“That makes me smart.” If a man with the immense humility of Donald Trump makes such a self-gratifying comment, fewer mortals would do well to listen.
As you may recall, Mr. Trump returned the above reply to an allegation that he hadn’t paid federal income tax in years. Those of us who dutifully pay federal taxes year after year have had to respond with anger or grudging admiration. Anger that a man who wants to be president would actually brag about avoiding his taxes. Or reluctant admiration that a politician would be so honest. Because most politicians, like most non-politicians, look for ways to pay as little taxes as possible. For obvious reasons, unlike you and me, politicians are reluctant to admit this reality. Trump was never a typical politician, for better or for worse.
President Biden has proposed spending an additional $ 80 billion over 10 years to improve the IRS’s ability to catch up with tax evaders, especially tax evaders for the wealthy. The White House estimates that this $ 80 billion investment will generate $ 700 billion in additional federal tax revenue. Penn Wharton’s budget model estimates sales growth of $ 480 billion. The inquiring taxpayer puts the profit at 372 billion US dollars and 34 cents. Feel free to join the fun. Throw away your own number. It is as accurate as any of the “expert” numbers. And the actual number is never checked.
Think of it that way. One day, the IRS estimates an annual tax gap of $ 440 billion between federal taxes owed and taxes actually paid. The next day, at a hearing in the Senate, IRS Commissioner Charles Rettig put the gap at $ 1 trillion. Hmmm. “Well,” the contractor tells you, “my estimate for the renovation of your bathroom is between $ 1,000 and $ 20,000.” How could you not be sure someone would come up with such exact figures?
The federal tax code is close to 6,550 pages, 95% of which concern deductions. Add 7.7 million words of IRS tax regulations and 60,000 pages of tax-related case law and you can see how “smart” people are actually richly rewarded for using all of this material in pursuing legal tax avoidance. Today’s fraud is tomorrow’s tax deduction. The separation of fraudsters and legal workers has occupied thousands of tax attorneys, prosecutors and judges for years. Much of the legal process is funded by guess who: the taxpayer.
Mr. Biden and his wife raised $ 13.3 million in license fees for books and speeches through an S corporation. That maneuver saved them $ 500,000 in federal wage taxes, taxes to fund Medicare and Obamacare. Everything is legal, of course. I don’t know much about suburban corporations, but Swyft Filings will get you on your way to becoming one for $ 49. You see, helping people use / manipulate tax laws, both at the federal and local levels, is an important industry in itself. Paying taxes can be patriotic; avoiding paying them is pure genius.
“Smart” people use the “tax breaks for condominiums”. Smart developers are teaming up with industrial development agencies to avoid paying mortgage taxes and receiving substantial sales and property tax exemptions. It’s stupid not to take what’s available. Law?
And therein lies a problem as big as the problem of tax fraud: what was introduced into a simple method of raising money for government services through a confusing maze of exceptions, loopholes, and snippets. Yesterday’s illegality is today’s tax credit. The state constitution says that public funds cannot be given to private companies? They set up industrial development agencies that can grant multi-billion dollar developers property tax exemptions for companies that are not remotely “industrial”. Where there is will and some power, there is a way. Even on the shores of Lake Canandaigua.
Speaking of clout: Jeff Richetti’s DC business is booming. Jeff is a lobbyist. In 2020, he gained 10 new customers, including a small company you may have heard of: Amazon. One business analyst asked, “Jeff is in a hot phase. What does he attribute this streak to? ”Let the inquiring taxpayer suspect that Jeff’s hot streak has something to do with the fact that his brother Steve Richetti is an influential confidante of President Biden. Don’t be surprised if the federal tax code is expanded by a page or two in the near future, which will give Amazon’s “smart” tax attorneys a little more work. An Amazon spokesperson will then be able to say that the company will simply take what is available.
Here’s an idea that might not cost $ 80 billion. How about you comb through federal tax law and eliminate one deduction or loophole or spin-off (choose your term) per week. Within a decade or two we could get to a point where “stupid” people and “smart” people experience the same tax treatment. The IRS wouldn’t need billions of additional dollars to conduct extensive audits or years of legal action in which opposing sides analyze mysterious tax laws.
As Henry David Thoreau advised: “Simplify, simplify.”
Imagine a time when an individual or company avoiding income or wealth taxes has no choice but to say, “This makes me a crook.”
Canandaigua’s Joe Nacca is a regular contributor to The Daily Messenger.