250,000 Ain't What It Used to Be

On the lifestyle of the "super rich."

The problem with the president’s plan is that the super rich don’t pay taxes – they hide in the Cayman Islands or use fancy investment vehicles to shelter their income. We aren’t rich enough to afford this – I use Turbo Tax. But we are rich enough to be hurt by the president’s plan. The next time the president comes home to Chicago, he has a standing invitation to come to my house (two blocks from his) and judge for himself whether the Hendersons are as rich as he thinks.

I'm not going to blame Obama on the tax loophole issue, that long predated him. But this article reminds me of a practice I witness at work everyday that illustrates how the better off protect themselves financially and the worse off get screwed. And yes, I'm breaking one of my rules: no blogging about work. But alas, here I go.

Our clients (writers) get paid by companies. Some writers are paid as individuals. When paid as an individual for performing "services" (as opposed to rights payments), taxes are withheld at a rate commensurate with what the government thinks the federal tax rate ought to be for their income. For instance, if a writer gets paid $1,000 per week, the government will withhold about 35% of the income as that is the estimated tax rate for someone making $52,000 per year. (these numbers are completely made up). Normally, it doesn't quite work this way - in fact - it is usually worse for the writer who doesn't get paid weekly, but instead in "steps." They might get a $10,000 commencement payment one month and then four months later a $40,000 payment for a delivery of first draft. Of course, the government has no idea how to withhold in these cases and will withhold the maximum amount allowable under the assumption the writer will make this rate of money for the rest of the year (they may or may not). That writer may get nearly 50% of the money withheld, even though that is the only money they'll make in the entire year. Granted, come tax time, the writer will get the money back if they fill out their taxes correctly, however, it is pretty discouraging for a writer to make $50,000 and see $10,000 go to agents fees and $20,000 to taxes only to be reimbursed maybe $5,000 in April and living on the $25,000 for the year. But all that is what it is, right?

Not exactly. See, there is another "class" of writer who doesn't pay any withholding tax. It is the writer who does not get paid as an individual, but rather, as a "loan out" company. Basically, the writer starts a corporation of which he/she is the president and only employee. You pay quarterly corporation fees and presumably some sort of tax rate (I have no idea), but the general rule is you need to make $250,000 or more to make this investment worthwhile. Point is this: you make over $250,000 a year and you are paying a lower tax rate than writer making $50,000 a year. You don't need to be a moonbat liberal to find this deeply unfair. And what's worse, at the highest end, we're talking about the biggest gap. A writer who makes $2,000,000 a year is paying a much lower rate than the writer making $100,000. Who thinks this can be a good way to tax people? What kind of twisted logic is this? I can see 90% of people saying - anyone making $100,000 or $200,000 per year ought to be happy - but really - should they?

Anyhow, now I might as well go off and visit a prostitute as long as I'm breaking my rules I've set up for myself.