Days after print publication, Bill Knight’s syndicated newspaper column, which moves twice a week, will appear here. The most recent will appear at the top. (Columns before Sep. 11, 2017, are archived at http://billknightcolumn.blogspot.com/).

Tuesday, October 22, 2024

Feds trying to address tax avoidance

It’s not news that the ultra-rich in the United States take advantage of loopholes, and most Americans suspect that’s a negative impact on the economy. What’s new is that the Treasury Department and Senate Democrats are starting to push for changes that will deal with those who don’t pay their fair share.

Through Dec. 12, the public can comment on the proposed regulations (https://www.federalregister.gov/documents/2024/09/13/2024-20089/corporate-alternative-minimum-tax-applicable-after-2022. A hearing is set for Jan. 16.

“The wealthiest Americans continue to use every trick in the book to duck and dodge paying their taxes,” said Lindsey Owens, executive director of the Groundwork Collaborative. “It’s unpatriotic. It starves our communities of revenue for needed investments. And it erodes faith in our democracy.”

(Note: “Every trick in the book” means, at least, avoiding taxes can be legal, so tax reform is needed.)

Dealing with tax avoidance is timely since provisions of Trump’s 2017 tax reform are scheduled to expire next year.

Trump brags about his tax cuts, which “permanently” cut corporate tax rates from 35% to 21% (and made slight adjustments for individuals through next year), and he claims vast benefits delivered to everyday Americans. He’s also pledged to “double down”  by continuing and expanding those cuts if elected in November. Specifically, Trump is proposing additional corporate tax cuts, from 21% to 15%, which the Center for American Progress (CAP) says would cost another $1 trillion over 10 years.

However, studies show Trump’s tax reform was a bonanza for the wealthiest corporations and individuals. The benefits did not “trickle down” to most Americans.

“The tax cut was justified with the argument that it would generate so much economic growth and investment and wage growth that low-income Americans would benefit,” says Brendan Duke, senior director for economic policy at CAP Action Fund. “The data is in, and we see no evidence of that. Any wage gains went to executives and the highest paid workers.”

Also, according to the CBO, his tax cut increased deficits by about $1.9 trillion over 11 years.

“The national debt has risen by almost $7.8 trillion during Trump’s time in office,” reported ProPublica’s Allan Sloan in 2021. “That’s nearly twice as much as what Americans owe on student loans, car loans, credit cards and every other type of debt other than mortgages, combined, according to data from the Federal Reserve Bank of New York.

“It amounts to about $23,500 in new federal debt for every person in the country.”

In the first year of Trump’s tax reforms, ExxonMobil received a $6 billion windfall from Trump’s reform, according to Americans for Tax Fairness (AFT). In the second year, according to the Institute on Taxation and Economic Policy, 91 Fortune 500 companies paid no federal income taxes on their 2018 U.S. income as a result of the tax law.

AFT also reports that 35 U.S. companies paid a negative $1.7 billion between 2018 and 2022, meaning those companies (including Ford, Netflix, T-Mobile and Tesla) together received more money from the U.S. government in refunds than they paid in taxes. During the same five-year period, their CEOs were paid more than their companies’ tax payments.

For its part, Treasury is looking at the role of the Corporate Alternative Minimum Tax (CAMT) and proposing new rules requiring corporations that make $1 billion annual profit to pay at least a 15% minimum tax. Now, such companies pay a federal tax rate of just 2.6% on average, Treasury says.

The consequence of the new rules could mean an estimated $250 billion in additional revenues over the next 10 years.

The change would affect a relatively few corporations, such as Amazon, AT&T, Intel, and Verizon, which now exploit an array of tax credits and deductions to show zero profits.

(Ways the rich escape tax obligations include arranging compensation as something other than a paycheck; manipulating their financial books in “tax-loss harvesting” (which occurs when a wealthy stockholder sells shares at a loss, buys the same amount of another corporation’s stock, and uses the former’s loss to erase much the taxes owed on gains made on the latter); listing personal expenses as business expenses, and making “charitable” contributions for the tax deductions, but controlling the actual use of the donation (so the tax benefits are immediate even if the funds haven’ gone to a good cause yet, if ever).

“The proposed rules are an important step toward realizing Congress’ efforts to address the most egregious U.S. corporate tax avoidance and ensure the largest and most profitable corporations in the country cannot pay little to no taxes,” said Treasury Secretary Janet Yellen.

Again, this isn’t a new issue. Thirteen years ago, the Congressional Research Service said the 2011 U.S. tax system violated “the [billionaire Warren] Buffett rule.” That says that no household making more than $1 million a year should pay a smaller share of their income in taxes than middle-class families pay. However, that year, the CRS said “roughly a quarter of all millionaires (about 94,500 taxpayers) face a tax rate that is lower than the tax rate faced by 10.4 million moderate-income taxpayers (10% of the moderate-income taxpayers).”

The tax system in the United States is set up for voluntary compliance, so taxpayers (and their tax preparers) calculate what they owe, as opposed to other nations that essentially determine tax obligations and send taxpayers a “bill.”

Democrats are pushing for a corporate-tax increase. Last month, Senate Democrats called out tax avoidance schemes by wealthy individuals, too, arguing that the last update to the tax code by Republicans during the Trump administration amounted to “class warfare.”

“When Congress gets around to looking at Social Security and the housing crisis, it’s going to find that the Trump class warfare has devastated the budget and made it impossible to come together and pass real solutions,” Senate Finance Committee Chair Ron Wyden (D-Ore.) said during a September hearing.

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