As I See It: A Taxing Problem
May 3, 2022 Victor Rozek
Elon Musk sifted through his couch cushions and found $44 billion in pocket change, so he bought himself some barbecue with a side of Twitter.
Elon managed to make a lot of money while the economy tanked during the pandemic years, and there have been rumblings of discontent from mere mortals suggesting that perhaps he, and his billionaire brigade, should actually pay their fair share of taxes. But while Americans are disinclined to begrudge a man his good fortune, these days, middle class realities are rife with rising costs and resentments. To put things in perspective: the average American would have to work for 25,000 years to earn a single billion.
The gross wealth of the wealthiest is often a guesstimate based on sales of stock or purchases of companies, properties, and luxury items. But the truth is, no one really knows. Even more obscure are the tax liabilities of the uber rich. Entire industries exist to minimize, occlude, and otherwise shelter earnings; and to obscure how much—if anything – the wealthy actually pay in taxes. For obvious reasons, exceedingly few voluntarily share their tax status.
But sometimes they share it involuntarily.
The investigative reporting team at ProPublica managed to lay hands on supposedly confidential IRS tax records for the top 400 “earners” between 2013 and 2018. Elon didn’t even crack the top 10 back then, but readers may be surprised to learn that “tech billionaires made up 10 of the top 15 incomes.” To put things in further perspective, “To make it into the top 400, each person on this list had to make an average of at least $110 million each year. A typical American (at the time) making $40,000 would have to work for 2,750 years to make what the lowest-earning person in this group made in one.” Meanwhile, the folks in the rarified top 10 each “averaged over $1 billion in income annually.”
Dollar Bill Gates led the income race for the period in question, with an average annual income of $2.85 billion (probably where he got all that cash he later spent inserting microchips in Covid vaccines so he could track where we get our pizza and take our dry cleaning). He did pay some income tax, but at a modest rate of 18.4 percent.
Squeaking by on a bit less income at “just over $2 billion” was ex-politician/media maven/tech tycoon Michael Bloomberg, who managed to pay a lower rate than folks earning between 40-50K (which included a sizable portion of the IT sector back in the day). While the latter paid a 5 percent effective federal income tax rate, Bloomberg managed to slice nearly 20 percent off that, paying a thumping 4.1 percent!
Then there are those who paid nothing at all.
George Soros managed to pay nary a cent for “three years in a row.” For two years, neither Jeff Bezos (currently the world’s richest man), nor financier Carl Icahn paid any taxes at all. ProPublica further reports that Musk and Bloomberg also evaded taxes for a year during the period under investigation. Zip, zilch, nada.
Forbes, long enamored with the financial cleverness of the wealthy, listed 25 people whose worth rose “a collective $401 billion from 2014 to 2018.” They paid what, at first glance, appears to be a formidable amount of federal tax for those five years: “a total of $13.6 billion.” But examined in the context of total earnings, “it amounts to a true tax rate of only 3.4 percent.”
The loopholes are many and varied. Generally speaking, however, wages are taxed at higher levels than investments, and the rich are able to live off their investments without ever selling them by using what is known as the “Buy, Borrow, Die” strategy. They buy stocks or appreciating assets, borrow against them at ridiculously low interest rates, thus never having to sell and pay capital gains, then use the money to finance their lifestyle and purchase new assets. In one regard, the rich are not so different from the rest of us: their exit strategy mirrors our own – death, at which time they pass the whole scheme on to their heirs, avoiding taxes through gifts, trusts, and limited partnerships.
It’s all legal, of course, because the laws are essentially written by millionaires for the sake of billionaires. Having billions buys a lot of lobbying power and a purchasable Congress has been more than willing to be bought. Whatever the lobbying costs, they are mere rounding errors compared to the billions they save.
The tech sector is currently under Congressional scrutiny for lack of regulation and possible antitrust violations. A great many issues are on the table from privacy, to face recognition; from AI, to competitive practices. But a new issue was recently added when President Biden advocated for a Billionaire Minimum Income Tax of at least 20 percent. Like Jonathan Swift’s infamous essay which purports to alleviate Irish poverty by having English gentry eat Irish babies, it is A Modest Proposal. Much more modest than the top-end tax bracket championed by a former Republican administration.
Between 1953 and 1961, under the administration of Dwight D. Eisenhower, the corporate tax rate was 90 percent. While that may seem excessive, even punitive by today’s standards, it provided strong incentives for investment in R&D, upgrading or purchasing new equipment, expanding existing facilities, or moving to new locations, because such investments were deductible from taxable income. Thus, the benefits of success were not concentrated in the hands of the few, but distributed by virtue of incentivizing future growth.
It’s doubtful that even a 20 percent minimum tax will be achievable. The careers of too many prominent lawmakers are tied to affluent donors.
It is ironic that a nation that once rebelled against taxation without representation now tolerates representation without taxation. Given the prodigious control that a select few have over our economic and political system, while enjoying exemptions from civic duty, it would appear that the representation available to the rich is really nothing less than servitude.