The rich escape tax obligations most of us fulfill

 

Bill Knight column for 6-24, 25 or 26, 2021

 Since the 1700s, the saying “It’s impossible to be sure of anything but death and taxes” has resonated.

Today, the rich are KILLING it when it comes to taxes.

The public furor about taxes the wealthy infrequently pay has died down some, but it’s less a resignation of inevitable injustice than realizing that unfairness exists, and wondering what to do about it.

Multibillionaires Bezos, Bloomberg, Buffett, Gates, Icahn, Murdoch, Musk, Soros, Zuckerberg, et. al.  pay little or no taxes, according to the first of a series of stories from ProPublica, the nonprofit journalism outfit that this month released the results of a months-long investigation of Internal Revenue Service documents from the 25 richest Americans. “The Secret IRA Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax” exposes the myth that all Americans pay a fair share.

By 2018, those 25 together were worth $1.1 trillion and their 2018 federal tax payments totaled $1.9 billion, which seems like a lot but actually is just 0.17%. (The top federal income tax rate is 37%.)

“There are two separate tax systems,” John Cassidy wrote in The New Yorker magazine. “One is for ordinary people, who make most of their money in wages and salaries. The other is for members of the gilded class, who make most of their money through the ownership of publicly traded assets, private businesses, and other forms of capital” – accumulated wealth, not earned wages.

ProPublica reporters Jesse Eisinger, Jeff Ernsthausen and Paul Kiel explained, “Many Americans live paycheck to paycheck, amassing little wealth and paying the federal government a percentage of their income that rises if they earn more. In recent years, the median American household earned about $70,000 annually and paid 14% in federal taxes. The highest income tax rate, 37%, kicked in this year, for couples, on earnings above $628,300.

“The ultrarich effectively sidestep this system.”

The ways the elite escape citizens’ obligation to support a nation that benefits them are legal; mostly from the rich’s reported income technically having no salaries (they instead enjoy proceeds from those other sources).

Or, as Jeff Bezos did when he paid zero in federal income taxes in 2007 (when his fortune increased $3.8 billion), he reported $46 million in income, which he offset with deductions such as “other expenses.”

“Our tax system is rigged for billionaires who don’t make their fortune through income, like working families do,” said U.S. Sen. Elizabeth Warren (D-Mass.). “The evidence is abundantly clear: it is time for a wealth tax in America to make the ultra-rich finally pay their fair share.”

She’s proposed “a 2% tax on the net value of stocks, bonds and anything else of value exceeding a total of $260 million.”

About two-thirds of Americans think the very rich should pay more, according to a Reuters/Ipsos poll.

President Biden proposes higher income taxes on the rich – “if you make more than $400,000 a year,” says former U.S. Sen. Al Franken (D-Minn.), “raising the top individual tax rate to 39.6% (where it was when George W. Bush took office.”

The lack of fairness is troubling, but also the results: less money to fund public investments.

“No one loves giving their hard-earned money to the government,” ProPublica concedes. “But the system works only as long as it’s perceived to be fair.

“The consequences of allowing the most prosperous to game the tax system have been profound,” they continue. “Federal budgets, apart from military spending, have been constrained for decades. Roads and bridges have crumbled, social services have withered, and the solvency of Social Security and Medicare is perpetually in question.”

The problem isn’t just dozens of plutocrats. Besides individual tax filings, the rich avoid sharing the costs through other advantages:

* Inheritance taxes: A married couple can leave $23.4 million to their beneficiaries without a penny due in income or capital-gains taxes, according to Mother Jones magazine.

* Corporations: 55 U.S. corporations paid no federal income tax last year, according to Public Citizen, which said, “The corporations keep winning while the American public loses.” (The top 1% own 51.8% of all stocks, the Federal Reserve says.)

* Private-equity firms: The $4.5 trillion industry – which borrows to buy companies where they make cuts and re-sell them burdened by big debts) – has avoided paying about $75 billion in taxes annually by creative ways to report managers’ income, the New York Times reports.

 

ProPublica is publishing its findings because “it is only by seeing specifics that the public can understand the realities of the country’s tax system.”