As corporations evolve due to new technology and globalization, they
simultaneously evolve new loopholes and ways of manipulating the tax
system. The Center for Public Integrity puts it this way: "Because of
exploding technologies and their inability to regulate cyberspace,
governments today find themselves impotent to tax trillions of dollars
in potential new revenue from electronic commerce." A book titled The
Sovereign Individual by James Dale Davidson calls cyberspace "the
ultimate offshore jurisdiction. An economy with no taxes. Bermuda in the
sky with diamonds."
Global corporations are reaching a stage where they can decide how,
where, and even if they want to be taxed. During the past twenty-five
years, the trend has been unmistakable. Both relatively and absolutely,
corporations pay less income tax. Relative to the middle class and the
poor, the super wealthy are paying on the whole a smaller percentage of
their income in overall taxes. Nominal corporate tax rates, the
effective rate actually paid, and the taxes on capital gains and
dividends all have been dropping. The tax burden continues to shift from
the wealthy to the working class. These trends exacerbate already sharp
disparities in wealth and income in the United States - the worst
disparities in the western world.
The slide into deeper plutocracy has continued under Republican and
Democratic administrations, at both the federal and state levels. Apart
from blocking the repeal of the estate tax under Clinton, the Democrats
appear helpless. A clutch of them have essentially joined the
Republicans, and the party as a whole cannot muster the unity or energy
to stop the Republicrats from further plundering the American middle
class. In the words of David Cay Johnston, the New York Times Pulitzer
Prize winner and author of the excellent bestseller Perfectly Legal: The
Covert Campaign to Rig Our Tax System to Benefit the Super Rich and
Cheat Everybody Else: "There is an underground economy among the super
rich that lets them understate their true income and overstate their tax
deductions. . . . The major change taking place is a shifting of burdens
off the super-rich and onto everyone below them. It is a shift that
began with the Democrats in 1983 and that has been increased
dramatically since the Republicans won control of the House in 1995."
Where have the Democrats been? If they couldn't play offense, what about
defense? Well, for starters, they were dialing for the same corporate
dollars. Second, many seemed to have lost their moorings regarding the
public philosophy and rationale of progressive taxation, including
taxation of unearned income. Third, some bought into the theory that
cutting taxes on the wealthy and corporations automatically increased
investment and economic growth. They forgot that taxes were much higher
in the prosperous 1960s, and that tax-cuts can cause ballooning deficits
that inflict their own pain on the economy. And, fourth, they've lost
the semantic advantage in the debate over taxes. Johnston writes of the
Republicans' chief semanticist, Frank Luntz, promoting the use of the
phrase "death tax" instead of estate tax or inheritance tax. For a drive
to eliminate the capital gains tax, he recommended use of the phrase
"savings and investment tax." For the effort to privatize social
security, he said "Social Security" should never be mentioned, and
instead should be replaced by "retirement security." Luntz was so
contemptuous of the Democrats that he even openly advised them on how to
develop their own effective language, such as describing the estate tax
as "billionaire's tax." The Democrats' response - grumble, mumble, and
jumble their message.
In the midst of the tax fairness crisis, there is an easy initiative for
the Democrats: press Congress to give the IRS an adequate budget,
skilled staff, and the authority to go after the tax evasions and tax
avoidance schemes of the global corporations and the super-affluent
classes. They need go no further than the rationale given and documented
by Johnston: "Our tax system is being used to create a nation with fewer
stable jobs and less secure retirement income. The tax system is being
used by the rich, through their allies in Congress, to shift risks off
themselves and onto everyone else. And perhaps worst of all, our tax
system now forces most Americans to subsidize the lifestyles of the very
rich, who enjoy the benefits of our democracy without paying their fair
share of its price."
The triumph of the oligarchs extends further still. Not only is the IRS
inadequately funded to cope with the increasing assaults on its
enforcement duties in areas offering the greatest revenue recovery, but
its resources are getting squeezed even tighter. Under Clinton and a
Republican Congress, the number of revenue agents decreased, as did the
number of audits of the corporate wealthy. From 1989 to 1999, with 14
percent more returns being filed, Charles Lewis and Bill Allison, in
their book The Cheating of America, report that "the number of permanent
IRS employees dropped 26 percent (from 111,980 to 82,563). The President
and Congress also cut the staff of the IRS Office of Examination,
including revenue agents and tax auditors, by 34 percent, from 31,315 to
20,736. . . . Under political pressure, the IRS is auditing poor people
more often then well-heeled taxpayers. And tax-related prosecutions are
half what they were nearly twenty years ago."
Politicians should be asked whether they favor increased enforcement of
the existing tax laws. Do they think the poor should be audited more
often than the rich? Should billionaires be able to renounce their U.S.
citizenship in order to avoid taxes, and still be able to return home
for months on end because the law barring their reentry is rarely, if
ever, enforced? Increasing enforcement resources, now being requested by
the IRS, would certainly produce more revenue. But what happens instead?
Audits of the biggest corporations, which pay 85 percent of the
corporate income tax, declined: two out of three were investigated in
the late 1980s, but that number has slipped to one out of three. The IRS
itself is not allocating small resources for big gains.
Remind your members of Congress: it is time for integrated thought about
taxes to clarify goals, collect revenues, and expend them efficiently.
The taxpayers who have the greatest stake in progressive tax fairness,
tax simplicity, and the spending of tax revenues are the far larger
number of small taxpayers who have the votes.
Ralph Nader is the author of: The Good Fight : Declare Your Independence
and Close the Democracy Gap (Harper Collins Books).