Government by the rich, for the rich: top 400 pay lowest taxes since Great Depression

[c1ue]

http://www.sfgate.com/cgi-bin/articl...BUFK1IT3D3.DTL

For the well-off, this could be the best tax day since the early 1930s: Top tax rates on ordinary income, dividends, estates and gifts will remain at or near historically low levels for at least the next two years. That's thanks in part to legislation passed in December 2010 by the 111th Congress and signed by President Obama.

"This is clearly far and away the most generous tax situation that's existed," says Gregory Singer, a national managing director of the wealth management group at AllianceBernstein. "It's a once-in-a-lifetime opportunity."

For the 400 U.S. taxpayers with the highest adjusted gross income, the effective federal income tax rate - what they actually pay - fell from almost 30 percent in 1995 to just under 17 percent in 2007, according to the IRS.

And for the approximately 1.4 million people who make up the top 1 percent of taxpayers, the effective federal income tax rate dropped from 29 percent to 23 percent in 2008. It may seem too fantastic to be true, but the top 400 end up paying a lower rate than the next 1,399,600 or so.

That's not just good luck. It's often the result of hard work, as suggested by some of the strategies described below. Much of the top 400's income is from dividends and capital gains, generated by everything from appreciated real estate to stocks and the sale of family businesses. As Warren Buffett likes to point out, because most of his income is from dividends, his tax rate is less than that of the people who clean his office.

The true effective rate for multimillionaires is actually far lower than that indicated by official government statistics. That's because those figures fail to include the additional income that's generated by many sophisticated tax-avoidance strategies. Several of those techniques involve some variation of complicated borrowings that never get repaid, netting the beneficiaries hundreds of millions in tax-free cash.

From 2003 to 2008, for example, Los Angeles Dodgers owner and real estate developer Frank H. McCourt Jr. paid no federal or state regular income taxes, as stated in court records dug up by the Los Angeles Times. Developers such as McCourt, according to a declaration in his divorce proceeding, "typically fund their lifestyle through lines of credit and loan proceeds secured by their assets while paying little or no personal income taxes."

A spokesman for McCourt said he availed himself of a tax code provision at the time that permitted purchasers of sports franchises to defer income taxes.

For those who can afford a shrewd accountant or attorney, our era is rife with opportunity to avoid, or at least defer, tax bills, according to tax specialists and public records. It's limited only by the boundaries of taste, creativity and the ability to understand some very complex shelters.

We only know of McCourt because of his divorce...

[don]

Re: Government by the rich, for the rich: top 400 pay lowest taxes since Great Depression

Executive Pay: A Special Report

The Drought Is Over (at Least for C.E.O.’s)

In nine months, Philippe Dauman of Viacom was paid $84.5 million

By DANIEL COSTELLO

HAPPY days are back — in the corner office, at least.

After shrinking during the 2008-9 recession, paychecks for top American executives are growing again — in many cases, significantly so.

Rarely has the view from the corner office seemed so at odds with the view from the street corner. At a time when millions of Americans are trying to hang on to homes and millions more are trying to hang on to jobs, the chief executives of major corporations like 3M, General Electric and Cisco Systems are making as much today as they were before the recession hit. Indeed, some are making even more.

The disparity is especially stark as companies are swimming in cash. In the fourth quarter, profits at American businesses were up an astounding 29.2 percent, the fastest growth in more than 60 years. Collectively, American corporations logged profits at an annual rate of $1.678 trillion.

(As noted previously on the 'tulip, GE, while America's largest corporation and one of the largest recipients of federal welfare, paid zero taxes.)

For the average C.E.O., however, the good times have returned. The median pay for top executives at 200 major companies was $9.6 million last year. That was a 12 percent increase over 2009, according to a study conducted for The New York Times by Equilar, a compensation consulting firm based in Redwood City, Calif.

Many if not most of the corporations run by these executives are doing better than they were in the downturn. Many businesses were hit so hard by the recession that even small improvements in sales and profits look good by comparison. But C.E.O. pay is also on the rise again at companies like Capital One and Goldman Sachs, which survived the economic storm with the help of all those taxpayer-financed bailouts.

Against such a backdrop, it’s noteworthy that recent moves to empower shareholders seem to have done little to tamp down corporate enthusiasm for paying top dollar to top executives. This is generally the season when companies hold annual meetings for their shareholders.

Under new rules included in the Dodd-Frank financial regulations, nearly all public companies must now give shareholders a say on executive pay. Analysts and corporate governance experts are wondering how these votes will play out, even though companies are under no obligation to heed their shareholders’ advice.

http://www.nytimes.com/2011/04/10/bu...0comp.html?hpw

Enriching a Few at the Expense of Many

By GRETCHEN MORGENSON

SOME people say it doesn’t really matter how much companies pay their executives, at least as far as the shareholders are concerned. Whether investors prosper depends on the executives’ management skill, not on penny-ante items like pay, this argument goes.

To this, Albert Meyer, a money manager at Bastiat Capital in Plano, Tex., responds with a resounding “phooey.”

Executive pay is not only a sign of how a company views its duties to shareholders, Mr. Meyer says, but it is also a crucial tire to kick when making investment decisions.
“When compensation is excessive, that should be a red flag,” Mr. Meyer says. “Does the company exist for the benefit of shareholders or insiders?”

As investors scan corporate proxy statements this spring and prepare to vote in annual elections for company directors, executive pay is again moving to center stage. After a few years in the wilderness, top executives are getting hefty raises, according to Equilar, a compensation analysis firm in Redwood City, Calif. But while outrage over executive pay has been eclipsed in recent years by anger over the causes and consequences of the financial crisis, compensation issues still resonate among many investors.


“Stock-based compensation plans are often nothing more than legalized front-running, insider trading and stock-watering all wrapped up in one package,” Mr. Meyer says.

A former professor of accounting, he earned recognition when he identified a Ponzi scheme in Philadelphia that had scammed nonprofits out of hundreds of millions of dollars. It was called the Foundation for New Era Philanthropy, and it went bankrupt in 1995. As an equity analyst, he has identified aggressive accounting at Tyco, Enron and other companies over the years.

At Bastiat Capital, a money management firm he founded in 2006, Mr. Meyer oversees $25 million in private clients’ capital. About $8 million of that is invested in the Mirzam Capital Appreciation mutual fund, which he manages. It is up an annualized 4.5 percent, after expenses, since its inception in August 2007. It is up 4.57 percent this year.

His interest in executive pay has led Mr. Meyer to a raft of international companies whose pay and other corporate governance practices are, in his view, more respectful of shareholders than those of similar companies in the United States. He cites as good stewards Statoil, the Norwegian energy company; Telefónica, the Spanish telecommunications concern; CPFL Energia, a Brazilian electricity distributor; and Southern Copper of Phoenix, a mining company with operations in Peru and Mexico. These and other companies he favors have performed well, while paying relatively modest amounts to executives, he says.

Mr. Meyer’s favorite pay-and-performance comparison pits Statoil against ExxonMobil. Statoil, which is two-thirds owned by the Norwegian government, pays its top executives a small fraction of what ExxonMobil pays its leaders. But Statoil’s share price has outperformed Exxon’s since the Norwegian company went public in October 2001. Through March, its stock climbed 22.3 percent a year, on average, Mr. Meyer notes. During the same period, Exxon’s shares rose an average of 11.4 percent annually, while the Standard & Poor’s 500-stock index returned 1.67 percent, annualized.

According to regulatory filings, Statoil paid Helge Lund, its chief executive, 11.5 million Norwegian krone in 2010 (roughly $1.8 million at the exchange rate last year). There were no stock options in the mix, but Mr. Lund was required to use part of his cash pay to buy shares in the company and to hold onto them for at least three years.

By comparison, Rex W. Tillerson, the chief executive of ExxonMobil, received $21.7 million in salary, bonus and stock awards in 2009, the most recent pay figures available from the company. Mr. Tillerson’s pay is more than double the combined $8.3 million that Statoil paid its nine top executives in 2010.


At CPFL Energia in Brazil, financial statements routinely compare the highest level of executive pay with that of the lowest-paid workers. In 2010, that ratio was 79 to 1. (Comparable multiples for United States companies range from 100 to 300, depending on the size of the company.) CPFL Energia also discloses the number of “complaints and criticisms” it receives each year — whether from customers, employees or others — and how many are resolved.

“This is an ideal for disclosure,” Mr. Meyer says.

He also rejects the argument that sky-high pay is necessary to attract talented managers. “Look at some of the pay at the companies my fund owns,” he says. “They prove that you don’t have to pay nosebleed compensation to attract good people.”

FEW money managers seem to share Mr. Meyer’s view that pay should be factored into investment decisions. His background as a forensic accountant made him train his eye on corporate proxy statements, where pay practices are outlined. Indeed, he says he first became interested in how executive pay affects shareholder returns during the early 1990s, when companies began issuing boatloads of stock options that they did not have to deduct as compensation costs.

The fiction that options should not be counted as a business expense finally changed in 2005, when the Financial Accounting Standards Board required that companies recognize the costs of options in their financial statements. But options had become the drug of choice for those addicted to excessive compensation, whether on the receiving end or delivering it as directors on a corporate board’s compensation committee.

“Middle-class America experienced a lost decade in their retirement accounts, whereas executives enjoyed record compensation packages through the subterfuge of stock option programs,” Mr. Meyer says.

“There has been a massive wealth transfer from middle-class America’s retirement accounts to the bank accounts of the privileged few. The social consequences of this wealth transfer bear scrutiny.”

http://www.nytimes.com/2011/04/10/bu...tml?ref=global

[dcarrigg]

Re: Government by the rich, for the rich: top 400 pay lowest taxes since Great Depression

Let's all jump on board with Paul Ryan's budget proposal and drop effective tax rates on the largest corps and wealthiest individuals to -50% and -10% respectively.