04.18.09 7:03 AM ET
Stop Hating on Madoff Victims
On Tax Day, fellow Daily Beast contributor and Clinton budget adviser Matt Miller wrote a story for this site basically asking why wealthy Madoff victims get to claim a tax deduction for the bulk of their losses, while he’s stuck for the full $37,000 his decorator defrauded from him.
Specifically, because these victims “were people rich enough to have millions of dollars to place with him, and thus people with marginal tax rates near 50 percent, that means the government—i.e. the rest of us—will be picking up roughly half the cost of many wealthy people’s stupidity,” Matt wrote. He then added: “On what theory of justice do we absorb the full loss of getting ripped off while Madoff’s victims get to shift half of theirs to everybody else? Yes, we were idiots to let it happen, but so were Steven Spielberg and Uma Thurman.”
Much of the Madoff tax refund will come from money we previously paid federal and state governments based on fictitious income we thought we had earned. In other words, this is rightfully our money to begin with.
Having lived with the Madoff aftermath ever since I learned on December 11 that Madoff had stolen $5 million from me, I have become growingly aware that almost nothing is clear about Madoff. I still don’t know where the money is, who was complicit with him, or why he pleaded guilty and raced off to prison rather than stall the judicial process for many months if not years. I don’t know why only 29 or so creditors of the more than 6,000 claimants have received their SIPC checks from the trustee (a securities industry insurance program which costs the taxpayers nothing) or whether investors in feeder funds will ultimately be eligible for the same relief as direct investors.
What I do know is that Steven Spielberg and Uma Thurman are not idiots. They are human beings like the rest of us who were taken in by the greatest con man of all time. Madoff not only fooled the SEC but the likes of Henry Kaufman, one of the most highly regarded economists of the 1980s. We are no more stupid than the millions of other Americans who invested in Lehman Brothers, General Motors or AIG.
What I also know is that nobody is getting tax relief which will remotely approach 50 cents on a dollar invested. IRS is allowing Madoff investors a theft loss deduction, which has been allowed for victims of other Ponzi schemes. Much of the tax refund will come from money we previously paid federal and state governments based on fictitious income we thought we had earned. In effect, this is rightfully our money to begin with.
In my particular instance, based on the $5 million I invested directly and indirectly with Madoff, I stand to get tax refunds of roughly $500,000, more than half of which is a return of money I paid in taxes on phantom income. In other words, the government, after returning my money, will be giving me a tax break of approximately 5 cents on the dollar—not exactly a huge windfall considering the SEC’s lack of oversight allowed the scam to continue. My refund may be smaller than some others because a significant portion of my income in recent prior years was capital-gains income, not ordinary income, but many of the elderly who invested with Madoff—and Florida is filled with them—are not in especially high tax brackets and pay no state income taxes to begin with.
Matt did acknowledge that “Madoff had many less well-heeled victims, and I’m not going to stand between them and their deduction. I say, let’s means-test it. And Elie Wiesel I have no problem with. The man’s a Holocaust survivor, he suffered enough. But Mort Zuckerman?” The problem is we can’t pick and choose. The former multimillionaire who invested all his money with Madoff might be homeless today and other Holocaust survivors might be doing well financially. There doesn’t exist a wise man smart enough to distinguish among the thousands of Madoff survivors. And by the way, I have never met Mort Zuckerman, but he might well have earned his millions and shouldn’t be punished for his success.
Matt is right that the taxpayers have reason to be angry. Just not at the investors who were taken to the cleaners by Bernie Madoff.
Burt Ross, the former mayor of Fort Lee, New Jersey, and former administrator of the New Jersey Energy Office, is a lawyer and real-estate investor. A book "The Bribe" was written about his exploits with the Mafia.