The NYT has a long investigative piece explaining the procedures deployed by the Estee Lauder heirs to "shelter" their income from tax, such as donating millions of dollars' worth of art to their own charitable trusts, then taking a gigantic tax write-off.
Estée Lauder Companies went public in 1995, and Ronald Lauder and his mother cashed in hundreds of millions of dollars in stock but managed to sidestep paying tens of millions in federal capital gains taxes by using a hedging technique known as shorting against the box.
Together, Mr. Lauder and his mother borrowed 13.8 million shares of company stock from relatives and sold them to the public during the offering at $26 a share. Selling borrowed shares in this way is referred to as a short position. Since the Lauders retained their own shares, the maneuver allowed them to have a neutral position in the stock, not subject to price swings. Under I.R.S. rules at the time, they avoided paying as much as $95 million in capital gains taxes that might otherwise have been due had they sold their own shares...
“There’s real truth to the idea that the tax code for the 1 percent is different from the tax code for the 99 percent,” said Victor Fleischer, a law professor at the University of Colorado. “Any taxpayer lucky enough to have appreciated property is usually put to a choice: cash out and pay some tax, or hold the property and risk the vagaries of the market. Only the truly rich can use derivatives to get the best of both worlds — lots of cash and very little risk.”
A Family’s Billions, Artfully Sheltered
(via Beth Pratt)
One Hyde Park, the world's most expensive apartment building, is a notorious den of tax avoidance. The building is located in London's Knightsbridge, between the Serpentine and Harvey Nichols, and has 62 apartments, each worth millions of pounds. Only nine of the 62 owners pays their
full council tax, and most of the apartments were sold without any stamp duty (a tax on home purchases) being collected through a dodge whereby each apartment was owned by a company over which the buyers assumed control, so that the apartment itself never changed hands.
Karen Buck, the Labour MP for Westminster north, said she expected the council to act quickly to recoup the tax from One Hyde Park's residents. She voiced concern that the super-rich in London were not paying their way, saying: "When council spending is under unprecedented pressure, it is scandalous that residents in luxury apartments can avoid their share of council tax liability. It sometimes seems as if the more money you have the less you are required to pay."
A council may apply to a magistrate for a warrant to imprison a council tax debtor if they are refusing to pay but have the means.
The revelation follows claims by Liberal Democrats that up to £750m is lost every year to the exchequer when house purchases are hidden behind off-shore companies.
Only nine pay council tax in enclave for super-rich
Maybe you've heard about Herman Cain's 9-9-9 plan for America: 9% sales tax, 9% income tax, and 9% corporate tax, and wondered how it would play out in the real world. Here's a chart that illustrates the answer neatly (click for full, farcically long-ass version): the poor will pay a little more (or a lot more, relative to their income), and the rich will pay a lot less, and the very rich will pay so much less that it takes 9403 vertical pixels to express how much they'll save.
(Thanks, Fipi Lele!)