Our massively unfair tax system: How do the ultra-rich get away with it?

As a class, America’s billionaires and millionaires are social parasites. They benefit from American society and its resources, whether human, material, political or legal, while contributing far less than their fair share of taxes. One central aspect of this parasitic behavior is that the very rich are highly adept at translating the American people’s tax dollars and public resources into private wealth and income. In that way the plutocrats and kleptocrats — both wealthy individuals and families adn the largest corporations — are free riders, protected by the government and other elites as being “too big to fail.” This group also generally rejects any sense of social democracy and responsibility.

Unfortunately, too many ordinary Americans have internalized the country’s myth of individualism, its moral judgments about the poor and poverty, and the fanciful belief that through hard work anyone can pull themselves up by the bootstraps and become enormously successful. The hallucinatory ideology of American capitalism — especially under neoliberalism, the ideological mask for “gangster capitalism” — is almost never openly challenged by Americans. As has often been observed, for many it is easier to imagine the end of the world than the end of capitalism.

For example, documents recently obtained by ProPublica show that America’s richest individuals and families pay almost nothing in federal taxes. When the richest Americans do choose to pay taxes, they generally do so at a much lower rate than taxes on “normal income” paid by poor, working-class and middle-class people.

An entire “wealth defense industry” is dedicated to preventing the richest Americans from paying taxes through legal and quasi-legal means, including offshore bank accounts, family trusts and other exotic financial schemes. 

America’s tax system also embodies a form of moral hazard, in which the rich and powerful are able to influence the design of the tax code in ways that benefit them and punish others. 

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A recent analysis by the government watchdog group Accountable.us found, as Jake Johnson writes at Common Dreams, “that two-thirds of GOP senators — and more than 40% of House Republicans — are millionaires who stand to personally benefit from obstructing tax hikes on the wealthy proposed under Senate Democrats’ reconciliation package, which aims to invest in climate action and the tattered social safety net.” The Accountable.us report identifies 125 legislators dubbed the “Republican Millionaires Caucus,” devoted to “preserving Trump-era tax cuts that ‘overwhelmingly benefit the wealthiest individuals, including themselves.'”

“Under the Trump tax cuts for the rich, big corporations raked in massive profits as the middle class continued to disappear,” said Kyle Herrig of Accountable.us. “Now that new leaders are trying to level the playing field for everyday workers and their families, corporations are spending millions of dollars to stop it — and many in Congress are carrying their water.”

Republican social Darwinism and hostility to the poor and working class knows few limits. In another recent example, Republicans are urging the IRS to target “fraud” among unemployed people during the pandemic, rather than investigating widespread tax evasion and other financial crimes among the very rich. A Huffington Post report explains that the IRS estimates “that it missed out on an average of $441 billion per year from 2011 through 2013 due to taxpayers not complying with the law,” while the Congressional Budget Office “has estimated that another $40 billion of IRS funding would yield $103 billion in revenue”:

But Republican senators put their foot down and said they would oppose legislation with stepped-up IRS enforcement.

Instead, the bipartisan legislation will go after fraud in the unemployment insurance program, which benefits struggling Americans who are out of work. Unemployment insurance fraud exploded during the pandemic, much of it geared toward exploiting obsolete state insurance systems. Democrats say they have no problem rooting out waste and fraud in the unemployment program, but they take issue with going after only that pot of money ― long a target of Republicans ― and not after people who are evading their taxes as well…. 

Nonpartisan analysts told The Washington Post that savings from cutting waste and fraud in the unemployment insurance program will likely amount to just $35 billion over the next decade ― far less than going after tax cheats.

As throughout all other areas of American life, the color line looms large over these questions of money and justice. For example, the IRS is more likely to audit poor and working class people in Black communities than they are other groups.

Tax law expert Dorothy Brown explains this in a new essay for the Atlantic: “As my research shows, rich white Americans tend to get tax rules designed for their benefit. Quashing the funding that could have helped the IRS more aggressively pursue elite tax fraud is yet another example…. The dollar amount of low-income Americans’ tax liability is negligible when compared with those making millions.” While nearly half of all people who filed for the earned-income tax credit (available to lower-income taxpayers) were white, ProPublica “found that the counties with the highest audit rates were “poor, rural, mostly African American and in the South.”

As a whole, this reflects a larger power dynamic that threatens American democracy: Social scientists have repeatedly shown that America’s elected officials are highly responsive to the demands of plutocrats and kleptocrats, while being largely indifferent to the political needs and desires of the middle class, working class and the poor.

Ultimately, the super-rich live in a world free of accountability, protected from negative consequences for their behavior, their worst impulses and their antisocial behavior, which is often celebrated as something to be admired and emulated. Most Americans cannot even imagine the day-to-day lives of millionaires and billionaires, which is largely why they are able to operate with such impunity and exert such disproportionate control and influence.

What would American society be like if the rich paid their fair share of taxes? How would the lives of average Americans be improved by such basic justice? In an attempt to answer those questions, I recently spoke with Frank Clemente, the executive director of Americans for Tax Fairness. Clemente previously served as director of the watchdog organization Public Citizen’s Congress Watch, and was issues director for the Rev. Jesse Jackson’s 1988 presidential campaign.

In this conversation, Clemente explains what it truly means to be wealthy in America and how the rich think about money in ways that are very different than most Americans.  He offers a powerful if familiar answer to the question of how and why the richest Americans and largest corporations were able to make even more money during the coronavirus pandemic and the economic devastation it inflicted on the American people: “Wealth begets wealth.” Clemente also discusses what the American people can do to push back against such an unjust and anti-democratic system.

What does it mean to be wealthy in this country? For most Americans, having that much money is such an abstract idea that they cannot even begin to conceptualize it.

I think it feels like tremendous freedom. So much of our lives is constrained by such concerns as, “Can I afford this? Or can I do this? Do I have the money to do it?” Such is a life of scarcity and fear.

“Am I going to have enough for retirement? How am I going to pay the medical bills?” Or, for some people, something even more basic: “How am I even going to afford to go to a doctor?” It’s just such an intellectual freedom I think. Great wealth is really the ability to do whatever you want, whenever you want. In some ways it’s limitless. How do you spend a billion dollars? It’s not very easy. In the end, having great wealth means being unburdened by the worries and restrictions caused by not having enough money.

What has the coronavirus crisis further revealed about American society and social inequality?

It is an awakening for many people. It always seemed odd to me there has not been a revolution in this country because of wealth inequality. It surprises me that so many Americans do not feel that such extreme income and wealth inequality is wrong. To that point, we just conducted a new poll which shows that wealth inequality does not resonate with the public as a reason to reform the tax system. What our new poll did show, however, is that creating a fair share tax system does in fact resonate with the public.

Billionaires are going to outer space while there is rampant wealth and income inequality here on Earth — and especially in the United States. What does such excess and vainglorious behavior reveal about the country, especially given how the super-rich and the mega-corporations largely do not pay taxes?

Their money and political power already separates the billionaires and other super-wealthy from the concerns of the rest of society — what better symbol of that than blasting into space and leaving the rest of us behind? Americans wouldn’t mind billionaires like Jeff Bezos paying to send himself to space so much if he and his company also paid their fair share of taxes — or any taxes at all. Several times in recent years, Bezos, despite his billions in wealth, and his company, despite its billions in profits, have paid zero federal income taxes.

How did the wealthy and super-rich become even wealthier during and because of the coronavirus crisis?

Wealth begets wealth.

How does the tax code and tax evasion by the very rich (who are almost all white) perpetuate the racial wealth gap and other forms of structural inequality?

Even when they follow the law, the white and wealthy benefit from a tax system set up to help them at the expense of lower income folks and people of color. As excellently explained by Prof. Dorothy Brown, supposedly “race-neutral” components of the tax code, ranging from joint filing status to retirement arrangements, all have the effect of privileging white people over others and widening the racial wealth gap created by institutionalized racism over the centuries.

When rich white people break the law and cheat on their taxes, it only compounds the injustice. By closing tax loopholes and requiring the wealthy and corporations to pay their fair share, we can raise trillions of dollars that can be invested in making peoples’ lives so much better and open up opportunities that are currently far out of reach.

How do you explain the difference between wealth and income? What do the very rich know about money that other people do not?

Income is simply what you get in your paycheck every week. Most people get their income through their paycheck, salary or wage income. Wealth is how much you’re able to put away in your bank account, in your stock investments, in your retirement accounts, in the real estate you own, or a business that you own. That is what allows you to accumulate a lot more wealth. These assets generate wealth because they are becoming more valuable as time goes on.

Most people in America have no real relationship to wealth. The only relationship they have to wealth is their house. Perhaps their stocks and a 401k fund. But the value of most 401k’s is not enough to sustain a person in retirement. Homes are a source of wealth as well, but they may have a large mortgage attached, which means that the net value is much less. Wealth on that scale is very different than what the truly rich have access to.

Their assets are exponential. The word exponential just defines the difference between us and them. Moreover, accumulating wealth also creates opportunities. Who do you know? Who wants your money for a startup business opportunity, which in turn can create even more wealth? Yes, there are risks. Sometimes you may lose money by investing early. But there are those great opportunities for the wealthy where there is exponential growth. The number of people who have access to those opportunities is very small.

Why is there not a more sustained public discussion of wealth inequality in this country?

Part of the explanation is that the vast majority of Americans have no direct experience with wealth. They really have no sense of what it is. When a person understands the whole system that helps the rich to become richer, they would then have a better comprehension of the differences between the haves and the have-nots.  

What type of impact do the very rich have on public policy in America, and on democracy more broadly?

Ten percent of all political contributions come from an extremely small number of people. This translates into an inordinate amount of access and influence, in terms of speaking to the news media and a megaphone to say what is important in the world and what is not. The very rich can use that influence and power to shape public opinion and to influence economic policy in ways that benefit them.

The very wealthy also employ a lot of people. Looking at Amazon, for example, they are located all over the country, which gives them influence over Congress.

There are the political contributions as well. This includes “soft money” donations and also “dark money,” which includes giving donations to the chamber of commerce, for example. In total, the very rich have huge assets to deploy to influence political outcomes at all levels of the United States government.

An infrastructure bill, however much pared down, seems like it may pass Congress. But the Republican Party continues not to want the IRS to enforce the law by taxing the rich and corporations, especially those who are hiding wealth. What are the next steps? What can the American people do to apply pressure on this issue?

Republicans are for law and order — except when obeying the law inconveniences their wealthy political donors. They complain about Democrats wanting to defund law enforcement, yet the only place that has happened is at the IRS, thanks to relentless GOP budget cuts. Beefing up IRS enforcement should be part of the Democrats’ reconciliation bill — not as a replacement for reform that ensures the rich and corporations pay their fair share, but as a complement to it.

The American people should make clear to their representatives in Congress that they want real tax reform and effective tax enforcement against rich tax cheats and tax-dodging corporations.

What would American society look like if the rich were taxed at the same effective rate as the working class and the middle class?

It would cost $2 trillion to fix all the roads and bridges and create a world-class infrastructure. Most people could afford to go to work and have affordable child care for their kids. It would mean universal pre-K for all 3- and 4-year-old children.

A fair tax system would be a down payment on clean energy, a new electric grid and more electrical vehicles on the road, because we could provide tax subsidies to buy them. There would be a national weatherization program, and money to help create more affordable housing. Millions more people would be able to afford health insurance under the Affordable Care Act. It is estimated that 40% of children could be lifted out of poverty. Huge positive intergenerational changes could be achieved with the revenue from a fair tax system.