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.