That's Rich: Blackstone Chief Stephen Schwarzman Needs Help Lowering His Taxes
Stephen Schwarzman should get a new tax lawyer. The CEO of private equity firm Blackstone Group (BX) told Maria Bartiromo yesterday that he pays personal income taxes at a whopping rate of 53 percent, adding:
That's one of the highest rates, actually, in the world.My, that does sound high. Schwarzman, whose net worth is estimated at nearly $6 billion, said that for 2010 he was taxed at 36 percent by the feds and 17 percent by state and local governments. Those are the nominal rates for people in his income bracket.
This may come as a shock to Schwarzman, but most people don't pay quite as much in taxes as the government rate tables require. Especially rich people. According to the IRS, in 2008 the average federal income tax rate for the top 400 U.S. households, whose average income last year was $270 million, was 18.1 percent. In 2007, when their income was $345 million, it was 16.6 percent. Even in 1992, when taxes in this country were higher, the wealthiest Americans were taxed by the government at only 26.4 percent.
Pay it forward
Handy, those tax breaks. Either Schwarzman is a patriot in voluntarily paying more than his fair share or he needs to look up the meaning of "loophole." For instance, he should've been able shave a few bucks off his 2008 taxes by deducting that $100 million he gave to the New York Public Library. Charity takes all forms.
Or maybe Schwarzman is just feeling a little beaten down by the economy. The exec's salary last year was only $350,000, excluding the $6.4 million bump he got in the value of his Blackstone stock, which recently was worth nearly $400 million. But in 2008, before the wheels flew off, his $700 million in annual comp made him the highest paid CEO in all the land. Austerity sucks.
Should Blackstone clients worry about Schwarzman's evident naivete regarding tax matters? Have no fear. The PE firm itself, if not its chief executive, is on the ball. After Blackstone disclosed its leader's record-breaking pay two years ago, corporate government expert Paul Hodgson noted that the 200,000 percent raise the executive got in 2008 was "cunningly disguised" in the company's annual proxy statement. How? Among other things, by using "sleight of hand" to understate Schwarzman's real cash compensation. Hodgson wrote:
Putting a positive spin on pay of $700 million has got to be tough, and whichever committee came up with this one deserves to be congratulated for chutzpah alone.Dreaming of flatland
Of course, there is one other possibility to explain Schwarzman's claims -- he's spinning, too (with the usual uncritical assist from Bartiromo). Buyout pros make most of their dough not in salary, but in what is known as "carried interest." PE, hedge fund and other investment profits are taxed as capital gains, a rate of 15 percent. The White House has made noises about treating those earnings as ordinary income, an idea the buyout industry has been fighting for years.
What Schwarzman really wants is a flat tax. Flatter, that is -- the U.S. tax system is less progressive than commonly thought (see chart at bottom). In 2010, the wealthiest 1 percent of Americans, who had average annual cash income of $1.2 million, paid a total effective tax rate of 30 percent. Their federal income tax rate was 22.1 percent, while this group's state and local taxes came in at 7.9 percent. By comparison, the middle fifth of the population -- average income, $40,700 -- paid a total tax rate of 25.1 percent.
The top 1 percent also pay less in total taxes than other wealthy, if much less affluent, people. The next 4 percent of U.S. income earners, who bring in an average of $241,000 per year, paid a total tax rate of 31.3 percent. Same goes for the next income group ($140,000 per year).
By that measure, at least, Schwarzman shouldn't feel so bad. He's not the only one who's suffering.
Photo by swiss-image.ch/Remy Steinegger and World Economic Forum via Wikimedia Commons, CC 2.0; Chart from Citizens for Tax Justice
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