a company to save taxes, but he did not want to set a precedent that would induce other employees to do the same.
The biggest hit for some will be the inability to deduct unreimbursed business expenses, like legal and accounting costs, beyond the new standard deduction. That deduction is almost doubled under the new plan, to $24,000 from $13,000, but it is still far below the costs of some of the services, which often are in the hundreds of thousands or even millions of dollars.
Another deduction that is disappearing is one for fees paid to agents, other outside managers or headhunters, who take a commission on a salary directly from an individual.
Yes, the lower top tax rate will help some of these high earners, but probably not enough to compensate for the $10,000 cap on property tax deduction, especially if they own multiple homes worth millions of dollars.
The great irony, of course, is that many of the same executives now complaining about these tax-raising changes voted for Democrats and said they supported higher taxes for the wealthy — until they got hit with the bill by Republicans.
“My income taxes are going up,’’ a longtime commentator on financial topics with a cult following who goes by IvanK wrote on Twitter. “I wouldn’t mind this if I felt that the incremental amount was going to the right people, not the wrong people. GOP is a party of scam artists serving the donors. Despicable.”
But for those whose taxes are going up, the displeasure seems to be bipartisan. “I’m a Trump Republican trapped in Taxachussets,’’ went one post on Twitter. “We have a never-Trump GOP Governor. My taxes are now going up, given the end of mortgage deduction > $750k & state tax deduction. I didn’t vote for this. I want low taxes for all — not ZERO for more folks. Where’s my dollar?”
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