“This is a system designed for the fortunate few by professional tax dodgers,” Sen. Ron Wyden (D-Ore.) wrote in 2019.
Income is generated in two basic categories: accumulation of wealth/assets and salary/wages/commissions. There are subtle blends, and clearly one form of income impacts the other. For example, when you reduce federal income on corporate taxes from 35% to 21% (as we did in 2017), the values of the underlying corporations skyrocket. And when you have massively expensive election campaigns and no cap on what companies and the rich can spend to promote candidates and issues (thanks to the 2010 Supreme Court decision in Citizens United vs FEC), it is little wonder that the Internal Revenue Code is purposely skewed to create effectively tax-free/very low tax paths for the mega rich that simply are not available to those who earn a living. It is no secret that there are tons of billionaires as well as successful Fortune 500 companies that pay no tax or have an effective tax rate lower than their lowest paid administrative assistants.
45 of those richest corporations paid zero tax, and the average effective tax rate, after loopholes, of those mega-rich companies is a staggeringly low 15%. “Amazon founder Jeff Bezos paid no income tax in 2007 and 2011. Tesla founder Elon Musk’s income tax bill came to zero in 2018. And financier George Soros went three straight years without paying federal income tax, according to a report out Tuesday [6/8] from the nonprofit investigative journalism organization ProPublica.” Associated Press, June 8th. Liberal and conservative billionaires prosper under a tax code written by the rich for the rich.
Michael Hiltzik, writing for a June 9th special release for the Los Angeles Times, notes: “The records are eye-opening, showing how the superrich have gained from a tax system rigged in their favor. As ProPublica reports, the system allows them to pay a minuscule portion of their wealth, and sometimes their conventional income, in taxes… It’s not their tax-avoidance methods that are so striking, for those are familiar to anyone paying attention, but the scale of tax breaks.”
Big Fortune 500 companies have phalanxes of highly specialized tax lawyers and accountants, both in-house and from some of the most skilled outside law firms and accountancies in the land. For example, highly valued corporations and mega-rich individuals can horde major assets, which may be appreciating at astounding rates, but which are not taxed unless and until those assets are sold (producing a taxable event). Such assets can, however, form the basis of collateral for an underlying loan, and today interest rates remain a bargain (thank you Fed). So, the interest on such loans is deductible, but the underlying asset remains untaxed. Hmmm.
Even over time, when some taxes as paid, the rates paid are so incredibly marginal. Ask Donald Trump, who so stretched the loopholes that he is under criminal investigation by the federal government as well as the State of New York. Or even seeming legal tax avoidance: “Bezos’ wealth grew by $99 billion in 2014-2018, but he paid only about 1% of that growth in federal taxes. Musk’s fortune grew by about $14 billion in that time frame, but he paid only about 3.27% of that increase in federal taxes… Statistics like these illustrate the adage that what’s really scandalous in American society isn’t what’s illegal, but what’s legal.
“All the tax-avoidance devices documented by ProPublica are, in fact, perfectly legal. But they’re useful chiefly for millionaires and billionaires who have the legal flexibility to sequester their wealth in categories that enjoy either low tax rates or infinitely-deferrable tax liabilities… Edward Kleinbard, the late taxation bard of USC, used to describe the capital gains tax as our only voluntary tax. It’s levied only when capital assets such as stocks, bonds or real estate are sold and the gains ‘realized.’ Therefore, it can be deferred indefinitely simply by not selling.” Hiltzik. As corporate CEOs of these mega-corporations are compensated at a staggering average of well over 300 times their average employee, often in the form of company stock, combined with all of these loopholes, American income inequality has reached unjustifiable proportions.
Indeed, income inequality has only gotten significantly worse over the years, such that the notion of upward mobility, the bastion of the American dream, has been relegated to the history books. Tax cuts have eroded the quality of our public education, dropping high school performance to where a nation (read: the United States) that was once first on performance metrics is now somewhere between nineteenth and thirty-eighth in standardized international performance tests. Post-secondary education has risen in cost at double and triple the rate of inflation, resulting in massive unaffordable student loan debt. All nails in the coffin for upward mobility.
As I have noted repeatedly, the most consistent and significant Republican fiscal platform since the Reagan era has been the notion of supply-side economics, a theory that says if you cut taxes for the rich, the benefits will trickle down to everybody as those savings will be converted to lots of well-paying jobs. “A rising tide lifts all boats,” the slogan goes. Anything that opposes this false theory is simply labeled “creeping socialism,” a buzzword that scares too many, mostly older American voters.
There is just one huge catch: rich folks do not create jobs just because they got a massive tax windfall. In fact, as my February 14th When the Political Foundation Plank is Simply Wrong blog points out in great detail, this notion of supply-side economics has never worked anywhere! Instead, we have such economic disparity that the wealth of the top one percent of Americans exceeds the aggregate wealth of the bottom 60% of the US population. This is the worst income inequality in the developed world. The GOP has traded tax and regulatory cuts for “anything social conservatives want” to generate votes.
So, what can be done about it? Given the filibuster rule in the Senate, with enough Republicans backing their disproven trickle-down theory to block a fair tax system, probably nothing. But there is a path if we were able to get a Congress that truly represents the economic interests of 95% of the American electorate. “What’s most important about the [above ProPublica] disclosures is that they point to a remedy for economic inequality that has been heard more and more often: Tax wealth, not merely income.
“Wealth taxes were proposed by Sens. Elizabeth Warren and Bernie Sanders during their presidential campaigns. Warren reintroduced her idea in Congress this year. The scale of wealth concentration in a few hands makes a wealth tax imperative… There’s been a certain amount of sniffing that the ProPublica disclosures are old news — that the tax dodge of unrealized capital gains and other breaks available chiefly to those with a lot of money have long been known…
“[Oregon Senator Ron] Wyden has proposed reworking this system to shrink the advantage of the superrich by eliminating the preferential tax rate for capital gains (President Biden has proposed this, too) and by requiring that capital gains be marked to market annually — that is, taxing unrealized gains every year. Warren’s proposal would impose a 2% tax on the net value of stocks, bonds and anything else of value exceeding a total of $50 million, and another 1% on net worth above $1 billion.” Hiltzik. What the current tax code is slowly accomplishing is to push the United States away from a representational democracy into a plutocracy with a bevy of angry and well-armed nationalist/populist enforcers.
I’m Peter Dekom, and an under-informed electorate, fed on conspiracy theories and disinformation, is easy pickings for a well-oiled and thorough financed political campaign by the mega-rich to keep their taxes at the lowest possible rates.
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