There is deep cynicism about tax evasion by the ultra-rich. People expect it. Still, reading ProPublica’s story was unsettling about how the ultra-rich are still playing with the system to avoid their fair share of taxes.
I remember an old quote from Eugene V. Debs: “Something is wrong in this country; the justice nets are set up to catch the minnows and let the whales slip through. ”
The whales, formerly known as “robber barons”, play by their own rules. ProPublica shows that many of our wealthiest citizens have found ways to pay minimal or no taxes. To name a few, Jeff Bezos did not pay federal income taxes in 2007 and 2011. Elon Musk paid no tax in 2018 and Carl Icahn paid no tax in 2016 and 2017.
ProPublica has kept tax records on the tax returns of thousands of the richest Americans for over fifteen years. The pattern shows that the richest pay income taxes, which are only a tiny fraction of the many millions their wealth has grown.
As far as taxes are discussed, it is mostly about gradual changes at the top of the tax rate. For individuals, the debate is whether the high-end rate should go from 37% to 39.6%. For businesses, the rate can go from 21% to 28%. Before 2018, the corporate rate was 35%.
While the proceeds from these potential tax hikes would be much-needed tax revenue for the very wealthy, these discussions miss the bigger picture.
The IRS is more likely to tax income than assets like stocks or real estate. The value of stocks and real estate is not defined as taxable income until it is sold. As a result, many assets escape any IRS scrutiny. Determining the value of stocks and real estate would undoubtedly be extremely controversial, but it can be done using fair and objective criteria.
The phenomenon of extreme income inequality is a defining feature of our time. In the past 16 months since the pandemic began in 2020, the total wealth of 713 U.S. billionaires has grown by $ 1.8 trillion, an increase of nearly 60%. That surge came at the same time as the net worth of working Americans was lagging behind.
The tax system in America does not deal with the reality of economic inequality and the way the ultra-rich manage their assets. Since wealth is accumulated outside of the narrow income range, the IRS ignores it. It’s like the IRS is missing out on the boat for being set up to address a time that no longer exists. It is not allowed to look in the right places.
ProPublica compared how much taxes the 25 richest Americans paid between 2014 and 2018 versus how much Forbes estimated their wealth had grown over the same period. The IRS records show that the ultra-rich were paying only a tiny fraction of their wealth gain.
With their fleet of lawyers, the ultra-rich have developed a number of techniques to circumvent the tax system. Minimizing salaries and income, holding stocks in their companies, not paying dividends, deductions, assets in offshore accounts, and using credit are legal ways the ultra-rich have developed to minimize their tax burden.
Sens. Elizabeth Warren and Sheldon Whitehouse have called on the Senate Finance Committee to investigate ultra-rich tax evasion. In a letter to Senate Finance Committee Chairman Ron Wyden, they write: “… Tax avoidance by the country’s richest individuals is deeply unfair. The country is unable to pay for major investments in infrastructure, education and health care. It favors investment income over wages, distorts our nation’s economy, and increases inequality. And it makes low-income and middle-class families pay an unfair tax burden. ”
Warren and Whitehouse also sponsor an “Ultra Millionaire Tax” to tax the richest 100,000 households. The tax would include a 2% household and trust tax of between $ 50 million and $ 1 billion. It would also include an additional 1% annual surcharge on net worth of households and trusts over $ 1 billion.
A wealth tax gives at least a more accurate picture of the ultra-rich and their systems. It creates a mechanism to address wealth that has been tucked away in locked places.
Since the ProPublica story broke, much media outlets have focused on the unauthorized disclosure of confidential government information being illegal. ProPublica did not disclose how it received the tax information. Republicans in particular have voiced their outrage over the illegal invasion of the privacy of billionaires. But the Democrats hardly had a better answer. Neither party was outraged that billionaires had betrayed the public by paying no taxes or paying absurdly low taxes.
I don’t know what harm is done by publishing tax returns from the ultra-rich. ProPublica found that the Scandinavian countries like Norway, Sweden and Finland regularly publish the tax returns of all citizens.
IRS Commissioner Charles Rettig testified earlier this year that the government may collect no more than $ 1 trillion in taxes owed annually. The IRS has lacked funding for years, crippling its ability to enforce tax law. The audits of the rich have collapsed. Poor people are now more likely to be audited than the ultra-rich, which is a farce. The weakness of the IRS is no accident. It has been declawed by the lobbying tools of the super-rich.
When Jeff Bezos and other billionaires shoot themselves into space, it may also be a matter of covering up the fact that they don’t pay fair taxes on earth. For those old enough to remember it, it is reminiscent of Gil Scott-Heron singing “Whitey on the moon”.
The normalization of tax evasion by the ultra-rich is pathological. We may be weary of indignation, but it is only basic fairness that those who can afford to pay the most should at least pay their fair share.
(Jonathan P. Baird lives in Wilmot.)