But the severity of the problem cannot be emphasized enough. Between 2014 and 2018, Jeff Bezos, the founder of Amazon, grew his fortune by $ 99 billion (to today’s level of $ 191 billion) while also paying starvation wages in income taxes, according to one published by ProPublica Investigation that revealed several of America’s best. Well-known billionaires paid similarly little taxes. (Bezos’ personal and corporate representatives declined to receive detailed questions about the ProPublica story.)
Not only does our tax system not levy taxes on America’s richest individuals – it is designed not to. For example, suppose Bezos’ stocks go up $ 20 billion in a given year, and instead of selling those stocks, he borrows $ 1 billion against them to fund his luxury consumption. He will not owe or pay a cent of income tax.
At the conceptual level, Bezos’ income in this example is $ 20 billion as measured by the change in wealth. However, his taxable income is $ 0 under the Tax Act as his capital appreciation is counted as taxable income only when he sells the shares. But why should he sell it when he can pay for his $ 500 million super yacht and other toys with loans – and avoid income tax altogether? Incidentally, if Bezos actually sold some shares after holding them for more than a year, he would be paying a “long-term capital gains tax” of 20%, below the marginal rate of 22% on wage income paid by a person with income paid 41,000 U.S. dollar! There are four interrelated ways that tax law is designed by and for the rich. The first is the case just mentioned where the richest Americans amass and spend great fortunes while paying little or no taxes. The rules that apply are that “unrealized capital gains” (that is, increases in the price of unsold assets) are generally not taxable income and that long-term capital gains are taxed at a low rate. The second problem is when companies park their assets and international profits in tax havens. According to the US Bureau of Economic Analysis, American multinational corporations held a staggering $ 1.3 trillion in corporate assets in Bermuda in 2018 and an additional $ 1 trillion in some tiny British Isles in the Caribbean, including the British Virgin Islands and the Cayman Islands. What’s noteworthy is that these tiny places have a corporate tax rate of 0%. How can more than $ 2 trillion in corporate assets and some $ 159 billion in net income end up in these British Isles when US companies barely operate, manufacture, manufacture or export there?
A company that parks its money overseas is simply declaring that its hugely valuable intangible assets (such as trademarks, patents, and other intellectual property) are actually in the tax haven. How did they get there, don’t ask. If the company – that is, the actual company – generates international profits with its actual production and sale, the real company “pays” the letterbox company based on a Caribbean island for the use of its own intellectual property.
In short, the international profits are magically allocated to a 0% corporate tax location for tax purposes. Lawyers actually earn high fees for facilitating this ridiculous tax ploy. In 2017, a leak in secret records from a Bermuda-based law firm revealed that several large tech companies were involved in this type of aggressive tax avoidance. While the legality of this is questionable, the immorality of a tax system that makes it so easily is not.
This trick feeds the first type of tax evasion. Corporate stock prices soar because of tax havens, and Bezos and friends enjoy their mega-incomes as “unrealized capital gains” without paying taxes.
The third problem is simply unaffordable tax cuts, like the Trump-led 2017 tax bill that cut the statutory corporate tax rate from 35% to 21%. That was ridiculous and unfair then – and it still is today. But Republicans have made it clear that they will not touch the gruesome tax cut that was voted on in the middle of the night against the will of the American people. The fourth and final problem is good old-fashioned tax evasion, which now runs to nearly $ 600 billion a year. I don’t think many Americans are “shocked, shocked” that our sacred democracy is a large scale tax evasion, especially by the rich. Recent estimates suggest that more than a third of unpaid federal taxes go to the top 1% of the workforce. The International Revenue Service’s budget for accounting firms and wealthy Americans has been slashed over the past decade, which further made this bad behavior possible.
President Joe Biden and Treasury Secretary Janet Yellen want to address these four issues. But Senate Minority Leader Mitch McConnell, West Virginia Democratic Senator Joe Manchin, and the 49 other Republican Senators stand in their way.
When Yellen recently negotiated a minimum corporate tax of at least 15% with the other G-7 countries (Canada, France, Germany, Italy, Japan and the UK), thereby weakening the role of tax havens, the Republicans said it was “crazy” and ” anti-US “. Additionally, Biden and Yellen plan to raise the statutory corporate tax rate back to 28%, half of the pre-2017 rate, despite not proposing taxing unrealized capital gains. And they want to properly fund the IRS so it can resume audits and take action against tax evaders. Overall, their plan for economic growth could increase the share of government revenue to GDP from 16.3% in 2021 to 19.9% in 2032. The reaction from 50 Republican senators was a relentless no to any tax hike for the rich, while Manchin continued to advocate a bipartisan employment package. And you wonder at that grin on McConnell’s face.
So here we are, American compatriots, with potholes, broken highways and bridges, poisoned urban water systems, poor connections, crawling trains, hungry Americans – and super yachts.
Long live the republic!