How the super-rich shelter their income & wealth from taxes …

While keeping (or increasing) their financial and political might.

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For years, I’ve ranted whenever Warren Buffett whined that my taxes should be increased because he pays a lower income tax rate than his secretary.

And, I even offered up a suggestion (think: “Buffett Rule”) that might assuage Mr. Buffett’s guilt.

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For background …

Buffett benefits from the preferential tax rate on capital gains … but his mega tax dodge is bequeathing a big chunk his estate to his buddy Bill Gates’ tax exempt foundation … part, I guess, to “give back to society” … but in large part to dodge estate taxes.

You see, that part of Buffett’s estate escapes death taxes  (since it’s a “charitable donation”) … and, while alive, Buffett can still wield unfettered financial and political clout.

So, I proposed a simple tax reform to nullify the loophole and provide Warren with the opportunity to pay some serious taxes (and spread his wealth around).

Ken’s “Buffett Rule”: For purposes of estate taxation, estates shall be limited to a maximum deduction of $1 million for charitable donations.

It turns out that my focus on estate taxes was way too narrow and may have missed the forest for the trees.

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Case in point:

Last month – while still alive – George Soros transferred $18 billion of his fortune to a private charity that he controls.

Stephen Moore, writing in the WSJ, observed that:

Soros’ donation – which will be sheltered from the Internal Revenue Service forever – may be the single biggest tax dodge in U.S. history.

Soro’s gift of billions of dollars of appreciated stock escapes any capital gains tax, and the estate tax as well.

So Mr. Soros can donate appreciated stock that his Open Society Foundations can liquidate without the government ever taking a cut.

And, according to Moore, there’s more.

When a person donates untaxed, appreciated assets to a private foundation, he may also deduct up to 20% of its market value on his personal return, carrying forward this deduction for five years.

This double write-off may be the sweetest deal in the tax code.

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Cutting to the chase, Moore asserts:

Mr. Soros (and others like Michael Bloomberg) have turned private foundations into massive de facto lobbying operations for liberal causes.

They can retain control of the tax-dodged money “donated” to their private foundations for years or even decades.

In effect, it’s more than a tax dodge, it’s weaponized philanthropy.

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Moore’s remedy:

One simple solution would be for Congress to apply the capital-gains tax to assets of more than $1 million before they are transferred to a charity.

Alternatively (or perhaps in addition) Congress could cap deductions for any given household to $250,000 a year.

Under this kind of plan, Mr. Soros would be able to write off only a tiny fraction of his multi-billion dollar gift.

This isn’t an argument against charity.

The question is whether a tax code that encourages dynastic family foundations is good for America.

If Congress stopped letting billionaires pour money tax free into their foundations, it would go a long way toward lowering rates and making the tax code fairer for everyone.

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So, start with Ken’s “Buffett Rule” on estate taxes … complement it with “Moore’s Law” on income taxes … and, I think we’ve got something.

Might work …

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