Even the Merely Rich Will Be Shafted as Congress Gives Billions to the Wealthiest of the Wealthy
Buried in the in the two tax bills being rushed through Congress is a fleet of lucrative opportunities to escape taxes, though no one is talking about this costly and unnecessary problem.
By the way, you won’t qualify for these tax favors unless you are mega-rich. The bills create tax avoidance yachts, not small sailboats or dinghies—and certainly not life rafts.
Think of the twin tax bills as the Forbes 400 Tax Forgiveness Act of 2017.
As much as two-thirds of the tax savings will go to the 1%—and of that, the savings will overwhelmingly go to the tenth- and hundredth- of 1%. The savings will help those whose incomes range from a few million dollars a year to more than a billion dollars a year. The official analyses by Congressional experts show that over the next decade everyone making less than $75,000 a year will pay more tax so that the super-rich can pay much less.
Supporters need these tax bills rushed through before they get properly examined in public hearings and economic analyses. If the public’s business had been done in public—with full hearings and intense scrutiny of each provision—the public outcry could kill this plan to benefit the richest among us at the expense of the vast majority.
Job growth in America essentially stopped for eight years after the hastily passed 2001 tax cut sponsored by George W. Bush. Wages stagnated. The federal debt grew and grew.
The total incomes of all Americans fell $6.3 trillion over the 12 years the tax cuts were in full effect. That’s the equivalent of people working for 144 months but only getting paid for 135. How does nine months of work without pay between now and 2030 sound to you?
Many tax avoidance opportunities for the super-rich will arise from having the competing House and Senate bills drafted in secrecy and in haste. The Senate version runs more than 500 pages, the House version more than 400 pages. And that’s before, at the behest of corporate lobbyists, the House version got a rewrite that required another 33 pages.
Unless each change is carefully studied, some of them will not line up perfectly with existing law and the other changes. Any missed or imperfect connections will enable aggressive tax accountants and tax lawyers to fashion tax shelters for the super-rich and for big companies.
And, of course, we cannot discount the likelihood that many deliberate loopholes are hidden in the dense legalese of the bills. The statutory language of tax law is not as impenetrable, but just try to make sense of these proposed changes to Section 3305, which affects the tax deductibility of lobbying expenses:
CONFORMING AMENDMENT. –Section 6033(e)(1)(B)(ii) is amended by striking “section 162(e)(5)(B)(ii)” and inserting “section 162(e)(4)(B)(ii)”.
A top tax lawyer like Jonathan Blattmachr, who no doubt counts many potential beneficiaries of the Republican tax scheme among his clients, make a living figuring out where law A does not quite connect to law B. Even more lucrative is when A unexpectedly connects to Q. Blattmachr, to his credit, has also tipped the government to tax shelters that he believed should be demolished.
One of the easiest ways to avoid taxes is to convert labor income into what appears on tax returns to be capital income. That’s because we tax capital at lower rates than labor income.
The top tax rate on labor income, when the Obamacare surtax is included, comes to more than 40%, while capital income is typically taxed at just 20%.
Blattmachr finds it “somewhat strange that for decades earned income (from the sweat of your brow) was taxed more” heavily “than unearned income” from investments.
“The argument, which is bogus, is that this unearned income, earned from assets, must be more preferably taxed because the assets form the basis of our economy,” he said. “What garbage.”
Blattmachr is not the first Republican to make this point. The oil and banking mogul Andrew Mellon, Treasury secretary under three presidents during the Roaring 20s, wrote a book in which he said capital income should be taxed more heavily than labor income. Mellon noted that sickness, injury and age can all wipe out the ability to earn a living and people needed to be able to save for infirmity and old age. On the other hand, Mellon wrote, capital endures and can be passed down to future generations.
Lowering the tax rate on so-called pass-through businesses—most of the six million corporations in America—is one way that the House and Senate bills cut taxes on the rich.
Under either tax bill, a manager who makes $500,000 would be taxed on his last dollars at more than 40%. But if that manager owned the business he would be taxed at only 20% or 25%, based on the public statements of supporters of both bills.
Donald Trump owns more than 500 such pass-throughs. He says he would pay more taxes under either tax plan, but that is simply not true. He will pay less, a lot less. Figure he will save at least 15 cents on each dollar of income and possibly more than 20 cents.
Based on Trump’s 2005 income of $152.7 million, he would save as much as $30 million annually.
One more thing: Closing loopholes requires experienced IRS auditors, economists and investigators to decipher sophisticated tax avoidance techniques and lawyers to litigate civil cases.
The Trump federal budget proposal cuts the IRS. That means the chances that loopholes will be spotted shrink. The chances that the IRS and the Justice Department will file lawsuits or criminal charges to close new loopholes are about as likely as this Congress raising taxes on rich owners of businesses like Donald Trump.