How to Tax the Rich
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uring a debate back in 2016, Hillary Clinton stood on a debate stage and alleged that her opponent, Donald Trump, wasn’t paying a penny in federal income tax. Before she could finish the sentence, Trump interrupted her by snarling, “that makes me smart!”
So, it was no surprise that the revelation of two decades of his tax returns again proved him to be a cheat and a liar. That was as surprising as learning that Tuesday follows Monday.
But it would be a mistake to simply conclude, “ah, that’s the way the filthy rich are—they’re always going to get away with it.” That’s not untrue. The very wealthiest families and the biggest mega-corporations will spend small fortunes to protect their huge fortunes. For them, the price of accountants and lobbyists amounts to chump change.
So, arguments about “fair” tax rates face an uphill battle. Percentage points get thrown back and forth. For example, on the corporate side, for almost a quarter-century businesses paid a federal tax of as much as 39%. Then in 2017, Donald Trump came up with a different idea. He pushed through a revision of the tax code that would set one rate for every business, no matter how big: just 21%. Even for the global behemoths. And guess what? The stock market boomed.
On the individual household side, the federal taxman once took as much as 90%, spanning a period from the end of World War II until 1960. It’s now 37.5%--that is, before the accountants work their magic.
The battle over a “fair” percentage will never end. But there are other ways to tax wealth. Thus, I propose two specific tax remedies that are much more black-and-white in nature, and (in theory) much easier to enact.
1. PUT TEETH IN THE INHERITANCE TAX
One of the fundamental tenets of traditional conservatism is that people are responsible for their own outcomes. It’s voiced in claims like, “poor people are lazy”; “cream rises to the top”; and, “folks need to pull themselves up by their bootstraps.” The problem is that most of the people who say this have never pulled themselves up. Not one little bit. They were born on top. Hell, they don’t even wear boots; they wear Jimmy Choo.
For every legitimate rags-to-riches entrepreneur, there are a thousand trust fund babies. Their entire lives have been underwritten by Daddy or Grandma. They have no concept of work, but an enormous reservoir of self-regard.
The idea of an inheritance, or estate tax, was invented by the Romans. They invoked a 5% levy in order to pay pensions for retired soldiers. In America, George W. Bush abolished our inheritance tax. Barack Obama brought it back. Trump amended it, doubling the exemption, so that no one has to pay anything on estates below $11.8 million. Bernie Sanders says that means only 2 estates in every thousand would be affected. And even then, there are numerous parking spots for wealth which allow many dollars to escape taxes altogether.
The underlying issue here is really fairness. How much do the heirs of extreme wealth really “deserve”? Multi-billionaire Warren Buffet has the best prescription: “I think my children should get enough money to do anything they want. But not enough to do nothing.”
So, what makes sense? What really puts teeth back into the question of what’s fair to inherit?
I like Sanders’ plan. He says the first $3.5 million should pass along freely. And after that, there’s a graduated tax, including rates of 45% for estates worth $10 million to $50 million, going up to 77% for a billion-dollar valuations or more. I like this because people who have thrived in America hold an obligation to do their part to keep America thriving.
Opponents lament that consequently, some “poor” kids may have to sell off part of the family fortune in order pay the tax.
To which I say, “tough--go buy some boots with straps.”
2. PROSECUTE OFF-SHORE CORPORATE TAX CHEATS
On the corporate side, there’s a widespread demand that big corporations pay more taxes—especially after that Trump tax cut (i.e., giveaway). There’s a structural imbalance here; to repeat, in theory the wealthiest families can still owe as much as 37% in federal income tax. But after Trump, the wealthiest corporations pay only 21%.
My real concern isn’t the tax rate, it’s the amount of profits that corporations shelter in offshore accounts. There, taxes are either substantially lowered, or ignored altogether. Consequently, money does not find its way back to the U.S. Treasury.
Because tax stuff is both complicated and boring (yet still important!), let’s put this in the form of a quick Q and A:
How much corporate money is buried in offshore accounts? Prior to Trump’s tax cut, the amount was estimated at $2.5 trillion. That’s about twice the size of the entire annual discretionary budget in America.
Who are the biggest corporate offenders? The last full accounting (in 2017) showed that just four companies represented more than 25% of the tax dodge: Apple, Pfizer, Microsoft, and General Electric.
What kind of sleazy countries provide these tax havens? Don’t make the mistake of assuming these profits are stashed in some backwater bank in Eastern Europe or Africa. By far, the biggest co-conspirator is the United Kingdom, through territories like the Bahamas, Bermuda, the British Virgin Islands, the Cayman Islands, the Island of Guernsey, and the Isle of Man. Maybe this is their revenge for the Revolutionary War.
Didn’t Trump say his tax cut would put an end to this? Why yes, he did! And some money has been “repatriated”. He said that he’d recover $4 trillion (which would be pretty hard, since no one could see how more than $2.5 trillion was involved). At any rate, corporations did bring back about $600 billion—taxed at a rate of between 8% and 15.5%. In other words, the corporations won; holdings that would have been taxed as high as 37% in the Obama years were lightly dusted with a tax as low as 8%.
Will nothing happen to attack this travesty? It could—but not the way you think. Treasury Secretary Steve Mnuchin says if Trump is reelected it will get worse--he’s looking for an amended policy “a little more business friendly”. As if that were possible.
It’s true that many rich individuals are also tax dodgers with their own overseas accounts. But no individual can match the profile of Apple, which reported a gross profit of more than $100 billion last year, selling its products around the world. It’s a proud “American” company, but that didn’t stop Apple from establishing a subsidiary in Ireland, where all of its overseas profits are dumped—and taxed at a mere 5%.
But even that wasn’t good enough for Apple. The BBC reported that the Cupertino cult found a new home in the UK dependency of Jersey, an island in the English Channel. Jersey sets its own tax policy. And its corporate tax rate is 0%. (Not a typo—that’s “zero”).
What’s the solution? Granted, this is not simple stuff. For example, Ford makes cars in China and Russia. BMW makes cars in Brazil and South Carolina. Who gets to tax what?
Back in 2012, the Obama administration had a relatively easy plan. All U.S. companies would be subject to a minimum tax (of as much as 20%) on all profits held overseas—whether or not that money ever “came back” to the U.S.
At least that established a benchmark for lawyers and lobbyists to argue against. No doubt, exemptions and credits would ultimately be involved.
Sure, the most aggrieved companies might threaten to pick up stakes altogether and just leave for some “greener” foreign pasture. But that…as Trump has so amply demonstrated…could subject all their products to tariffs if they want to market those products back here in America. And after all, we are the world’s biggest market.
The current, perfectly legal process of corporate tax avoidance robs the U.S. of revenues that otherwise need to be offset by individual taxpayers. This has to stop.
merica is the biggest economy in the world--and also the country deepest in debt. (Seems impossible, but we’re special!) Trump exploded the national debt by a third in just his first three years. Pretty neat trick, huh?
We’ve got enormous challenges (jobs, health care, race relations, poverty, infrastructure, education, the environment) and not nearly enough to pay for the necessary remedies. And a central part of the problem is that the people and corporations at their very tippy-top of the pyramid are not paying nearly enough for the privilege of being American.
We can quibble about proper tax rates—and we should. But I don’t know how anyone can quibble that all people and companies which call America home should pay proper taxes to Uncle Sam.
Or the fact that while you work hard every day, Donald Trump, Jr., will never have to work a day in his life.
Let him find out what a bootstrap is.
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