Tuesday, January 09, 2007

Tax Cuts Offer Most for Very Rich, Bush’s Base, Are More Planned?

A Congressional study revealed people with income over $1 million a year saw their federal tax rates drop more sharply than any group in the country as a result of President Bush’s tax cuts.
Based on an exhaustive analysis of tax records and census data, the study reinforced the sense that while Mr. Bush’s tax cuts reduced rates for people at every income level, they offered the biggest benefits by far to people at the very top — especially the top 1 percent of income earners.

Both opponents and supporters of the Bush tax cuts used the data to justify their positions. Just months ago an ex-IRS Commissioner testified before Congress on the benefits of a maximum long term capital gains tax rate of 8.25%. This would be a huge cut for the top 1% of the wealthy whose effective tax rate dropped from 24.2% in 2000 to 19.6% in 2004.

Who was this ex-commissioner? It happened to be Charles Rossotti, Senior Advisor to The Carlyle Group. How might Charles benefit from paying just 8% on capital gains? In addition to his ample income from Carlyle, Mr. Rossotti serves on a number of corporate boards, AES Corporation, Adesso Systems Corporation, Liquid Engines, Inc., Compusearch Systems, Inc., and Merrill Lynch & Co., Inc.

AES Corporation 176,563 shares beneficially owned at $21 a share plus annual compensation of $50,000 per year + $20,000 for committee service.
Adesso Systems Corporation is privately held by The Carlyle Group
Liquid Engines, Inc. is privately held by The Carlyle Group
Compusearch Systems, Inc. is privately held by The Carlyle Group
Merrill Lynch & Co., Inc. 7,012 shares beneficially owned at $93 a share plus annual compensation of $75,000 per year + $185,000 in deferred stock units

One can see how Mr. Rossotti could benefit from a national 8.25% tax on stock held more than one year. From the above stock holdings Charles would stand to save significantly on his tax bill. His stock in AES is valued at $3.7 million and Merrill Lynch at $650,000. Should all that be profit, Mr. Rossotti would stand to save nearly $300,000 in taxes if he pays 8.25% on his gains vs. the current 15%.

Mr. Rossotti’s stock holdings are much larger than what is shown here. Yet, he stands to save approximately $300,000 in taxes from this sliver of his financial pie from his recommendation to Congress. Wealthy folks stand to gain even more from the expiration of the Estate Tax around 2010. Will Charles get his suggestion enacted enabling even more of that ka-ching to drop into the already bulging pockets of the rich?

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