A summary of “Tax me if you can”

After submitting my first complete thesis draft to my adviser, I finally was able to make some time for reading The New Yorker.

One article in the latest issue discusses tax evasion and the residency requirement for New York City. Here is my summary of it. The original article can be found on http://www.newyorker.com/reporting/2012/03/19/120319fa_fact_stewart

A summary of “Tax me if you can”

Tax rates for the rich people have always been a highly charged political issue in America. In 2008, the group of highest-earning taxpayers in the country with an average adjusted gross income of two hundred and seventy million dollars each, paid only 18.1 per cent tax rate, lower than people who earn between two hundred thousand and five hundred thousand dollars.

Seizing on this fact, President Obama has made tax fairness a central issue in his reelection campaign. Meanwhile, republicans do not endorse the current tax code either, though most of them have insisted that any reform be income neutral and not a tax increase.

Regardless the opinions and arguments on this matter, people ignore the fact that rich people are not taxed on certain income, either because it is exempt, or because they claim to be living outside the jurisdiction that is levying the tax. For instance, New York City tax laws don’t apply to people who are deemed to be nonresidents, even if they own a residence in the city and work there. To be regarded as a nonresident, one is allowed to spend no more than half a year—a hundred and eighty-three days in New York City. The benefits of this policy are limited to certain people with the flexibility or the power to control their working conditions, and the freedom to go anywhere, anytime. Examples include the founder of Tiger Capital Management Julian H. Robertson, Jr, the prominent criminal-defense lawyer Thomas Puccio, and Martha Stewart, who was convicted in 2004 of obstructing justice and making false statements in an insider-trading investigation.

To prove that they do not exceed the one-hundred and eighty-three days limit in New York City, billionaires have to come up with evidence. Robertson uses compulsive day-counting, though proved to be convincing and clear in his case, costs a significant amount of time and efforts. Puccio and Stewart, on the other hand, replied heavily on credit card statements, travel records, limousine receipts, etc, to show their whereabouts. These measures, not as tedious as Robertson’s method, provide strong incentive to cheat.

Then why not tax people who make their income at Manhattan-based hedge fund no matter they spent less than one hundred and eight-three days there? There once was a law in place stipulating that people who worked in New York City were subject to New York City tax on what they earned in the city no matter how many days they spent there. The law was repealed in 1999 and later efforts to restore it have failed, with the impediments from real-estate interests, wealthy bankers, and hedge fund managers.

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