SUBSCRIBE TO OUR FREE NEWSLETTER
Daily news & progressive opinion—funded by the people, not the corporations—delivered straight to your inbox.
5
#000000
#FFFFFF
5
#000000
#FFFFFF
Nations "turbocharge their inequality" when they "let their wealthiest carve generous loopholes in their tax codes," the author writes. (Photo: Joe Brusky/flickr/cc)
A Bigger Welcome Mat for America's Tax Evaders
The GOP tax cut enacted in December and the just-passed federal budget give would-be affluent tax cheats both motive and plenty of opportunity.
Apr 01, 2018
Every nation levies taxes. Some nations levy well. In these admirable nations, tax systems spread the tax burden fairly. Those who can readily afford to pay more in taxes do pay more.
Other nations tax poorly. They set low tax rates on high incomes. Officials in these nations let their wealthiest carve generous loopholes in their tax codes. They wink at outright tax evasion.
Nations that go down this sorry second path don't just lose out on revenue they ought to be raising. They turbocharge their inequality. They invite corruption. They poison their civic culture -- and eventually, once enough poison takes hold, crash their economies.
This crashing played out earlier this century most notably in Greece. That nation's economic life essentially collapsed, the Economist business magazine noted six years ago, amid a tax evasion that had evolved into "less an under-the-radar activity, more a social norm."
The Greek wealthy, the Economist observed, established that norm. Greece's most "egregious" tax cheating, researchers had found, "happens higher up the wealth ladder."
The United States hasn't hit -- yet -- the levels of tax evasion that leveled Greece. But we're moving in that direction, ever more deliberately. This past winter saw lawmakers shove us further down this perilous path in two major pieces of legislation.
The first shove came this past December when Congress passed and the President signed into law the GOP" Tax Cuts and Jobs Act." The legislation created no jobs. It did cut tax rates, and munificently so for America's rich and the corporations they own and manage.
But this tax-cut legislation, largely under the radar, also made changes that openly welcome tax evasion.
How so? We know from IRS research that tax evasion flourishes outside the world of W-2s. Only 1 percent of income subject to paycheck withholding, the agency calculates, goes unreported at tax time. By contrast, the share of income that goes unreported from taxpayers who basically self-report their earnings ranges from 16 percent for partnerships to 63 percent for nonfarm proprietors.
That shouldn't surprise anyone. Self-reporting entities, as the Boston Globe's Evan Horowitz points out, have no third party around -- no employer or investment manager -- with a responsibility to pass on income details to the IRS "in a non-self-interested way."
The new GOP tax legislation creates a complex new tax break for these sole proprietorships and other "pass-through" businesses. Pass-throughs -- outfits where profits go directly to owners and get added, at least in theory, to their personal income -- can now deduct 20 percent of their business income before calculating how much they owe Uncle Sam.
This sweet deduction will, naturally, encourage many more taxpayers to reorganize themselves as pass-through operations. By claiming "pass-through" status, they'll get that 20 percent discount. Some will get more. They'll get all sorts of opportunities for underreporting their overall income.
Critics of the GOP tax-cut legislation brought up these underreporting dangers before the bill's passage, and the bill's supporters did insert into the final legislation various clauses designed to prevent richer Americans from exploiting the new pass-through deduction.
But these clauses need to be enforced to be effective, and GOP lawmakers have been doing their best, for quite some time now, to make that enforcement impossible. For almost a quarter-century, they've been demonizing the IRS as a den of thuggish storm troopers out to gouge average Americans, and these relentless GOP attacks have had a major budget impact. Over the past eight years, lawmakers have squeezed about $1 billion -- and 18,000 staff positions -- out of the IRS.
And that brings us to the second step Congress took this winter to keep tax evaders safe and nurture new ones. Earlier this month, with spring fast approaching, lawmakers put the finishing touches on an omnibus federal budget package that leaves the woefully underfinanced IRS woefully underfinanced.
The new budget legislation gives the IRS $77 million less than what the agency requested to implement the tax legislation passed in December. The new budget does increase overall IRS funding, after years of GOP cuts to the agency, but funding for the IRS remains, the Washington Post reports, "down from the $12.1 billion the IRS received in 2010, a year in which the tax collection agency was not tasked with enforcing the biggest overhaul of the federal tax code in several decades."
The most recent IRS study on taxpayer income that's going unreported covers the years 2008 through 2010. That study put the "overall voluntary compliance rate" of American taxpayers at 81.7 percent. Or, to put the matter more starkly, over 18 percent of income nearly a decade ago was evading taxes.
That figure will now likely get significantly worse, and so will inequality, unless we undo what this past winter has wrought.
An Urgent Message From Our Co-Founder
Dear Common Dreams reader, It’s been nearly 30 years since I co-founded Common Dreams with my late wife, Lina Newhouser. We had the radical notion that journalism should serve the public good, not corporate profits. It was clear to us from the outset what it would take to build such a project. No paid advertisements. No corporate sponsors. No millionaire publisher telling us what to think or do. Many people said we wouldn't last a year, but we proved those doubters wrong. Together with a tremendous team of journalists and dedicated staff, we built an independent media outlet free from the constraints of profits and corporate control. Our mission has always been simple: To inform. To inspire. To ignite change for the common good. Building Common Dreams was not easy. Our survival was never guaranteed. When you take on the most powerful forces—Wall Street greed, fossil fuel industry destruction, Big Tech lobbyists, and uber-rich oligarchs who have spent billions upon billions rigging the economy and democracy in their favor—the only bulwark you have is supporters who believe in your work. But here’s the urgent message from me today. It's never been this bad out there. And it's never been this hard to keep us going. At the very moment Common Dreams is most needed, the threats we face are intensifying. We need your support now more than ever. We don't accept corporate advertising and never will. We don't have a paywall because we don't think people should be blocked from critical news based on their ability to pay. Everything we do is funded by the donations of readers like you. When everyone does the little they can afford, we are strong. But if that support retreats or dries up, so do we. Will you donate now to make sure Common Dreams not only survives but thrives? —Craig Brown, Co-founder |
This work is licensed under a Creative Commons Attribution-Share Alike 3.0 License.
Sam Pizzigati
Sam Pizzigati, veteran labor journalist and Institute for Policy Studies associate fellow, edits Inequality.org. His recent books include: The Case for a Maximum Wage (2018) and The Rich Don't Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (2012).
Every nation levies taxes. Some nations levy well. In these admirable nations, tax systems spread the tax burden fairly. Those who can readily afford to pay more in taxes do pay more.
Other nations tax poorly. They set low tax rates on high incomes. Officials in these nations let their wealthiest carve generous loopholes in their tax codes. They wink at outright tax evasion.
Nations that go down this sorry second path don't just lose out on revenue they ought to be raising. They turbocharge their inequality. They invite corruption. They poison their civic culture -- and eventually, once enough poison takes hold, crash their economies.
This crashing played out earlier this century most notably in Greece. That nation's economic life essentially collapsed, the Economist business magazine noted six years ago, amid a tax evasion that had evolved into "less an under-the-radar activity, more a social norm."
The Greek wealthy, the Economist observed, established that norm. Greece's most "egregious" tax cheating, researchers had found, "happens higher up the wealth ladder."
The United States hasn't hit -- yet -- the levels of tax evasion that leveled Greece. But we're moving in that direction, ever more deliberately. This past winter saw lawmakers shove us further down this perilous path in two major pieces of legislation.
The first shove came this past December when Congress passed and the President signed into law the GOP" Tax Cuts and Jobs Act." The legislation created no jobs. It did cut tax rates, and munificently so for America's rich and the corporations they own and manage.
But this tax-cut legislation, largely under the radar, also made changes that openly welcome tax evasion.
How so? We know from IRS research that tax evasion flourishes outside the world of W-2s. Only 1 percent of income subject to paycheck withholding, the agency calculates, goes unreported at tax time. By contrast, the share of income that goes unreported from taxpayers who basically self-report their earnings ranges from 16 percent for partnerships to 63 percent for nonfarm proprietors.
That shouldn't surprise anyone. Self-reporting entities, as the Boston Globe's Evan Horowitz points out, have no third party around -- no employer or investment manager -- with a responsibility to pass on income details to the IRS "in a non-self-interested way."
The new GOP tax legislation creates a complex new tax break for these sole proprietorships and other "pass-through" businesses. Pass-throughs -- outfits where profits go directly to owners and get added, at least in theory, to their personal income -- can now deduct 20 percent of their business income before calculating how much they owe Uncle Sam.
This sweet deduction will, naturally, encourage many more taxpayers to reorganize themselves as pass-through operations. By claiming "pass-through" status, they'll get that 20 percent discount. Some will get more. They'll get all sorts of opportunities for underreporting their overall income.
Critics of the GOP tax-cut legislation brought up these underreporting dangers before the bill's passage, and the bill's supporters did insert into the final legislation various clauses designed to prevent richer Americans from exploiting the new pass-through deduction.
But these clauses need to be enforced to be effective, and GOP lawmakers have been doing their best, for quite some time now, to make that enforcement impossible. For almost a quarter-century, they've been demonizing the IRS as a den of thuggish storm troopers out to gouge average Americans, and these relentless GOP attacks have had a major budget impact. Over the past eight years, lawmakers have squeezed about $1 billion -- and 18,000 staff positions -- out of the IRS.
And that brings us to the second step Congress took this winter to keep tax evaders safe and nurture new ones. Earlier this month, with spring fast approaching, lawmakers put the finishing touches on an omnibus federal budget package that leaves the woefully underfinanced IRS woefully underfinanced.
The new budget legislation gives the IRS $77 million less than what the agency requested to implement the tax legislation passed in December. The new budget does increase overall IRS funding, after years of GOP cuts to the agency, but funding for the IRS remains, the Washington Post reports, "down from the $12.1 billion the IRS received in 2010, a year in which the tax collection agency was not tasked with enforcing the biggest overhaul of the federal tax code in several decades."
The most recent IRS study on taxpayer income that's going unreported covers the years 2008 through 2010. That study put the "overall voluntary compliance rate" of American taxpayers at 81.7 percent. Or, to put the matter more starkly, over 18 percent of income nearly a decade ago was evading taxes.
That figure will now likely get significantly worse, and so will inequality, unless we undo what this past winter has wrought.
Sam Pizzigati
Sam Pizzigati, veteran labor journalist and Institute for Policy Studies associate fellow, edits Inequality.org. His recent books include: The Case for a Maximum Wage (2018) and The Rich Don't Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (2012).
Every nation levies taxes. Some nations levy well. In these admirable nations, tax systems spread the tax burden fairly. Those who can readily afford to pay more in taxes do pay more.
Other nations tax poorly. They set low tax rates on high incomes. Officials in these nations let their wealthiest carve generous loopholes in their tax codes. They wink at outright tax evasion.
Nations that go down this sorry second path don't just lose out on revenue they ought to be raising. They turbocharge their inequality. They invite corruption. They poison their civic culture -- and eventually, once enough poison takes hold, crash their economies.
This crashing played out earlier this century most notably in Greece. That nation's economic life essentially collapsed, the Economist business magazine noted six years ago, amid a tax evasion that had evolved into "less an under-the-radar activity, more a social norm."
The Greek wealthy, the Economist observed, established that norm. Greece's most "egregious" tax cheating, researchers had found, "happens higher up the wealth ladder."
The United States hasn't hit -- yet -- the levels of tax evasion that leveled Greece. But we're moving in that direction, ever more deliberately. This past winter saw lawmakers shove us further down this perilous path in two major pieces of legislation.
The first shove came this past December when Congress passed and the President signed into law the GOP" Tax Cuts and Jobs Act." The legislation created no jobs. It did cut tax rates, and munificently so for America's rich and the corporations they own and manage.
But this tax-cut legislation, largely under the radar, also made changes that openly welcome tax evasion.
How so? We know from IRS research that tax evasion flourishes outside the world of W-2s. Only 1 percent of income subject to paycheck withholding, the agency calculates, goes unreported at tax time. By contrast, the share of income that goes unreported from taxpayers who basically self-report their earnings ranges from 16 percent for partnerships to 63 percent for nonfarm proprietors.
That shouldn't surprise anyone. Self-reporting entities, as the Boston Globe's Evan Horowitz points out, have no third party around -- no employer or investment manager -- with a responsibility to pass on income details to the IRS "in a non-self-interested way."
The new GOP tax legislation creates a complex new tax break for these sole proprietorships and other "pass-through" businesses. Pass-throughs -- outfits where profits go directly to owners and get added, at least in theory, to their personal income -- can now deduct 20 percent of their business income before calculating how much they owe Uncle Sam.
This sweet deduction will, naturally, encourage many more taxpayers to reorganize themselves as pass-through operations. By claiming "pass-through" status, they'll get that 20 percent discount. Some will get more. They'll get all sorts of opportunities for underreporting their overall income.
Critics of the GOP tax-cut legislation brought up these underreporting dangers before the bill's passage, and the bill's supporters did insert into the final legislation various clauses designed to prevent richer Americans from exploiting the new pass-through deduction.
But these clauses need to be enforced to be effective, and GOP lawmakers have been doing their best, for quite some time now, to make that enforcement impossible. For almost a quarter-century, they've been demonizing the IRS as a den of thuggish storm troopers out to gouge average Americans, and these relentless GOP attacks have had a major budget impact. Over the past eight years, lawmakers have squeezed about $1 billion -- and 18,000 staff positions -- out of the IRS.
And that brings us to the second step Congress took this winter to keep tax evaders safe and nurture new ones. Earlier this month, with spring fast approaching, lawmakers put the finishing touches on an omnibus federal budget package that leaves the woefully underfinanced IRS woefully underfinanced.
The new budget legislation gives the IRS $77 million less than what the agency requested to implement the tax legislation passed in December. The new budget does increase overall IRS funding, after years of GOP cuts to the agency, but funding for the IRS remains, the Washington Post reports, "down from the $12.1 billion the IRS received in 2010, a year in which the tax collection agency was not tasked with enforcing the biggest overhaul of the federal tax code in several decades."
The most recent IRS study on taxpayer income that's going unreported covers the years 2008 through 2010. That study put the "overall voluntary compliance rate" of American taxpayers at 81.7 percent. Or, to put the matter more starkly, over 18 percent of income nearly a decade ago was evading taxes.
That figure will now likely get significantly worse, and so will inequality, unless we undo what this past winter has wrought.
We've had enough. The 1% own and operate the corporate media. They are doing everything they can to defend the status quo, squash dissent and protect the wealthy and the powerful. The Common Dreams media model is different. We cover the news that matters to the 99%. Our mission? To inform. To inspire. To ignite change for the common good. How? Nonprofit. Independent. Reader-supported. Free to read. Free to republish. Free to share. With no advertising. No paywalls. No selling of your data. Thousands of small donations fund our newsroom and allow us to continue publishing. Can you chip in? We can't do it without you. Thank you.