It's Cheap to Be Rich
The rot in our economic system stems from an increasingly regressive tax system that favors corporations and the wealthy at the expense of the rest of us.
Hadas Thier
No one should be surprised that Donald Trump is a liar and a crook, and that he took advantage of tax loopholes the size of football fields in order to pay little-to-no taxes for years. Still, the depth of corruption uncovered by this week’s New York Times exposé was stunning. It revealed a picture of a failed businessman using the presidential office for personal gain, writing off $70,000 worth of dubious hairstyling, prompting Seth Hanlon from the Center for American Progress to tell Vox, “This is not normal, even for wealthy people.”
More importantly it exposed a system where a billionaire — who loves nothing more than to go on racist tirades against immigrant “freeloaders and thieves,” and whose party regularly decries increased benefits to the unemployed as providing a “disincentive to work” — pays less in taxes than school teachers or nurses. Indeed, no point is more bitterly ironic than the fact that undocumented immigrants who worked for Trump at poverty wages have been paying more taxes than he has (and for none of the benefits).
As anti-apartheid activist Stephen Biko once remarked, “It is very expensive to be poor.” The obvious corollary is that it is, apparently, very cheap to be rich.
As many have since noted, the deeper problem than Trump’s odious and brazen swindling is an increasingly regressive tax system that favors corporations and the rich at the expense of the rest of us. Most glaringly, tax-avoidance runs completely rampant within the country’s elite, not only because the ultra-rich have access to the lawyers and accountants who can make it so, but because the law has made it exceedingly easy for them to do so.
For example, business losses, as the New York Times noted, function like tax-avoidance coupons: “A dollar lost on one business reduces a dollar of taxable income from elsewhere… some losses can be saved for later use, or even used to request a refund on taxes paid in a prior year.” These “losses” are simply defined as any time expenses exceed revenue. Leaving aside the very gray area of what is considered an expense (including, for Trump, family members who are compensated as “consultants”), imagine if the rest of us could similarly write off our losses. Sorry, IRS, my rent and bills and trips to the theatre this year were simply higher than my wages — please deduct the difference.
As economists Emmanuel Saez and Gabriel Zucman wrote in The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, “The only category of income that does not benefit from any exemption, deduction, reduced rate or any other favor is wages. At any income level, wage earners are thus more heavily taxed than people who derive income from property.”
There are other problematic loopholes to be taken advantage of. For instance, the types of business expenses that wealthy individuals can deduct from their income taxes are loosely defined by the IRS as “ordinary and necessary.” This ensures that almost anything, including a $70,000 haircut, can find itself on a list of deductions.
Of course, it is not only rich individuals who take advantage of the tax system, it’s also the related corporate behemoths that are profiting handsomely in the midst of a pandemic. Companies like Amazon, which despite doubling its net profit to $5.2 billion so far this year (compared to $2.6 billion at this time in 2019), pay little-to-no taxes. As the Institute on Taxation and Economic Policy explained: “The mechanisms Amazon has used to reduce its three-year federal income tax rate to zero between 2017 and 2019 are legal. Congress created them, Congress chose in the most recent round of ‘tax reform’ to leave them in place, and Congress currently appears to be entirely cool with these tax breaks remaining in place.”
The criminality of people like Trump and Bezos aside, the problem is structural. And it has been getting worse, with bipartisan support, for several decades. Even if the United States boasted the most above-board corporate elite in the world, this would not change the fact that tax policy has been increasingly regressive. The financial obligations of the richest Americans to the state have been less and less. This chart from CBS News shows that the richest 400 households now pay a lower tax rate (23%) than the bottom half of households.
Trump’s 2017 Tax Cuts and Jobs Act further exacerbated this trend. It lowered the tax rate for the richest Americans, lessened estate taxes, and included the largest tax cut for businesses in U.S. history, reducing the corporate tax rate from 35% down to 21%. This will cost the federal budget approximately $1 trillion over the coming decade.
Worse still, the few provisions written into the 2017 tax cut bonanza that were meant to regulate and rein in the giveaways were, for the most part, eliminated earlier this year, within the fine print of this spring’s stimulus package. These restrictions included how much debt could be deducted from taxes and what can be written off as a tax loss. Corporations and private equity firms have lobbied against them since 2017, and now they’ve succeeded. The tax benefits written into the stimulus are “just shoveling money to rich people,” Victor Fleischer, a tax law professor, told the New York Times.
Regressive tax policy transfers wealth to the rich, away from state and federal funds. This is money that is necessary to fund education, health care and infrastructure. It is no accident that taxation of the top 1% has fallen off a cliff since the 1980s. This trend has coincided with an economic assault on the working class, commonly referred to as neoliberalism. For the last several decades, the free market policies of privatization, speedups, increased productivity and deregulation have intensified profits at the top, and siphoned off wealth from the bottom. Tax policy has been one of the political arms of this corporate offensive.
As data from the Federal Reserve shows, the top half of the U.S. population by wealth percentile has steadily been increasing its share of wealth, especially the top 1%, which holds a staggering third of the country’s wealth. Meanwhile the bottom half of the population has been holding steady, sharing 1% of the nation’s wealth among us. This is the result not only of tax policy, of course, but also of deregulation of businesses, slashing social spending, and pushing “flexible” (union busting) labor policies.
To address these fundamental inequalities, holding Trump accountable would be a nice first step, but we’ll have to go much further. In the short-term, we should look to Bernie Sanders’ (I-Vt.) suggested tax of the $845 billion that billionaires have made during the course of the pandemic, as well as the wealth tax that he and Senator Warren (D-Mass.) have proposed. A wealth tax is calculated on the basis of an individual’s net worth. These measures could help roll back some of the worst tax evasions.
In the long run, the sharp downward turn of tax rates enjoyed by corporations and the rich must be reversed. If we are to talk realistically about adequately funding education and healthcare in the midst of a devastating economic and health crisis, the money to fund desperately needed programs has to come from somewhere. It should be taken out of the hands of the rich who have been hoarding it.
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Hadas Thier is an activist and socialist in New York, the author of A People’s Guide to Capitalism: An Introduction to Marxist Economics, and a regular contributor to Jacobin Magazine. She tweets at @HadasThier.
