Friday, April 14, 2006

Pssst. Wanna Know How To Reduce Your Tax Bill? Simple: Become Rich

By MARC McDONALD

Tax season is here again. Would you like to know a sure-fire way of reducing your tax bill?

Simple. Become rich. The richer, the better.

Example: let's say your wealth puts you in the top 1/100th of 1 percent of all Americans. That's about 28,000 people in the U.S. These people, on average, make around $2 million every five days, which is what the average American earns over the course of a lifetime.

The tax burden for these super-rich people has been steadily falling for years. For example, in 1993, they paid 30 cents of every dollar into federal income tax. In 2000, that had fallen to 22 cents. Now, with the Bush tax cuts, it has fallen to 18 cents.

In his book Perfectly Legal, Pulitzer Prize-winning journalist David Cay Johnston details an outrageously unfair tax system that screws the poor and working class. It's a tax system that has been increasing shifting the burden away from the rich and onto lower-income taxpayers for years, a phenomenon that's gotten little coverage in the mainstream media.

Not only do the rich avoid paying taxes, but they also usually avoid tax audits. Johnston points out that working class people are eight times more likely to face an audit than the wealthy.

Johnston is only one of a number of high-profile investigative journalists who've detailed America's unfair tax system over the years.

In 1994, Pulitzer Prize-winning journalists Donald Barlett and James Steele published an eye-opening account of America's unfair tax system in their book, America: Who Really Pays the Taxes?

Barlett and Steele painted a gloomy picture of a beleaguered middle- and working class that is soaking up more and more of the nation's tax burden. They also detail how the tax burden is quietly shifting in other ways.

For example, the tax burden in the U.S. over the years has been shifting from corporations to individual taxpayers. In the 1950s, corporations paid around half of all taxes. Today, their burden has shrunk to less than 10 percent. In fact, today, 60 percent of all U.S. corporations pay zero income tax.

Johnston, Bartlett and Steele point out numerous cases in which wealthy individuals don't even bother to file a tax return.

Johnston cites the example of two billionaires, Alec and Jocelyn Wildenstein, who admitted under oath that for 30 years, they never even filed a tax return---and faced no consequences as a result.

In their book, Barlett and Steele point out that in 1989, there were 1,081 people earning over $200,000 who paid zero income tax. I would suspect that since Barlett and Steele's 1994 book was released that the number of wealthy tax avoiders has increased further still.

In the interviews they conducted to research their books, Barlett, Steele and Johnston describe ordinary taxpayers' seething anger and frustration with the unfairness of the tax code.

Johnston, in particular, seems pessimistic that the U.S. tax system will ever be fixed. He considers open revolt and social disruption a possibility in the future.

For their part, Barlett and Steele, offer modest proposals for making the tax system more equitable, such as closing all loopholes. However, the odds of real change to make the tax system more fair in Bush's America seem remote indeed.

9 comments:

Anonymous said...

It also helps to have a lot of your income in the form capital gains. While wage income is reported directly to the IRS, capital gain income is not. An Op Ed in the SF Chronicle has more on this subject.

Winter said...

Yep, wealth breeds more wealth. Wages breed poverty.

This is doubly true in our country, where the system is all but explicitly set up to reinforce this.

Winter said...

Yep, wealth breeds more wealth. Wages breed poverty.

This is doubly true in our country, where the system is all but explicitly set up to reinforce this.

Anonymous said...

Even if you do report your capital gains, they're taxed at a much lower rate than ordinary income, without SS and medicare taxes.

Anonymous said...

The French are in the streets rioting and protesting to defend their right to a decent life. Meanwhile, we Americans are sitting around stuffing ourselves with junk food and watching TV while America's rich and powerful continue to steal more and more from us. Hmmmm, just who are the "surrender monkeys" these days?

Johnny Nobody said...

One of the biggest reasons for this is the array of deductions and credits that exist to help lower-income people. The deduction of interest paid on a mortgage means that someone with millions upon millions in income is better off getting a mortgage for a house he doesn't need, because the interest can be taken off his taxable income.

Also, long-term capital gains are taxed at a lower rate because capital gains are measured in nominal terms, so by the time the assets are sold, inflation has eroded much of the increase in value. In some cases, you can end up with real capital losses and still owe thousands in tax.

Anonymous said...

A previous poster claimed that there are an "array of deductions and credits that exist to help lower-income people." As an example, he cites the mortage interest deduction. What a crock. The mortgage deduction is hardly aimed at "lower-income" people. The entire IRS tax code is nothing more than 26 volumes of loopholes for the rich. Huge sections of the tax code, in fact, were actually written by the business lobby.

Anonymous said...

The 100% mortgage interest deduction has an upper limit of $146,000 for joint filers. Don't know what the modifier is after that point, but millionaires/billionaires aren't buying palaces to shelter income via the mortgage deduction.

Anonymous said...

Re: "Millionaires/billionaires aren't buying palaces to shelter income via the mortgage deduction." They don't need to. There's already an enormous array of loopholes in the IRS code that are aimed specifically at benefiting the rich. It's the reason a cleaning lady who mops out toilets for a living and earns $22,000 a year will pay vastly more tax, as a percentage of income, than any billionaire in America. The fact is, America has the most unfair tax system of probably any nation on earth. A flat tax would actually be MORE progressive than the regressive tax system we have now. Mark my words, a people's revolution is coming in this country one of these days.