Loopholes of the Rich and Famous
It's anyone's guess how much tax money they hide.
Washington, D.C.
Tick, tick, tick, tick, tick, tick ...
That's the sound of April 15 fast approaching, when millions of working families sweat out the details of their tax forms -- how much goes to Uncle Sam? How much does Uncle Sam owe us?
But for hundreds of thousands of wealthy executives, April 15 is a snap. They know that billions of dollars of their income are out of the reach of the Internal Revenue Service thanks to a massive system of loopholes available only to the very rich.
The loopholes were detailed in an extraordinary series of articles in The New York Times -- extraordinary because the newspaper put together facts and figures which the tax sleuths of the U.S. government do not possess.
Called "Rushing Away From Taxes," the Times examined in painstaking detail changes in tax law and public policy over the last 20 years that essentially excuse the wealthy from the same tax burdens routinely paid by working people.
The Times series, which ran in October and December, reported that the government has permitted a growing number of wealthy people and their companies to put off paying taxes on billions of dollars of income -- or to avoid paying taxes on it entirely. The newspaper went even further, showing that corporations often withdraw pension benefits from lower-level workers to pay their executives millions in extra income.
Killer Loophole. The chief tool is the "deferred compensation" plan which enables a small group of "highly compensated individuals" to postpone or avoid paying taxes on much of their income. The Times estimated that one executive alone, Coca Cola Chairman Roberto Goizueta, has deferred up to $1 billion in income.
These deferred compensation plans should not be confused with similar plans, like the 401(k), which are available to other Americans: While the 401(k) limits the amount of money on which a worker can defer taxes, the sky's the limit in plans for "highly compensated individuals."
There is another difference as well: While 401(k)s can lose value in the event of a bankruptcy -- leaving workers broke -- the executive plans can be protected from loss. Sources quoted by the Times insisted that this two-tiered benefit system weakens the incentive of executives to preserve the benefits of their workers.
How much does this scheme cost federal and state treasuries in taxes? No one knows because the government does not keep tabs on these plans.
That's only part of a disturbing portrait of an economically divided America. The Times series further explored unfairness in retirement plans for the rich and the myriad ways they escape paying taxes on the sale of such big-ticket items as mutual funds, homes and other property.
Unequal, Unfair. All this strikes Becky Motlagh as grossly unfair.
"It undermines our democracy," says the 53-year-old registered nurse at Grossmont Hospital in La Mesa, Calif., and an organizer for the Sharp Professional Nurses Network, United Nurses Associations of California, an AFSCME affiliate.
"We Americans rely on shared beliefs in equality and fairness -- that we're all in this together," says the Ohio-born mother of two. "When we get away from that, I think we're in danger of losing our moral compass."
What troubles Motlagh and other Americans is that while she is paying her fair share, wealthy people are shifting their burden onto others.
"It makes me so sad to read that," says Motlagh from her home in the hills to the east of San Diego. She's a divorced mother living with her son David, 23, a graduate of the University of California at Berkeley, and daughter Amy, 20, who just finished a semester at Oxford University in England.
"What's a working person like me supposed to do when we hear about these injustices, and so many of us are struggling so hard to keep our families together?" she asks. "The rich have so much."
Scott Free. Take Richard Lynn Scott, president of Columbia/HCA, the nation's largest for-profit hospital chain. Scott pioneered its tactic of buying out non-profit hospitals to then turn a quick buck by laying off or replacing nurses and other caregivers with minimum wage and unlicensed staff.
Scott's firm is attempting to buy Motlagh's hospital in San Diego, and he's very much a part of the universe described by The New York Times. Turns out he has parlayed an initial $125,000 investment in 1988 to build a breathtaking tax-deferred fortune in Columbia/HCA stock.
All his actions appear legal, and he has paid taxes. Since 1992, in fact, Scott has paid taxes on $2.5 million in salary, $1.5 million in bonuses, $500,000 of "other annual" income, and $28,000 in "other" income from Columbia/HCA. During the same period, he also paid taxes on restricted stock awards totaling $870,000, other options on 410,000 shares of stock, and $79,000 in exercise rights from stock sales.
However, in addition to these taxable earnings, Scott silently amassed an enormous deferred compensation package. The value of these holdings is an eye-popping $330 million as of December 1995, money that has gone untaxed while it earns income for Scott.
Unfair Advantage. "Of course, it's an outrage," says Motlagh, who makes $40,000 annually and hasn't had a raise in two years. "We working people have to fend for ourselves because it's very clear that all the power is unfairly in the hands of people like Rick Scott."
"Just multiply the Scotts by thousands and tens of thou-sands," she says. It takes "no imagination to see" that deficits in the federal budget, at statehouses, in city halls and county governments across the nation are a direct product of the richest and most privileged elite of this country "simply walking away from the same tax obligations carried by America's workers."
At the very least, working people have the right to demand a full accounting of the "money that would ordinarily be paid to government," concurred The New York Times.
"Next time budget shortfalls threaten your job or cause layoffs in your part of the country," counsels Motlagh, "we have to be brave enough and smart enough to start asking questions about this.
"It's our country, too," she fervently believes.
By Ray Lane
