I recently overheard an interesting dinner conversation. A woman and her partner, who runs his own private equity fund, and who live in different cities, were discussing the time they spent commuting to see each other. She lives in New York; he’s in a southern city for business. When he expressed how much fun he was having at their Manhattan pied-à-terre, I suggested they simply buy a bigger place and live together full time in New York. His response: “Oh, I couldn’t do that. I’d be paying a much higher tax rate.”
Call me a hopeless romantic, but I was both depressed and outraged by this sentiment. The idea that an ultra-high-net-worth individual (or any individual) would prioritise tax rates over personal considerations like where to live with a partner makes me sad. But it’s certainly not the first time I’ve heard about such extreme tax “optimisation” among the American elite.
I was once at a party in the Hamptons where a very wealthy Democratic donor mentioned to me that he covers healthcare and educational expenses for his children and even grandchildren, because it’s tax deductible for him to do so (such payments are excluded from federal gift taxes). “Really?” I asked. “You’d rather infantilise your adult kids than pay more money to the government?” (and this was the Biden government, his own). He looked at me incredulously: “Well, it wouldn’t be good tax planning to do anything else.”