It's Cheap to Be Rich

What Donald Trump’s tax heist reveals about the rot in our economic system.

Hadas Thier

President Donald Trump speaks at the Economic Club of New York at the New York Hilton Midtown November 12, 2019, in New York, New York. Photo by Brendan Smialowski / AFP

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.

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.

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