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Comment by K0balt | Hacker News Reader

Unless you are a wage or salary earner, it is trivially easy to avoid having to pay taxes, at least in the USA. Same with the much lauded “inheritance tax” and even, to a lesser extent, sales taxes. It costs about 4000us a year to maintain the legal structures required to pay essentially no taxes, except sales taxes in some locations. In many cases, for lower levels of income, just having a small business can negate income tax burdens.

Taxation always has been, and continues to be, a burden for the servile class to bear. The rich or enterprising pay taxes only when they are ill prepared or choose to, often to reduce scrutiny.

The " I should pay more taxes" rhetoric from the wealthy is merely virtue signaling, it is totally legal to pay more taxes than you owe, and you can even reclaim the money later if you need to. There is nothing preventing anyone from paying the taxes that they feel that they should owe, in excess of legal requirements.

By and large, sales taxes are more evenly applied, but that too is far from perfect.

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I think “I should pay more taxes” is generally understood as shorthand for “all people in my financial situation should pay more taxes.”

It’s a bit like saying “I should be required to have fire protection”, “I should be required to carry health insurance,” or “I should be required to use standard turn signals on the road.”

Are you saying that people who say “i should be required to have fire protection, carry health insurance or use turn signals” should be able to not do those things and not look like a hypocrit?

You're being obtuse. The point is that it's perfectly reasonable to be willing to pay more, but only if all the other rich people do too.

Why would you need others to do something you think you should do? Actually, how would anybody ever start doing that thing if everybody is waiting for someone else to do it first and that person too is waiting for others to do it first?

“Tax me more” is just a publicity stunt and unfortunately it confuses people.

As I noted elsewhere in this thread, this is the nature of what are called "collective action problems."

In effect, these are situations where coordinated collective action may be beneficial, but there is a disincentive to being the initiator of such an action.

The examples I gave above were fireproofing your building, buying health insurance before you are sick, and mandatory turn signals on cars, but these abound in public policy: think, mandatory face mask wearing during a global pandemic in which masks which block the transmission of a disease from an infected person are cheaper than masks which block the infection of someone else.

Regardless of where you come down on the ideological question—perhaps you think it's fundamentally immoral for governments to exist at all, which I can respect!—it's very simple economics that such problems (where the global optimal is only achieved if we ignore individual optimization) exist.

And how are those collective action problems solved?

Typically, by government action, ideally as a result of a democratic process.

So Warren Buffet and others should wait for the government to increase their tax rate and then they can pay more taxes? And this has to happen because if any one of them pays more taxes before the others they are at a disadvantage?

I think "at a disadvantage" may be the wrong framing. As a member of (say) the 1%, but not the 0.01%, my personal take is this:

- My money does more good, dollar-for-dollar, by my own personal definition of "good", when I donate it to specific charities than when it's collected as tax and then spent.

- We would nonetheless have a net benefit from more aggressive taxation of people like me because a) the reduced effectiveness, per dollar, is counterbalanced by increased overall spending, and b) more progressive taxation would help address inequality of wealth and income, which has other, independent, pernicious impacts.

Because I believe those two things, I both a) advocate for higher taxes on "people like me" and b) to the extent legally possible, minimize my tax burden and prefer to make voluntary charitable contributions.

I believe this last part is fully consistent with the first two bullet points if we take them axiomatically, though they each may of course be themselves wrong.

Edit: I also want to add: I think when we talk policy, we often talk in a "if I were King of the World" sort of way. So, if I were King of the World, we'd raise tax rates but not spend the money on stuff I disagree with. ;) If you told me, "Yeah, we can raise the top income tax rate, but all the extra money will go to drone strikes against civilians," of course I'd oppose it. I think a lot of our "should dos" assume we get other policy outcomes we desire as well.

Thanks for explaining your viewpoint!

I agree w.r.t king of the world.

Let me summarize I guess. I just get annoyed when people like Warren Buffet go "oh if only they'd tax me more" when he's clearly in a position to pay more in taxes if he wants. I certainly empathize with the general social dilemma you outlined, of course, but in this case it just strikes me as marketing and it's very off-putting.

I do think it would be neat if we could just get a receipt for our taxes. At least a general percentage showing what percent goes to what and an opportunity to drill down more into it if we wanted. Though it's a bit bizarre. I don't think I've paid enough in taxes to even buy a cruise missile... lol

I explained my thinking because I can _imagine_ it to also describe someone like Buffet's thinking.

The top 0.1% have about 11% of the income in the US, or about $2Tn. So for someone like Buffet, a one-time contribution of half his net worth—which he has promised to do—is about $55Bn; an extra 1% effective taxation of the income of the 0.1% would be $200bn _per year_.

So even if you're Buffett—and even if you're pledged to donate have of your personal wealth to charity—it's a pretty small amount compared to the ongoing returns from a small tax increase.

I do strongly disagree with many of the things my tax money goes to, obviously. But I think this is where the "King of the World" thing comes in. ;)

It seems to me that Warren Buffet can do both though. He can pay more in taxes by not taking deductions or just giving more to the government and advocate for a higher rate. Lead by example.

For sure, but I assume his calculation may be similar to mine: that it's even more optimal to advocate for a higher tax rate and give his money directly to charities he chooses (which he has done, sort of, by pledging to give half his wealth to the Gates Foundation).

Wouldn't it make sense to just pay more taxes and also give away money to charities?

I mean, even if the tax rates are raised it's not like that money will universally (maybe not even majority) be applied to "good" programs... so once the tax rates are raised you're going to be funding more bombs and all that too. It's not going to just go to welfare (not using this term negatively) programs.

It seems to me if you want to reduce wealth inequality you could do something like pay for a few people each month. Kind of like a patron. Why wait for a government program in which some of the money will be siphoned off for bloat, some of it will not actually go to the issue you want to address, and even so you won't have much of a say in how the money is spent in the first place?

I actually run a non-profit. (Site is down at the moment b/c I didn't want to pay $300 for another year of Wix so I am going to redeploy it on S3 - where art thou time). I see a lot of other non-profits in my space who seem to be siphoning up money for not-so-great ideas and projects and general government contracts. Feels like nobody is really great at this stuff.

I may have been a little unclear. I'm typing this while in a meeting. ;)

My point was that a rational actor might believe that per dollar more good is done by the dollar being given directly to the charity of choice than to the government, but also believe in raising tax rates overall (as a means to social goods).

As a result, the actor should rationally prefer to give as much of their money as possible directly to the charity and not to taxes even while arguing for elevated taxes.

Hey me too! :)

I think the overall issue is that what I personally think someone should do is that if they believe in paying higher taxes, it shouldn't matter what anybody else does, they should just pay higher taxes or even spend money to lobby for higher taxes via campaign contributions, lobbyists, etc.

It just seems like mental gymnastics that some wealthy people use to avoid feeling bad that there are poor people by saying if only they raised taxes you'd pay more while also not paying more. Of course you'd pay more if taxes were raised, except in the case where taxes were raised and then you found loopholes or deductions to not pay them... It's just a way to convince yourself to have your cake and eat it too.

But even if taxes weren't raised, why can't you self-fund social programs? Even at a very basic level - food stamps. You could just offset how much you think you should pay in additional taxes by donating to food pantries or just buying people groceries. You don't need the government to do that. You could make a huge impact in your own community. We all could!

Some of my friends and friends of friends got stimulus money when that first stimulus came around. Based on the previous year's tax returns we received a couple hundred bucks or something. I don't remember exactly. Could have used the money for something? Sure. We could have taken the money and bought something we felt like buying, then went online and said it was a terrible thing that others didn't get enough money and we were getting money. We could have went and did what my friends did and buy new GPUs or something. No. We just turned right around and donated it to the Mid-Ohio Foodbank. They all went on about how they didn't need the money (obviously) and that it was sad people were losing their jobs and on lockdown and all of that and that the government should do something. Like.. why don't you do something? Take that $1,000 you got and turn around and give it to someone who needs it.

Please don't take that personally or anything - I'm exploring this with the aim of a good discussion. I'm not quite as well off as you but we do very well for ourselves and probably need to donate more money anyway. It just always drives me up the wall when Bill Gates or Warren Buffet come out and say they should pay more taxes... they can just do that. They don't need anyone else to. Am I more moral or more of a leader than they are? I highly doubt it. So what's left? Game theory? Or maybe they just want to craft a persona? Idk. I don't mind that people are wealthy. We certainly are depending on who we are being compared to, but I just feel like people are being dishonest with themselves and others on this particular topic, even if it's not intentional.

Don’t worry. I’m not at all offended. It’s a good faith discussion. :)

I think I agree more than I disagree. A few points:

1. Note that Buffet and Gates have both pledged to give half their wealth to charity in their lifetimes. Is your concern that half is too little, that it’s charity and not taxes, or something else?

2. For me personally, quite frankly, I absolutely struggle with the question of how much I should give. I could afford to give more than I do without impacting my lifestyle, and while I don’t live high on the hog maybe my lifestyle should be impacted. I struggle with this, because there’s no obvious answer—if you’re lucky enough to have disposable income, you can always afford to give a little more, no?

My personal view is that what I save now will go to charity when I (and my partner) die, so I don’t worry too much about it—I’m sure at that point the need will be as great as it is now. But I do think these are difficult questions, and I would certainly forgive anyone for having no pat answer to them.

Then again, there’s always the question of extremes. A la Peter Singer (I think), should I donate a kidney to a stranger? For me, utilitarianism says yes, but I just can’t bring myself to do that.

So is it possible I’m being less than fully rational and some of this is guilt assuaging? Yeah, I think so. But anyone as lucky as we are who doesn’t feel a bit of, well, if not guilt, then somehow conflicted about it is someone I really wonder about.

Thanks. I'm enjoying this and I hope you are too.

I'd say that for Buffet and Gates the issue is the terminology used. If instead of saying "I'm not taxed enough" they said "people need to give more" or something along those lines that would be fine with me. It's specifically that they're talking about not paying enough taxes while actively using methods to not pay those taxes that bothers me. I have little doubt that they write off their philanthropic contributions for example. Just... don't do that and there ya go. You paid the higher tax rate you say you want to pay. It's their insistence that they are unable to take action that bothers me. They can take action. They are the most capable people in the world who could take action. So for me I just can't believe that it's not marketing and trying to craft an image. Have you ever seen Becoming Warren Buffet on HBO by the way? Fun documentary if taken with a grain of salt.

I think your personal philosophy is in line with mine too. I try to donate time and energy and knowledge into endeavors and source money from others who have the same viewpoint you do. That allows me to have the benefit of working on compounding interest while still effectively doing something. But even then we give a little bit, certainly not enough.

> But anyone as lucky as we are who doesn’t feel a bit of, well, if not guilt, then somehow conflicted about it is someone I really wonder about.

Couldn't agree more. And I'm not sure if guilt is the right word? I feel what we would describe as guilt, but I'm not exactly doing anything "wrong" so it's a complex emotion for me.

If you're ever in Columbus, Ohio let me know - I'll buy you a beer.

yes? Game theoretic, it is advantageous for the collective if everyone adopted the strategy, but for a single player, it is extremely disadvantage

So people should stop hanging guillotines outside of Jeff Bezos's house? He's just following game theoretic strategy after all.

Thats a different game. I'm sure he does evaluate the peasant aggregate animosity toward him versus his competition to other elites.

People should stop hanging guillotines, full stop.

Another way to frame this: if I'm a millionaire and want all millionaires to pay more tax (including me), paying more tax without trying to get others to do so could allow other millionaires to spend their tax savings to lobby against higher taxes. I may not want to sacrifice myself nor do I want to pay more tax for myself, but simply want a fairer system. A society is more than the sum of individuals, obviously.

It's only reasonable in a competitive environment, outside of that, you have to actually show your reasoning. If we're participants in a market that is designed to be fair, to say the rules should be changed for everyone in order for you not to take advantage of a loophole with negative effects but competitive advantage makes sense. It's saying that you're participating in a market that was designed incorrectly, and asking for the design to be corrected.

To say you're going to keep dodging personal taxes until no one can dodge personal taxes is just dodging taxes. There's no market and no competition. Paying the taxes you think are ideal will just put you in the place you would be if taxes were how you think they should be.

They could make a public pact?

Yes, exactly.

As a trivial example, it's perfectly rational to say, "I should be required to carry health insurance, because universal insuring would lower the premiums for everyone, but I will not do so until then because the premiums are too high."

As a less trivial example that perhaps engages more with what I think your argument is, one can also argue, "Collisions between two SUVs have a higher rate of serious injuries than collisions between two sedans, but in a collision between an SUV and a sedan the sedan has an even higher serious injury rate. Ergo, because all of my fellow commuters drive SUVs, I am also driving an SUV, but I believe SUVs should be outlawed." (I've borrowed this example from an old James Surowiecki column: https://www.newyorker.com/magazine/2007/07/23/fuel-for-thoug....)

Irrespective of whether these are good policies for other reasons—perhaps we believe it's too much of an infringement upon individual liberty to ban driving SUVs!—it is not inherently hypocritical to not voluntarily take part in an activity which one believes has positive external value only if universally partaken.

Quite frankly, this is a trivial point, yet it's often lost in somewhat silly accusations of hypocrisy, which I think is really disappointing.

Isn't that an easy statement to make? Especially as they know the chances of it happening are low.

I advocate for higher taxes on myself and others in my position. I vote that way. I worked on a presidential campaign that focused heavily on economic policy and social programs, all of which involved raising taxes.

It's not a secret that one party in the United States wants to raise taxes on higher earners, which includes many in Silicon Valley.

Why do you believe that maximizing USG revenue is a net societal benefit?

>it is totally legal to pay more taxes than you owe, and you can even reclaim the money later if you need to. There is nothing preventing anyone from paying the taxes that they feel that they should owe, in excess of legal requirements.

Gary Trudeau had a story about how he and his wife were always getting audited because they paid more taxes than people in their income bracket normally paid, so that would be one reason why you might not want to pay more than you have to.

also if I thought I should pay more tax I would probably also think the other people like me should pay more tax and since I am probably in competition with them over things I would not like to disarm myself unless they were likewise disarmed.

I remember a speech by the British comedian David Mitchell. There had been recent scrutiny on a celebrity figure when it came to light that he used all sorts of dirty (but legal) tricks to avoid paying income tax.

Tax avoidance is, of course, legal. In this sense the rich are allowed to choose how much tax they wish to pay, based on their individual conscience or morals.

So effectively, governments have a 'tax on moral behavior', which is stupid.

I suspect you're thinking of https://www.youtube.com/watch?v=xc8epam4NyY

Absolutely brilliant

By “dirty (but legal) tricks” you means following the the tax code and legally paying what you owe?

That's one framing. Another framing is that if you think we ought to have roads and socialized healthcare and so on, then it seems like it's a bad thing if people are financially incentivized to pay a small platoon of rule-understanders to prevent their money from being spent on those things you think we ought to have.

This framing seems like a classic case of "yesterday's compromise is today's loophole".

The rules and their various exceptions and special cases were put in to be used. Would you complain that someone takes a right turn on red where allowed or complain that someone builds a structure to the maximum specifications they can before incurring additional permitting or construction compliance requirements?

If I was alive when the special cases were put in, I would also have told you that I did not care for them.

If the rules create incentives that lead to bad outcomes, it is a problem with the rules.

I generally regard people building large buildings as a good outcome, so about the max-without-x-permit-sized buildings, I probably would not be too upset, but I would have to think about what buildings would exist in the absence of the rule.

Do you level the same criticism at people who are upset that they are employed for just less than full time? "Well you see, you voted for Barack Obama, and he spent all his political capital to pass a subsidy for the insurance industry, and as part of a compromise internal to the Democratic party that subsidy included incentives to employ people for less than full time, so really this is on you" and so on?

>If the rules create incentives that lead to bad outcomes, it is a problem with the rules.

So then why complain about the people following the rules? They're just making the best of the situation they're in.

>I generally regard people building large buildings as a good outcome, so about the max-without-x-permit-sized buildings, I probably would not be too upset, but I would have to think about what buildings would exist in the absence of the rule.

So then it's about whether or not you like the outcome that rule provides?

Regardless of how much you care about compliance with the law it is farcical to pick and choose laws that get special treatment (within the same class of laws, we're not talking about dodging sales tax vs murder here). You don't get to pick one area of minor noncompliance to be good guys and one area to be bad guys, equality under law and all that.

>Do you level the same criticism at people who are upset that they are employed for just less than full time?

I levy the criticism at the people screeching online about how the companies that do it are evil, as if they have a choice and it's not a collective action problem.

Sure Home Depot could take a stand and give everyone 40hr and eat the cost of the healthcare requirements but then Lowe's would eat their lunch. The only way to fix these problems is to change the rules for everyone.

> So then why complain about the people following the rules?

I did not.

The rest of your comment seems to be about the same misunderstanding.

Here's another framing: I think the government ought to fund infrastructure, healthcare, and so on, and also that it doesn't mainly because it's filled with corrupt lackeys of the wealthy elite, and even where it does fund these things the mechanism of distribution (government contractors) is also corrupt. It's perfectly rational to attempt to minimize funding that.

> In this sense the rich are allowed to choose how much tax they wish to pay, based on their individual conscience or morals.

Not so. There's the law that dictates a minimum amount of tax payable and everyone is entitled to pay only what is strictly owed under the law and not more.

Conscience and morals have nothing to do with it and in my view playing that card in an attempt to make people pay more than legally owed is a form of bullying.

Now, of course we can discuss if the law makes sense and is just, but that's another issue.

> Unless you are a wage or salary earner, it is trivially easy to avoid having to pay taxes, at least in the USA. Same with the much lauded “inheritance tax” and even, to a lesser extent, sales taxes. It costs about 4000us a year to maintain the legal structures required to pay essentially no taxes, except sales taxes in some locations. In many cases, for lower levels of income, just having a small business can negate income tax burdens.

If it is that easy and costs only $4000, would you mind describing the technique(s)? I can't believe that it would be simple / cheap / legal, because otherwise every business owner would do it?!

I think starting with that assumption is the primary disservice you are doing yourself.

Its important to actually understand taxes so that you don't eventually assume that the tax collector / revenue service is an adversary. They are exuberant collaborators.

Reading comprehension is key because even just imagining that rich people have an army of lawyers and accountants to figure it out is wrong. That takes way too much trust and those lawyers and accountants arent incentivized properly to figure things out. They have to be steered by the person that knows what they want and what ongoing compliance burdens they are willing to have, which requires already knowing or being part of a network of people that already have compliant systems set up and will tell. There are many more people that make wrong assumptions, to their detriment.

Listing “the techniques” aren't useful, reading the tax code is. Read IRS codes from the 400s section (tax deferral accounts) and the 500s section (tax-exempt entities) as a start. That will boost your own search queries by using more useful terms to search.

I sometimes find entire industries I was unaware of simply by being surprised by what the law says. The IRS has many parallel tax regimes that are different than the default one. You have to know to look behind door number 2 and door number 3, there are IRS agents sitting behind them bored and excitedly waiting to help you after you find them.

“RTFTaxCode” doesn’t answer OP’s question.

What is the mechanism for paying $4000 and avoiding taxes? I assume some sort of trust? What are the details?

The IRS can grant tax exemption to any entity, even unincorporated ones that are a fiction of your imagination, for nearly free

Convincing them to is what costs money, because unincorporated sole proprietorships and unincorporated general partnerships aren’t convincing

RTFTaxCode

Better advice might be to talk to an accountant and/or tax attorney. It's not exactly reasonable to expect someone to know enough about the tax code just from reading it.

Their answer will be “it depends, what do you want to do”

You’ll say “I don’t want to pay taxes, I heard I can pay $4000 and not pay taxes”

They'll say what I said “it depends on what you want to do and what compliance burdens you want to deal with” along with “where did you hear that, my retainer is $10,000 and hourly rates are $700 and $300 for the junior”

and you still don’t know what you want to do

RTFTaxCode and find a service provider that specializes in that part of the tax code and then come back with specific queries about how those topics work

This is more analogous to saying “go to a medical school professor and your dentist” as they are both doctors and one might be licensed to practice, when neither of them can actually help you, and your dentist says “the eye doctor specializes in this topic” but you hadn't quite figured that out yet and you really have to go to your primary care doctor first who will still be confused about whether that’s the right recommendation for you because you can’t articulate what you really want to do

But since everyone that read this far is still here, and even more frustrated, I’ll point out that 401ks are a whole industry that is simply a reference to subsection 401(k) of the IRS’ 400 section and someone eventually noticed. There are other less used sections. 501(c)3 which you also may have heard of in passing are simply a reference to that subsection of 500 section of which there are many other less mentioned sections. All of which may be more interesting to your specific goal.

I'm trying to understand how these things work.

How does having the income in a business help? At some point you want to do something with the money, and then you have to take it out of the company and it is taxed, isn't it? Can that be avoided?

Not an American here but this could be related to the order in which things pay tax.

If you receive 10K USD as income one month, you would pay tax on that and then be able to buy things

If your business received 10K USD it could buy all sorts of things before declaring a profit and paying tax only on the profit.

Sure, but you can't just classify everything as a business expense.

And regardless, that's not really a carve out for the wealthy, that's just a policy we have because we think it encourages business growth, which is generally a good thing.

> Sure, but you can't just classify everything as a business expense.

If the business is buying it, then sure you can. There's limits on this for sole proprietors as the tax authorities will argue that the businessman who bought a yacht "for the business" only ever uses it for himself.

But the rich folk, who have 20% of the company (the largest share, usually), can force the company to buy a yacht where use is limited to that single shareholder ... once again proving that the rich would pay less tax than the poor.

Ok, but why can't I use the same system for my income, and deduct my essentials like rent and power and water before I pay tax on the rest?

That's covered under the "standard deduction" in US federal taxes. I'm not saying it's fair--that deduction doesn't really cover rent in most places--but that's the intent. Basically, you can't use the same system because the tax code is rigged in favor of the wealthy.

Depends on how you structure it. It also depends on how much in assets you have (many people start with a heloc). As if the market takes a dip or long term low inflation you can end up stuck. You also have to be careful not to overleverage yourself. As you can end up borrowing to pay back another loan. It is why you see 'rich movie stare declarers bankruptcy'. It is not risk free. But with discipline you can do it. Also remember you can 'own' more than one company. Perhaps one company owns 5 houses which one of those you happen to live in...

Find yourself an accountant. They will show you how to set it up. It is also usually decently complex enough to be a pain to do in the day to day running of it (hence the accountant).

Also up above I said 'long term low inflation' can hurt? Look at what is going on and you can figure out why suddenly we have lots of it. Think about borrowing at 2-3% and inflation is 5%.

The article is fairly thorough on this point. Among the available strategies is taking out loans against your shares, as ProPublica asserts Ellison and Musk have done.

I'm surprised at the extent to which some people appear to have mortgaged their shares. Musk, in particular. The article suggests that he has placed ~$57B of his shares out of a (net worth of ~$151B) as collateral. If TSLA begins to fall, he may face one heck of a margin-call.

You'll still have to pay at some point (basis step-up aside), but the bill can be deferred or, in the case of a decrease in share value, perhaps avoided to some extent.

I still don't understand the scheme here. If you take out a loan against your shares, won't you have to pay back the loan (plus interest), which would still require you to eventually sell your shares and pay tax on capital gains?

Yes, but assuming your shares continue to appreciate at a faster rate than the interest you can defer any tax payments so far into the future that the amount becomes more and more insignificant due to economic inflation and capital appreciation.

You're right that you still have to pay the tax, but you pay it on far more favourable terms than the average person. Of course the flip side of this is that the price of your shares collapse, but typically these secured loans are a fraction of an individuals net-worth and the risk is very low.

Edit: I should add you can also time when you're taxed. So for example if taxes in the present are high you can wait then realise any profits when they're lower.

The new pass through entity deductions are HUGE and lots of loopholes even if you're one of the consultant etc categories.

also this year I could get a 1:1 credit for time off for covid and covid supplies. Like not just lowering my taxable income.

basic example traditional deduction take 10k off net income, if i'm taxed @20% saves me 2k. From what I could tell this was 10k off my tax bill.. like if i owed 20k it's now 10k.

there's more too. i think car depreciation is better/doesn't exist if you buy personally but my car which is used for business is a tax benefit and pre-tax money I think.

> Taxation always has been, and continues to be, a burden for the servile class to bear.

How does that square with the fact that the top 50 percent pays 97% of taxes? The top 1% pays 40% of taxes.

Curious how do you setup this?

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