Tax Analysts Blog

At the Helmsley Building, the Little People Pay the Taxes

Posted on Feb 17, 2011

Leona Helmsley was the billionaire real estate baroness New Yorkers loved to hate. She was famous for humiliating her household help and staff at her hotels. When it came to home improvement, she routinely charged it as a business expense or simply left her contractors unpaid. Her greed eventually led to prosecution in 1988 by then New York District Attorney Rudy Giuliani. Helmsley received a four year sentence for fraud and tax evasion. She served eighteen months. When she died in 2007 the Queen of Mean left her relatives in the cold and the bulk of her fortune to charity. Trouble Helmsley, Leona’s Maltese poodle, got a $12 million trust fund, took up residence at the Helmsley Sandcastle hotel, and by all reports was indifferent to the New York Post headline calling her a “rich bitch.”

The infamous Helmsley is probably most remembered for her quote revealed during her trial. Helmsley’s former maid quoted her boss as saying: “We don’t pay taxes. The little people do.” Not since Marie Antoinette told starving Parisians to eat cake has callous royalty done so much to stir up populist fervor. Luckily for Helmsley the little people on the jury did not have the guillotine as a sentencing option.

Included in the Helmsley real estate empire was the former New York General Building built by Cornelius Vanderbilt in 1928. Before he passed away, Leona’s husband Harry purchased the 35-story art deco landmark that straddles Park Avenue between 45th and 46th streets. Leona renamed it the Helmsley Building. In 1998 she sold it for a quarter billion dollars. In 2007 Goldman Sachs purchased it for over $1 billion.

Like so many high-profile Manhattan skyscrapers, the Helmsley building has its own zip code. The IRS tabulates individual tax return data by zip code. So we can see how much income tax was reported on individual tax returns that filed from the Helmsley Building. In 2007 there were 130 returns using the building’s zip code. The IRS data do not reveal whether these returns were filed by individuals using the building as a primary residence, secondary residence, or as a business address. In any case these are not your typical straphangers. Average adjusted gross income per tax return is $1.17 million.

But it is not just lofty levels of income that separate Helmsley residents from regular folks. It’s their tax rate. In the table above we compare the total income and estimated payroll tax liability of a typical filer from the Helmsley building with the income and payroll liability of janitors and security guards earning average salaries for those professions in the New York area. The Helmsley Building no doubt employs dozens of janitors and security guards, many of whom earn salaries comparable to these government-reported averages.

The data directly from tax returns show that total average income tax liability for individuals filing from the Helmsley building was only 13.7 percent of AGI.

As is true for most rich people, payroll taxes are small relative to income taxes. In 2007 the social security portion of payroll taxes (12.4 percent rate) was imposed on no more than $97,500 of wage and self-employment income. The Medicare portion (2.9 percent rate) had no limit. For Helmsley filers estimated payroll taxes added only 1 percentage point to their effective tax rate. Combined income and payroll tax liability tax for this privileged group was only 14.7 percent of AGI.

Working people have an entirely different tax profile than the elite. The biggest difference is that for workers, payroll taxes impose a larger burden than the income tax. Data from the U.S. Department of Labor indicate the average annual salary in the New York City area was $33,080 for a janitor and $27,640 for a security guard. Using the 2007 version of the Form 1040 EZ a typical New York janitor's income tax liability is $3,168. Payroll taxes total $5,062. Combined income tax and payroll tax liability for the typical janitor is 24.9 percent of AGI.

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