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Tax Avoidance On the Rise: It's Twice the Amount of Social Security and Medicare

Paul Buchheit

Three trillion dollars a year. That's how much the wealthiest Americans avoid through the system of subsidies and schemes and sweet deals that deprive middle-class workers of their earned benefits. That's three times more than the deficit. That's enough for a full-time job for every middle-class household in America. Here are the distressing details:





1. Tax Expenditures: $1.25 trillion



These subsidies from special deductions, exemptions, exclusions, credits, capital gains, and loopholes are estimated to be worth 7.4% of the GDP, or about $1.1 trillion. They largely benefit the richest taxpayers. Business subsidies bring the total to $1.25 trillion.



That alone is almost enough to pay for Social Security ($884 billion) and Medicare ($524 billion).



But there's so much more.



2. Tax Underpayments: $450 billion



According to the IRS, 17 percent of taxes owed were not paid in 2006, leaving an underpayment of $450 billion. The largest share of that came from underreporting of income.



3. Tax Havens: up to $250 billion



(a) It's estimated that between $21 and $32 trillion is hidden offshore, untaxed.

(b) 40% of the world's richest individuals are Americans. That's $8 to $12 trillion of the total.

(c) The historical annual stock market return is 6%. That's a return of $480 to $720 billion.

(d) The 20% to 35% tax loss amounts to a minimum of $96 billion, a maximum of $252 billion.



4. Corporate Taxes: $250 billion



For over 20 years, from 1987 to 2008, corporations paid an average of 22.5% in federal taxes. Since the recession, this has dropped to 10% -- even though their profits have doubled in less than ten years. The missing 12.5% on $2 trillion in profits amounts to $250 billion a year.



5. Financial Transaction Tax (FTT): $500 billion



The absence of an FTT constitutes tax avoidance. Not a penny of sales tax is paid on U.S. financial transactions, which have been estimated at about three quadrillion dollars annually, or three thousand times the deficit. No sales tax is paid despite the high-risk nature of "flash trading" that can lose entire pension funds in a few seconds.



Just a half penny from every dollar of total U.S. financial transactions would pay off the national debt -- not just the deficit, but the whole $15 trillion debt. More conservative estimates by the Center for Economic and Policy Research and the Chicago Political Economy Group suggest FTT revenues of a half-trillion dollars annually.



6. Payroll Tax: $300 billion



This extremely regressive tax costs the richest Americans only a small fraction of what everyone else pays. If the 12.4% tax (half employer, half employee) were assessed on the full $3.84 trillion claimed by the richest 10% in 2006 (instead of on $1.43 trillion: $110,000 times 13 million payees), an additional $300 billion in revenue would have been realized.



7. Estate Tax: $100 billion



A repeal of the estate tax, which is designed to impact only the tiny percentage of Americans with multi-million dollar estates that have never been taxed, would cost the nation about $100 billion per year.



Conclusion



The total surpasses $3 trillion. The figures may be on the high end, and there may be some overlap, and wealthy Americans may argue that much of it is legal. But the system of loopholes and deductions and exclusions is a statement by the rich that they don't have to pay for their lopsided share of benefits, and that middle-income Americans should give up their own earned benefits to pay the country's bills.



And if tax avoidance is legal it's because the people with money have redefined 'legal.'

Our work is licensed under Creative Commons (CC BY-NC-ND 3.0). Feel free to republish and share widely.
Paul Buchheit

Paul Buchheit

Paul Buchheit is an advocate for social and economic justice, and the author of numerous papers on economic inequality and cognitive science. He was recently named one of 300 Living Peace and Justice Leaders and Models. He is the author of "American Wars: Illusions and Realities" (2008) and "Disposable Americans: Extreme Capitalism and the Case for a Guaranteed Income" (2017). Contact email: paul (at) youdeservefacts.org.

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