Taxes
Audio Recording by George Hahn
Politicians get elected by telling us we can have our cake and eat it, too. The only thing that’s passed for bipartisanship over the past four decades is reckless spending. Democrats want more social spending, Republicans want lower taxes. OK, let’s compromise — do both and fuck over our grandkids. The result is an accelerating and unsustainable increase in the national debt, with no slowdown in sight. Democrats say we need to raise tax rates, particularly on the top 1%, and Republicans say we need to reduce spending. As Yoda said, “There is another (way).” The good news: We don’t have to raise taxes (we may even be able to lower them). The bad news: Everyone has to pay what they owe.
Bipartisanship
How did we get here, and how bad is it? First off, let’s dispense with one of the most tired false dichotomies in American politics: that increased government spending is the exclusive product of the Democratic Party. Republicans spend as much as Democrats, often more; they just spend on different things. If D.C. were a new-economy startup, it would be a Buy Now, Pay Later SPAC.
Steadily increasing government spending is justified — a larger economy can support more spending, and a larger population requires it. In fact, except for the financial crisis and Covid bailouts, our spending as a percentage of GDP has grown only modestly since the 1960s, from about 17% to just over 20%. Certainly, we could spend less, but spending isn’t the problem. The problem is that we aren’t funding the spending we’ve agreed upon.
We’ve covered the difference with debt. Math doesn’t care about our preferences, however, and the result is that the U.S. government now owes what our economy produces in a year.
Government debt is not all bad: the government enjoys an extremely low cost of debt, and every dollar of spending we fund with cheap debt is a dollar we don’t have to pay in taxes today. Economists argue over what constitutes a healthy level of national debt, but 100% of GDP doesn’t seem great. The U.S. was born with a debt of 30% of GDP, and we kept it below that level for most of our history. The latest projections put it at 118% by 2033.
And so politicians promise to reduce spending. Which they aren’t going to do. That means if we want to stop the debt load from spiraling upward, we’re going to have to increase revenue. “Revenue” however, is government-speak for taxes, and raising taxes is neither politically palatable nor economically appealing. But we can make a major step toward closing the gap between our spending and our revenue. By actually collecting the taxes we’re owed. The distraction is tax rates; the focus should be the tax code and enforcement.
Mind the Gap
The CBO estimates the federal government will spend $6.2 trillion in 2023. How do you spend $6.2 trillion?
To pay for that spending, we’ll raise $4.8 trillion.
So how can we avoid adding an additional $1.4 trillion to our national debt this year? We can narrow the gap substantially by clamping down on two massive drains on revenue: tax evasion and tax avoidance.
Evasion
There are two ways to not pay taxes: illegally and legally. The illegal method is called “tax evasion.” This is where you understate or underpay how much you owe, or simply don’t pay at all. The laws forbidding this behavior are barely enforced. The IRS officially estimates we lost $470 billion to tax cheats in 2019, and in 2021 the head of the IRS told Congress that the figure is likely much higher, perhaps as high as $1 trillion per year. Somewhere around the entire U.S. defense budget is stolen by tax cheats.
The lion’s share of the problem lies in the tax returns of the wealthy, as that’s where the money is. The top 5% of households by income lay claim to over a third of all income; the top 25%, two-thirds. And their income tax obligations make up the bulk of income taxes owed. (Note: Payroll taxes and sales taxes consume a greater share of lower-income household earnings — the net tax burden is much closer across income levels.) One study by a team from the IRS and several leading universities found that 36% of evaded taxes are owed by just the top 1% of households.
The source of this problem is no mystery. We’ve defunded the tax police. Demonizing the IRS gets votes. Especially Republican votes. From Reagan to Trump, the federal budget’s relationship with the IRS has been an abusive one. The agency hasn’t had enough money to do its job for years, which is reflected in its audit rates, now at all-time lows. For the wealthy, this is a feature, not a bug. Cutting the IRS’s budget has effectively raised taxes on lower- and middle-income households, shifting the burden to fund the government from the wealthy to the less wealthy, even as debt stifles programs the less wealthy depend on.
Fixing this should be a bipartisan issue. How to do it? Give the IRS back the resources to enforce the law. Yet Biden’s revitalization of the IRS, the first in decades, was met with a torrent of falsehoods, including Speaker McCarthy’s claim that it would fund an “army of 87,000 IRS agents” (actual number: fewer than 200). In truth, Biden’s program is a start, though it likely won’t be enough to bring that $500-billion-plus-per-year number down to zero. We need to invest more.
Avoidance
Tax avoidance is legal, and from the taxpayer’s perspective, I would argue it’s moral. The government is not a charity, and nobody should cough up taxes they aren’t legally obligated to pay, or the entire system loses its democratic footing. Prisoners of war have an obligation to try to escape; citizens of capitalist countries have an obligation to pay the lowest legal tax.
What’s immoral, and costing us billions, is the system that permits tax avoidance schemes of the scale and complexity we have. Again, it’s the rich who benefit, because working-class people have neither the means to hire tax lawyers, nor the complexity of finances necessary to take advantage of all the loopholes in the law. And the biggest beneficiaries are the richest taxpayers of all, corporations. If you can navigate by starlight, you want to run boat races at night.
Corporate income tax revenue as a share of GDP has been slashed from 3.5% in the 1960s to 1% today. (Not entirely because of fancy tax avoidance: The Trump tax cuts lowered the corporate tax rate from 35% to 21%, the lowest it’s been since 1939.) The argument in favor of low corporate tax rates is that greater capital inflows and investment will get passed on, i.e., “trickle down,” to employees and consumers. There is no evidence this has ever worked. As in … ever.
The preferred means of tax avoidance by corporations is offshoring and profit-shifting. That is, setting up operations in low-to-zero-tax-rate domains such as Ireland and then reporting your income there. In 2015, U.S. companies booked $46 billion in profits in the Cayman Islands alone, 17 times the value of the entire Cayman economy. Today more than half of multinational corporate profits are booked in foreign tax havens. Read the last sentence again: The fruits of the American system are funding other nations’ prosperity in exchange for lower tax rates on corporations — which, again, transfer wealth from the poor to the rich. The top 10% of households own 89% of U.S. stocks, and register the gains from companies paying less tax.
The amount of money we’re losing to this practice and other corporate tax avoidance strategies is devastating. Amazon, one of the most valuable companies in the world, paid $162 million in taxes in 2019: 1% of its pre-tax income. Across the corporate landscape, it’s difficult to reach an exact number for what this costs us in lost revenue, and many different studies have tried, but the consensus appears to be somewhere in the ballpark of $200 billion per year.
We’ve tried to fix the problem. The same Trump tax cuts that reduced the corporate tax rate were supposed to address tax havens, but data has shown it didn’t work. We’ve also tried to fix things with a 15% global minimum tax on companies — that deal was signed by 136 countries in 2021, but it’s still a work in progress. And research suggests 15% isn’t high enough. It’s projected that a 15% minimum tax would generate roughly $50 billion more in revenue for the U.S. — compared to the $200 billion we’d get at a 25% rate.
Then there’s the tax avoidance of individuals, i.e., not corporations. The standard playbook among the ultrawealthy is to minimize your cash income — and instead, borrow money against your assets (stock, real estate, etc.). This is what allowed Jeff Bezos, Mike Bloomberg, Warren Buffett, Elon Musk, and others to pay zero dollars in taxes for several years. Of course, the media sensationalizes this to make it sound more nefarious than it is, as if they were illegally evading income tax, when in reality they were taking out loans against their holdings at ultralow interest rates. Rich people take out big loans, and loans aren’t taxable — another win for the rich. Senators barking at billionaires to “pay their taxes” are referees complaining about their own bad calls. Mssrs. Warren and Sanders, why do billionaires not pay their taxes? A: Because you let them. Do your damn job.
Tax havens are lucrative for individuals, too. According to one study, the top 1% of Americans avoid $175 billion per year using this strategy. In this case, the line between “avoidance” and “evasion” is blurry — per the researchers, it’s a “gray area.” Still, legal or illegal, that’s a shit-ton of money we’re choosing not to collect from the people best positioned to give.
Then there’s the unlock we’d get from reallocating talent. Some of the sharpest, hardest-working people I know are my tax advisers. No joke. I pay these people six figures, and they routinely save me seven. It’s a great ROI but a drain on society. We’re paying some of our best and brightest to solve problems of our own making — helping rich people navigate a maze other Americans can’t afford to enter. Am I a hypocrite for engaging in these strategies? Maybe. But I’m not going to disarm unilaterally … said every wealthy household.
Do the Math
Substantially reducing tax evasion and corporate tax avoidance could save us $1 trillion per year. That could go a long way toward closing the $1.4 trillion gap between our spending and revenue in 2023, without “raising” taxes at all. Indeed, it would more than pay for our current spending — it’s the $640 billion in interest costs on the debt that drags us back into the red.
Collecting the taxes we’re owed and aligning what’s owed to what’s paid is fundamental to building trust in the government and our institutions — something lacking in the U.S. Edmund Burke, a founding father of conservative thought, was deeply concerned about the stability and legitimacy of government. In his masterpiece, Reflections on the Revolution in France, he warned that the failure to collect taxes owed would be the downfall of the revolution. Failure to effectively impose a fair tax policy, he wrote, was akin to punishing the law-abiding and the productive for their virtue, and it would lead to tyranny. “Nothing turns out to be so oppressive and unjust as a feeble government.”
What could a strong and just government do with an additional trillion in revenue? The sensible thing to do would be to narrow the deficit. But if we’re comfortable with continued deficit spending (and that looks to be the case) imagine what else we could do merely by collecting the taxes we are owed.
- It’s within our reach to eliminate the federal income tax burden of the lower 90% of all U.S. households. That’s right, if your family makes less than $200,000 per year, your federal income tax goes to zero.
- Or we could make the child tax credit permanent — and 5x it to $15,000 per year. Why not? An aging nation needs a growing population to support it.
- Or we could eliminate payroll taxes (i.e. Social Security and Medicare taxes) on the lower half of households by income, thus hugely relieving their tax burden.
Whatever you think about these as policy, aren’t they better than letting the wealthiest Americans and the corporations they own continue to evade and avoid their just tax obligations? Americans are a prosperous, generous people. Let’s start acting like it.
Life is so rich,
P.S. Need more No Mercy/No Malice in your life? Every Monday, get our insights on Markets. On Wednesdays, we’ll answer your questions in Office Hours. And Thursdays we’ll share a Conversation — this week’s guest was Baratunde Thurston. All on The Prof G Pod. To resist is futile.
P.P.S. Our second-highest-rated sprint is coming up: Productivity & Performance (75 NPS). Berkeley Haas neuroscientists will teach you to build a plan suited to your unique brain so you can do better work without burning out. Sign up now.
Congratulations and thank you Scott, another brilliant article! Now, how do we get you to be Sec of Treasury, chief advisor to Joe, right hand man to Bernie, resident guru……? Have you been contacted by the Forwards? I am leaning towards them. But the key to it all is a realization by a large majority of the population that your themes are 100% in their true best interests and in the true best interests of their children and grandchildren. Imagine 90% of Independents combined with 90% of those who do not vote combined with 100% of Forwards combined with 10% of Republicans combined with 30% of Democrats combined with Joe and Kamala and Liz and Kiplinger’s and Bernie and the Squad…..and little old me…..I can see 180 million votes in the right direction….as outlined in Scott…..WOW! Fred
Why do you consider it desirable to have 90% of the population paying no taxes? the lower 40% of the population already pays no taxes (and in fact receives significant subsidies from the government). Why do you think it is right that 90% of Americans should make NO contribution to our collective welfare? I think it is already problematic that the defense of our country is not evenly distributed throughout society. Asking 10% of the population to entirely pay for the the running of the country is a recipe for disaster.
That part appears to be just an example of what we could do with the money raised by properly collecting taxes, not a recommendation. But even if we were to cut INCOME taxes for 90% of the pop, it would not be the case that they did not pay taxes, nor is it true now that 40% of people don’t pay taxes. Why is this so hard for people to understand? Everyone pays consumption taxes (though some states choose to have very few of them) and for low income people, sales tax is a significant burden. Everyone wage earner pays social security taxes and medicare taxes. Low income people often pay as much of their income as the wealthy, and sometimes more, in taxes.
Prof. Please write something interesting about George Soros, based on your understanding and insights about him. It will be fun to read
Without any fiscal discipline we would just increase spending and maintain the gap. I fear we need a total mindset shift which requires a meltdown.
I don’t want to raise taxes on corporations because customers, employees, and pensioner shareholders are likely to bear the brunt. When CEOs had a higher progressive rate on their individual income, more money went back into companies. Concentrate on a progressive income tax for rich individuals and households to make sure there’s no flood down economics effect.
I can’t believe he did not even mention the lack of inheritance tax in the USA. Which creates the loophole that allows the wealthy to take out loans against there assets to avoid tax. I also think this is them main reason for structural inequality in the USA.
Scott, like all things business.. which you know, prioritizing the energy and resources you have, in this case the IRS is critical and sadly not happening. We stated, and it would be good for the IRS to wake up here. While resources are fixed, and can’t be changed overnight, auditing the highest income brackets (lowest in quantity) at a appropriate and proportional rate to ensure evasion / avoidance is held accountable is doable – we just aren’t. We have a system of accountability that is not being held accountable.
I’m a retired CPA and ran one of the largest national CPA firm tax practices in the U.S. With 100% certainty, I can say the overall tax system is a total F-ing mess! Thousands and thousands of pages of tax code and regulations . . . and millions more pages in IRS interpretations and case law further modifying these tax provisions. It is truly mind boggling. An honest person can unknowingly commit “tax fraud” due to the pure complexity.
We also do taxes, and Patrick is absolutely right. Trying to get through to the IRS on phone is so bad that (entrepreneurs’) robo-bots hold bidding wars to sell a live IRS connection to the highest bidder! That’s another way the rich piss on the rest of us.
Amen, brother! Well-stated..
Thanks, Prof G., for another really good, thought provoking article. After reading a lot of the previous comments I was a bit surprised that most (by far) were on tax rates, when your article is mostly on tax collection. Who is missing the main point here? Moi??
False flag from Scott. This reads like a hit piece from NY Times interns.
First, Biden bragged about hiring ‘87,000’ IRS agents, not just 200. AND, with new regulations to keep them busy, we have clamp downs on maid, handimen, and nannies. Not billionaires. After all, those rich are the primary funders of the DNC.
Best solution is the easiest. Flat tax, no deductions. Worked great in the 1980s when I lived in Hong Kong. Form was half a page.
No new IRS agents, in fact a fraction of the entire IRS needed.
The key reason we HAVE tax collection problems is to assure incomes and massive profits for Wall St banks, Accounting firms, and jobs for DNC supporting Civil Servants.
Scott, it you are REALLY serious about ‘fair share’, advocate for flat tax. Democrats never will. They need the campaign funding.
100% agree with you!!!
100% agree too!
First, the 87,000 number came from U.S. Treasury, not Biden. Second, it was an estimate needed tomantain the status quo given the 17% reduction in IRS staff under GOP, and the projected attrition brought about mainly by a massive, projected increase in the rate of retirement. Third, read it for yourself: https://www.cnbc.com/2022/08/31/irs-is-not-hiring-an-army-of-auditors-whats-really-happening.html
hey “Professor” – 40% of US households paid no income tax. and you want to “lower” the tax burden on people with less than $200k?
why should we be “comfortable with continued deficit spending” and with an absence of accountability? perhaps is everyone paid taxes, we might have a different priority for accountability and government spending.
now that you are offshore, where are your accounts? oh still in Florida and not NY with triple taxation. or in BVI?
Bravo! Accountability required. Representation with taxation, not without.
Excellent article.
As to the comments on a flat tax, it is my opinion that a flat tax is a good idea, but it is much harder for someone who makes $10,000 a year to pay $1000 than it is for someone who makes $1,000,000 a year to pay $100,000. So I think an adjusted flat tax as a possibility. And even a negative tax as well could have a role.
When I lived in a flat tax country decades ago, low income paid no taxes.
‘Flat tax’ is a misnomer. In practice it is a tiered rate. Nothing to level one, Then maybe 10%. Next threshold for top 10% income at 15 or 20%.
Thanks, C Cook!
Comparing people who avoid tax to soldiers attempting to escape from prisoner of war camps made me chuckle! Enjoy your newsletters, even though I know you’re trolling me lol
Who knew? I did!
Railing against human nature. We would rather hoard resources then share when there is no immediate and direct benefit to us. Despite the fact that second order effects would probably be massively beneficial to all in the long run.
Scott, I’d like to hear your thoughts on simplifying the tax code using a flat tax. wouldn’t this method minimize the benefit the rich have as well as allow for all those smart people to focus on other ways to benefit society rather than finding loopholes?
DNC would NEVER support. They make much of their campaign funding from groups who need convoluted and complex tax code to support lifestyle. WallSt Banks, Accounting firms, consulting firms. And, of course Civil Servants at the IRS>
Soon or later, you are shouting yourself in the foot (or your grand child foot) by not doing what is required for collective adhesion of a fair system …many countries are at a point of no return after decades of looking away…Lebanon to name one!
Am I a hypocrite for engaging in these strategies? Maybe.
NO, “MAYBE” IS THE WRONG ANSWER TO YOUR RHETORICAL QUESTION. THE CORRECT ANSWER TO “AM I A HYPOCRITE, IS “YES”. YOUR SELF-SERVING “PRIVILEDGE OF THE WEALTHY MENTALITY” IS NOTHING LESS THAN OBVIOUS.
BUT PLEASE GO ON WITH YOUR MORAL LECTURING.
To make such information public is an act of moral character, and courage , with greater potential benefit to society than paying an individual higher tax rate.
So much logic is disturbing for me! 🙂
“It’s within our reach to eliminate the federal income tax burden of the lower 90% of all U.S. households. That’s right, if your family makes less than $200,000 per year, your federal income tax goes to zero.”
I hope that’s for illustrative purposes only and not a recommendation. I can’t think of anything that would undermine the legitimacy of the Federal Government more the 90% of the voters, who pay nothing for the services, being able to vote themselves whatever benefits and services they desired. I think a flat tax, with a low-income exemption, would be the best system. No deductions, everyone has skin in the game (unless they’re below a low-income threshold). Also, the notion that corporations wouldn’t pass on the increased taxes seems extremely naïve. Amazon paid low taxes by investing profits in growing the company which also includes hiring 10’s of thousands of people. You sure they would have behaved the same way without tax incentives for investment?
Bravo!
Howard Hughes became the richest [non-sovereign] person in the world on circa 50% corporate tax and 70%-90% personal tax, as did the likes of J.P. Morgan, Astor, Rockerfeller, Carnegie, Guggenheim, Peabody et al.
They were richer than god, and America built massive infrastructure like the Hoover Dam, the Golden Gate Bridge, the National Highway System & put a man on the moon.
Now we have scum like Bezos & Musk, and their wealth is just score keeping. They don’t need it, and they do nothing with it.
Need to return to the ways of our forebears where the wealthy new that the tax was the cost of living their lives off the sweat of another man’s brow, and taxes provided for the populace in ways that lead to their contentment & education which was in the best interests of the wealthy at any rate.
Sorry, typo, ‘the wealthy *knew’
I’m a little surprised you and I are on the same page here. Sometimes, I think maybe corporate taxes are completely unnecessary, as the cost would just be moved directly to the customers, but obviously, the corps just move them to another country.
BTW, I moved for work a couple years ago, and I was shocked that exactly none of my moving expenses were deductable. Billionaires pay zero, I pay 15(ish)%. But somehow, I’m the taker. The tax system is a scandal.
Of course, like the vast majority of your followers, I agree with virtually everything you state regarding how “the rich” are not paying their “fair share.” But just once I wish influential individuals like you would expand the conversation beyond the 1%. I’m retired and during my career 99% of my income was reported on W2s and the remaining 1% on 1099s. In other words, no place to hide. People like me carry all the tax avoiders (I prefer cheats). So let me get this off my chest. America loves so called small business owners. Have you ever met one who doesn’t completely offset income by some miracle by having expenses that zero out income? How? Hiring family members to ‘help out”, by using personal vehicles as tax write offs and, well, there’s no end. Moving on. Does anyone believe tips are reported accurately? How about the local handymen or the people cutting hair in their basements, or house painters those or cutting grass? These people don’t even hide the fact and say “I’ll knock off X if you pay in cash.” Bottom line wage earners are carrying the freight for the entire country not just for the top 1%. If everyone paid their fair share the debt would be paid off in no time.
Like almost everything the solutions are simple but uncomfortable. The problem will persist without the ability to accept limitations. No Public finance isn’t your checkbook, but math is still math.
Since everyone else is giving there 2¢ here’s mine.
We need to wind down actuarily faulted programs, and everyone needs to pay taxes at the same rate. If your poor or you’re rich, if you make money from your time or from your money, the toll needs to be the same rate. That way everyone feels the responsibility of the programs we choose to adopt. We also need to have a trigger for debt spending like a recession of a certain size, a war, or infrastructure.
That’s an important subject indeed , and you as a tax payer have the right to express your thoughts on the matter , you’re not a hypocrite . I’m with the household and the payroll tax cut if that’s the case , on the other hand , corporations will always get back at you with an argument such as “We employ the biggest number of people” which is a tough equation to debate. There are also other political aspects involved which is a complete different page in the story , yet truth be told things should be easier on the lower income people
Answer is flat tax. No deductions. It may pan out at 20% or thereabouts. But it makes the tax return a single page. Reduces the tax code to a pamphlet. Immolates the bloated IRS headcount. Destroys the parasitic tax advisor complex. What’s not to like?
Bravo. Why must it be complicated? Complications waste money.
Convoluted tax system supports big DNC campaign funders. Will never support flat or even simpler tax code.
The answer is most definitely not a flat tax. A flat tax is inherently regressive. The less you make the larger % of your income is paid to taxes. This would only exacerbate the wealth gap.
Got math? The amount of money earned does not impact the percentage with a flat tax. That’s the point, everyone pays the same percentage. No deductions.
Not true. You do not have to have a tax at all for lower income. And, in practice, you can have two or even three tiers. As Hong Kong did before CCP took over.
This stat is staggering. ” That’s right, if your family makes less than $200,000 per year, your federal income tax goes to zero”. Political views aside ; addressing the evasion & avoidance should be any American’s priority !!
Appreciate the article and the focus on this serious issue. Our govt is fat and bloated and that is true for both parties. Term limits would help
Scott did not address government waste and corruption. I do not want to fund that.
I disagree with the premise that there’s little to be done on the spending side. Replacing the payroll deduction with quarterly estimates for all will rapidly drive fiscal accountability into voting patterns.
Agree. There is much to be cut. Government agencies have an incentive to waste all the money appropriated, otherwise next years may be cut. Insanity squared..
Run for office Scott.
As George Clooney said, I don’t run for office because I want to live a nice life.
Want to believe that it should be so easy but those multinational fellas are pretty shifty. Why not start by defunding reckless military endeavors
John, the challenge there is those reckless military adventures are job creation machines in high profile districts. The politicians in those districts will walk on glass before they give up those jobs and donors.
The Lois Lerner era of targeting conservatives and the leaking of tax information to propublica will forever taint the IRS.
I’m all for eliminating these tax havens and profit shifting by corporations. Congress needs to change the laws and enforce them.
Just a fact: from George Washington to George W, the debt rose to $10 trillion. It’s tripled since Obama, Trump and now Biden. Reckless spending that will hamper the US for the foreseeable future.
The flat tax is highly regressive. The $50000 earner has a lot harder time paying 5k than the $500000 earner has paying 50k. Instead how about a highly progressive income tax (many brackets) with no deductions. And eliminate different treatment of different income “types” (e.g. carried interest or capital gains). Would still fit on one page. Calculate your income, look it up in the table, you’re done. Of course this does not address Scott’s point about billionaires living on loans; for that we need some sort of wealth tax as Senator Warren has suggested. Not unheard of in our society – I pay one every year called “property tax”.
The above comment got displaced somehow – somewhat obviously it’s meant to reply to the suggestion of a flat tax. Sorry about that!
I couldn’t disagree more strongly. Every citizen should carry the burden of this country at the same rate. And of course every kind of income should be taxed at the same rate.
With regards to living off of loans, tax those too! That would be super easy since there is a financial institution in the middle, they can send the government the tax at closing before they allow the balance to be accessed by the millionaire.
Property tax is not based on cost. You may owe more to the bank than the property is worth. A tax on negative equity is not a tax on wealth. We tax income, not wealth. Can’t wait for everyone to freak when we tax them on the increase in the value of their home, much of it phantom from inflation brought on by government dollar devaluation- which is a hidden tax on the poor and those without appreciating assets.
Remove the federal personal income tax and charge a consumption tax. Provide a tax refund to all those earning under an income threshold to enable the lower middle class/ poor to afford the increase in the tax- essentially a negative income tax or a universal basic income. Simplifying the tax system eliminates the waste of time/ energy adana money people waste producing nothing of value.
I agree with Scott. A more complicated tax system is just a tax on the poor. I think the easiest thing people can understand is taxing long term capital gains as the same as ordinary income. The people who do physical work or salaried shouldn’t have to pay more tax than passive income. The notion about trickle down economics and passive investing as fuel for the economy is just a weak justification by rich people who want to stay rich. Scott, you are a stud. Proud people like you exist. Never forget you have lots of people you will never meet who think you are wonderful.
Regarding Amazon’s low tax payments- They are due to loss carry forwards. It’s disingenuous to misrepresent their low payment without explaining why. As far as I understand, they pay all their taxes.
I think you’re making his point. Amazon spent years gaming the system that allowed loss carry forwards in the first place.
Why shouldn’t losses be allowed to offset gains? It encourages investment and growth in jobs- which is what happened. Eventually, Amazon will have a huge tax bill because they deferred their taxes to grow.
Our federal income tax is already too progressive…
Source: CBO: Congressional Budget Office
Share of individual federal income tax 2018:
The top 20% of earners pay about 90.9% of all personal income taxes.
The bottom 60% pay no personal income taxes (in aggregate). In 2019 it was the bottom 50%.
When are the bottom 60% going to pay their fair share?
I am specifically referring ONLY to the cost of the federal government.
Too many tax advantages for rich people. I read somewhere that 60% of all new home purchases last year were NOT from 1st time home owners. Meaning companies by them up, people with 2nd houses etc. We need to get our middle class back. Not sure the answer but taxes policy should not favor the super rich. Real Estate has had the best tax policies on earth.
Almost all of the shrinkage in the middle class is a result of their migration to the upper class.
Interesting facts from PEW Research about the decline of the middle class over the last 50 years. On the positive the upper class has gotten larger shrinking the middle class, and incomes of all classes have increased.
Most importantly, the middle class has shrunk 21% since 1971 in part because the upper class has increased 20% over the same time frame. In other words, more people have escaped the middle class.
For those with an education, times are better today than when our middle class was larger.
Why shouldn’t everyone pay some tax? How is it fair for people to pay negative tax (earned income credit can result in paying nothing and getting money back)? It is always complain about the rich. I have clients paying millions of dollars per quarter. These people don’t get a special lane on the highway for all their tax money paid. Why, should society have to cover parents choosing to have children that have a hard time affording them?
Regarding, “When are the bottom 60% going to pay their fair share?” Answer: when they are paid more. The system is skewed to favor the wealthy. Paying more is the burden they bear for having almost everything.
It’s not just paying more when the bottom half of earners contribute nothing (in aggregate) to the cost of the federal government.
Everyone should have skin in the game otherwise there is an incentive to spend other people’s money (OPM) for more services without regard to cost.
I agree with the article and I’d add that the underground economy’s percentage of GDP has risen by >50% over the past 15 years. It’s approaching 11% now.
So, why not a flat tax? Say, 10%, across the board. And with that, total transparency on ALL government spending. Should then be able to do away with sales taxes, state taxes, property taxes, etc. Wouldn’t we then be, like, awash in revenues?
That wouldn’t address any of the evasion or avoidance. The games are played in calculating income, not figuring rates.
Of course a flat tax would be better and fairer. No deductions. Remove complexity which removes waste.
The tax rate (e.g. flat tax) and how we calculate income (of which deductions is just a part) are different things entirely. We can set the tax rates however we like – 10% for all, 5% for people over 6 foot and 20% for everyone else, whatever – that’s not where the evasion and avoidance happens.
The math is simple. Government spending is >37% of GDP. Sales tax or VAT of 10% does not cover a third of the spending.
https://tradingeconomics.com/united-states/government-spending-to-gdp
Yeah, like Warren and Sanders are the problem. Sorry, Scott, you are just another hypocritical beneficiary of the system.
It was odd to berate two politicians who consistently, than almost all other legislative memebers, advocated for the ideas that are in this postj. Very weird and misplaced. Wonder what the reasoning is because it’s quite juxtaposed to the researched reasoning everywhere else in this post.
Scott, how exactly do you stop greedy pigs from not being greedy pigs? Especially when those greedy pigs can pay of off politicians, and use a variety of tools to be worshipped, respected, and feared by the masses?
So so so good. I wish this were required reading for every American.
Please help me understand the chart: “SHARE OF FEDERAL INCOME TAXES PAID BY INCOME CROUP”. I don’t grasp how it supports the conclusion ” 36% of evaded taxes are owed by just the top 1% of household”. First time of trouble with a chart; they’re usually excellent. Thanks.
Very informative article.
Thank You!