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Financial Planning > Tax Planning

Top Raymond James Advisor: Taxes on the Wealthy Are Misunderstood

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There are thousands of pages to the U.S. Internal Revenue Code, among the particulars, a host of strategies for reducing income taxes. Applying the code that way is both “legal and smart,” says Randy Carver, who has taught continuing education accountancy to CPAs and is president-CEO of Carver Financial Services, an RIA with more than $1.6 billion in assets under management.

Indeed, wealthy Americans avail themselves of the code to reduce their taxes, and it is a strategy that President Donald Trump vigorously brought to bear for at least the last two decades, according to a recent investigative report from The New York Times.

The top 1% of U.S. earners have long been accused of failing to pay their fair share of federal income taxes. But it is the top 1% who are in fact paying most federal taxes, Carver argues.

The RIA further insists that the notion that big tax breaks were afforded to the uppermost echelon of earners via the Tax Cuts and Jobs Act of 2017 is misconstrued.

Rather, he says, whenever the top marginal tax rate is cut, the amount paid by the wealthiest — known as the effective rate — has increased. Thus, historically, reducing the marginal rate for the top 1% has shifted the tax burden to them, rather than away from them, Carver maintains.

In the interview, the advisor also discusses — and strenuously finds fault with — former Vice President Joe Biden’s plan for tax increases, which, he says, would “slam the brakes on the economy” by hurting businesses and jobs.

Carver, 56, whose firm is an affiliated practice of Raymond James Financial, became an FA more than three decades ago. Named a Barron’s top independent advisor every year for the last decade, he has been a member of Raymond James’ Chairman’s Council for the past 28 years.

ThinkAdvisor recently interviewed Carver by phone. He was speaking from Mentor, Ohio, where his firm, launched in 1990, is based. Discussing investments’ tax impact as a critical part of financial advisory, he stresses: The net return — “how much you keep after fees, expenses and taxes” — is even more important to focus on than the gross return.

Here are highlights of our conversation:

THINKADVISOR: The New York Times investigated President Trump’s tax documents for more than the last 20 years and reports that he paid only $750 in federal taxes in 2016 and in 2017 and no federal tax in 10 of the prior 15 years. What’s your reaction to the piece?

RANDY CARVER: The timing of the story is pretty suspicious given the Nov. 3 election. All of a sudden, this comes out! So people are asking: Is Trump cheating the system? That [view] is more political than anything.

What’s your reaction to The Times’ article in terms of the legality of Trump’s income tax liability and payments?

Without looking at the returns, we really don’t know. The Times looked at some stuff, but we don’t know what they saw and what they based [their story] on. So we don’t know whether Trump paid $750 in taxes or millions in taxes, as he alluded to.

Given his high income, would it be legal for Trump to pay only $750 for a tax year?

Ninety-one companies in the Fortune 500 — including Amazon, Starbucks and Netflix — are paying no tax; in 2019, they had an effective [actual] tax rate of zero or less. In fact, some of the companies are getting money from the government in grants and credits. That these companies haven’t paid taxes at all isn’t illegal. It’s just using the tax code to their advantage.

But what about Trump’s returns?

I think the same thing would be true of him. There’s nothing illegal paying the least amount of taxes by using the tax code.

Please elaborate.

Anything that Donald Trump did [regarding his taxes], in, say, 2015-2018, was because of the Biden-Obama tax plan. So assuming what he did was legal, he was just taking advantage of the way the tax code was written.

Please discuss the fact that minimizing income tax — tax avoidance — is legal.

Tax avoidance lowers your tax bill by structuring your business so you can reap the biggest benefits according to the tax code. That’s legal and smart. Tax evasion is radically different and illegal. It’s an attempt to reduce your tax liability by subterfuge or concealment. That’s a crime.

The Times reported that Trump is in debt for more than $400 million, which is said to pose a national security risk. The question arises: To whom is he in debt? What are your thoughts?

I don’t buy the whole thing that Trump is beholden to [a powerful person who lent him money]. But again, without seeing the actual tax returns and loan documents, we don’t know what’s been paid and what’s owed. All this is speculative. Trump could [theoretically] sell one property and pay off all the debt they’re talking about. But debt is a leverage, and it’s not really a debt if you have the assets to pay it off — whether you’re Trump or anyone else.

There’s a presumption that the top 1% of Americans aren’t paying their fair share in taxes because they’re gaming the system. What do you say?

That isn’t true. Now, Trump may be an exception: Real estate is interesting, and, obviously, he has a ton of real estate. But if I said, “My plan is to cut the top tax rate for the wealthiest 1%,” it may sound great, but there’s more nuance to it than that.


It’s said that the Trump tax cuts gave this big break to the wealthy. That isn’t true. One point is that people get [confused]: The marginal rate is what the IRS says people pay. The effective tax rate is what people are actually paying.

What’s an example?

In the 1950s, the top marginal rate was 91%; however, the top 1% paid an effective tax of only 16.9%. In 2019, the top marginal rate was 37%; yet the effective tax rate was 26.8%. [And note that] in 2018, the top 1% of taxpayers paid 20% more than the bottom 90% combined. That’s a staggering number. I think all this gets lost in the political rhetoric.

What’s the bottom line, then?

The reality is that the top 1% is paying most of the taxes in this country. They’re paying roughly 37% of all federal income tax. That’s more than the bottom 90%.

Tax cuts for the rich help government revenue, you write. Please explain.

Absolutely. It’s very counterintuitive. Whenever they’ve cut the top marginal rate, the amount paid by the wealthiest Americans has gone up, not down — the amount of revenue the government takes in has gone up.

How so?

Because people are incentivized to earn more. With every tax cut — for instance, when [president] Ronald Reagan cut the rate from 70% to 50% — the amount of revenue has gone up.

Former Vice President Joseph Biden says that his plan, if elected president, is to raise income taxes on people earning more than $400,000. Many have called his plan horrible. What do you think?

It is [horrible]. It’s going to slam the brakes on the economy because it hurts the economy. He wants to take incentives away from businesses, which can hurt jobs. He wants to change how [certain types of businesses] depreciate. He wants to raise taxes on capital gains-generating income. He wants to raise the capital gains tax from 23.8% to 39.6%. And he claims that people making under $400,000 aren’t going to pay more?

Biden also wants to raise the corporate tax from 21% to 28%.

That’s ridiculous.

So Biden says he would repeal parts of the Tax Cuts and Jobs Act. What impact would that have?

The [doubling of the] standard deduction for everybody, which doubled under Trump’s Act, will go away. That would hurt lower- and middle-income people far more than the wealthy because that’s who the Jobs Act benefited, not the top 1%.

How would the Biden plan affect Social Security and the payroll tax?

They’re talking about adding a 12.4% Social Security tax for people making over $400,000. I would suggest that’s not a good plan. It’s all very political: Tax the rich — and it’s going to help [solve] everything. It’s not that simple.

Would Biden’s plan change the estate tax, too?

Yes. [And that would be] huge. The Tax Cuts and Jobs Act doubled the estate-and-gift-tax exemption [Biden says he would reduce it]. It’s supposed to [expire] in 2025. More importantly, the Biden plan eliminates the step-up basis [which will generate tax increases]. For example, if you bought stock for $10 and it went to $110, you would [today] pay taxes on $10. Under the Biden plan, there would be no step-up. You’d owe taxes on $100. This would have a huge impact on average Americans — everyone with small estates. It’s crazy!

How do you think the Biden plan would affect the stock market directly?

If you raise the capital gains tax and increase taxes on businesses, the market likely won’t do as well. One of the things driving the market is that we have lower taxes — and less regulation. Anytime you cut taxes, it unleashes the economy. If you raise taxes and increase regulation, businesses don’t do as well.

You stress to clients that it’s important to look at potential tax liability for each investment. Why is that significant?

The fact is that if you reduce taxes, it puts more money in clients’ pockets without taking more risk. Investing isn’t about how much you make. What’s one of the most important numbers is how much you keep after fees, expenses and taxes — the net return.

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