tax dodge for rich

washingtonpost.com The rich get government handouts

just like the poor. Here are 10 of them.

Writing credits:Emily BadgerChristopher Ingraham

WAPO 2014/15

The yacht tax deduction.

If you’ve got a boat and you’re paying interest on it, that interest is tax-

deductible – provided your boat is really, really big. If it has sleeping

quarters, a kitchen and a toilet – e.g., it is a yacht – then it can be

considered a second home and any interest you pay on it is deductible.

The mortgage interest deduction for big

houses and second homes.

Thanks to this tax break, the 5 million

households in America making

more than $200,000 a year

get a lot more housing aid than the 20 million households living on

less than $20,000.This tax break

applies as well to second homes

Rental property. If you're a landlord, which you probably aren't if you're very low-income, you can deduct

many of the expenses you incur renting a home, including repairs, advertising,

HOA fees and — again — mortgage interest. If you

happen to rent out either your first or second home for 14 days or less — because, for example, Augusta National

Golf Club is hosting the Masters nearby

— you get to just pocket all that income without paying

taxes on it at all.

Fancy business meals.Imagine that the tab for dinner and drinks for 10 executives comes to $1,600. Current tax law allows companies to deduct half of the cost of business meals — in this case, $800. With a corporate tax rate of 35 percent, each dollar of deductions yields 35 cents of tax savings — so that $800 deduction saves $280 in taxes. This means one dinner for 10 people provides more public food assistance than the $279 an average household receives in food stamps for the whole month.

The capital gains tax rate.

The top income tax rate is 39.6 percent. So investment income is taxed at a much lower rate than regular income. The annual earnings of many of the ultra-rich come from investments, not from wages. This is why Warren Buffett famously has a lower effective tax rate than his secretary.

The estate taxWithout the estate tax, super-wealthy families would be able to hoard

that wealth in perpetuity, becoming ever more powerful in the process. The tax, as it currently exists, only kicks in on

estates worth $5.4 million or more, affecting about the top 0.2 percent of households. For everyone else in the top 1 percent,

congratulations! You can pass on your riches to your heirs tax-free.

Gambling loss deductionsYou can deduct your

gambling losses up to the value of any

winnings you earned. More gambling winnings

mean more gambling deductions, incentivizing

you to keep gambling more to at least break even. And if you’ve got more money to gamble, you’ll have more losses

to deduct.

The Social Security earnings limitSocial Security taxes only apply to

income up to $118,500 – anything after that is Social Security tax-free. So the more money you make, the less your effective Social Security tax rate is, making

this tax about as regressive as they come. Technically, of course, Social Security is a savings plan, not a tax.

But the rich tend to live longer than the poor and receive benefits longer than lower-wage earners, so

an adjustment to the earnings limit would help offset this difference. Social Security’s own actuaries

estimate that eliminating this cap would reduce the program’s long-term deficit by about 86

percent.

Retirement plansThe federal government incentivizes retirement by allowing you to reduce your taxable income by saving money in 401(k) plans or

IRAs. But employer-sponsored retirement plans only benefit those

people with employers that offer them (so, largely not people who

work in retail or the fast-food sector). And the benefit for IRAs doesn’t help people who have no money left over

for retirement after they pay their living expenses. In total, about 66

percent of these retirement subsidies go to the top 20 percent of taxpayers

. Less than 1 percent go to the bottom 20 percent.

Tax prepIf you have hired an

accountant to help you sort through all of these tax

breaks to make sure you maximize them — which the wealthy are much more likely

to do — you get to write off that expense,

too.

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