High-income tax avoidance far larger than thought, new paper estimates
wsj.com
wsj.com
Tax Avoidance is perfectly legal and encouraged by the IRS. There are many exemptions and credits for anyone who is eligible to take advantage of. If you’ve ever seen “whichever is lower” on a tax preparation form, that’s an example of avoidance. Why pay more when the law says you don’t have to?
Tax Evasion is the illegal activity of not paying taxes you were supposed to pay. This is where fraud comes into play. People should absolutely be prosecuted for evasion, but they should not shamed for avoidance.
Yeah, it makes no sense. I would not do that, not sure why I should expect others to do that. I think this whole thing is BS.
I can very well agree that some people can afford to pay more tax, but tax is not some trust based charity system. I would say simplify tax laws so people can avoid tax easier without having to hire an army of tax professionals, and then increase the effective tax rate on the people who can afford to hire an army of tax professional.
If you are not for this approach but you whine about tax avoidance I think you are just looking for a way to score political and ideological points.
In some cases, the loopholes people talk about are less loopholes and more the intentional way the law works. Those in particular are the govs fault.
> Governments should just close the loopholes.
Calling attention to the existing wrong — its existence, it's wrongness, and it's connection to the present state of the law — is a key part of changing the law, so such public shaming is directly part of that process in a democratic republic, though perhaps not in a regime where “the government” is an aloof dictator unconcerned with public opinion.
When the wealthy can collectively lobby their way out of paying taxes, this process is pretty much useless. The middle/lower class don’t care so much to do public demonstrations.
I suspect that people are less concerned about loopholes and more just jealous that some people make massively more than them.
For example, this year in the UK there is a special question on the tax form for if you are a deep water diver. Why? Because divers have a different taxation system put in place as a sweetheart deal for BP (who employ a lot of divers for their offshore oil rigs)
"Were I the programmer, I would simply fix all the bugs"
if it's shameful to take advantage of a loophole, shouldn't we close that loophole?
How do you define a loophole?
As for personal income tax, I strongly believe all credits, deductions, exemptions should be abolished/phased out completely. These are nothing but an extra tax on the lazy, the stupid, and the poorly educated like me. Whether you have zero dependents or a hundred, your tax obligation does not change. Whether you donated nothing or all your income, your tax obligation does not change. Why can’t we have that?
Tax avoidance means “following the tax code and being an honest citizen”. Why would you apply such an Orwellian term to something so banal?”
Eliminate all deduction except primary residence and dependents.
Since all deductions are eliminated lower tax rate to the effective tax rate for that tax bracket.
We've just closed all the loopholes, and given most people a tax break.
Add two new tax brackets: >$5M with a tax of 45% >$10M with a tax of 69% (back to the good old days).
This simplifies tax for everyone, gives all but the 1% a tax cut, eliminates all the loopholes, makes auditing a breeze, because it simplifies everything the size of the IRS can be reduced and their effectiveness can be increased.
There are about 16,000 people in the U.S. negatively impacted by these changes. For the other 353 Million people it's a huge plus.
If you consume more, you pay more.
Everyone has skin in the game (everyone pays proportional to their consumption) and thus everyone now has a vested interest in advocating for a leaner, smarter and more efficient government that is less wasteful.
A progressive income tax is actively counter-productive to getting a greater return on investment for governance.
Furthermore, a progressive income tax also massively distorts the price of labor so no one paying for labor is paying the true cost of labor which should be the sum of (1) the disposable income paid to a laborer and the (2) taxes that laborer pays to the government. You're not actually making people better off with a progressive income tax because the market will just lower the amount paid to be equal to the disposable income portion.
The primary benefit of wealth is in liquidating it and spending on consumption.
If you're growing your wealth, you're doing something good that society should want more of: investing. You can't grow wealth without reinvesting that wealth. That is what powers the economy and creates jobs and drives R&D and innovations.
> People are concerned about wealth growing without bounds (and the growth of power that comes with it)
The purpose of taxes is to fund the government: nothing more, nothing less. It is not the government's role nor purpose to limit wealth creation in any way shape or form. That's never been its mandate in why it collects taxes. SCOTUS even made this observation about taxes:
"the power to tax involves the power to destroy." – Justice Marshall in McCulloch v. Maryland (1819)
That said, government may be used to place checks on certain types of uses of power when individuals go to exercise it. While wealth may result in power, it doesn't necessarily result in uses of power that need to be checked by the government.
I don't own property, I rent, trying to save for an apartment. I am currently paying CGT on savings (I think at income tax rate). People who do own property where I live get tax rebate because they have mortgage, and they don't pay CGT on residential property. How is that fair? I am poorer than most people who own property but paying higher effective tax rate than them, and it makes it more difficult for me to buy.
How is that fair?
Impossible to tax (aside from the income stream), no downside except for some additional tax headaches. But I assume a few tax headaches are worth it in order to keep billions of dollars in your family.
is this word salad or legit? If so, any resources to learn this?
Also HN readers: avoid paywalls
Companies that paywall: I shouldn't be expected to participate in the economy by any rules shared by society.
Anyone that isn't cheerleading them: I'm not paying you
When you don't pay for something, you are the product.
We should come up with some sort of alternate system which enables wide participation in non-predatory media platforms.
Or crack anonymous advertising.
Anonymous advertising sounds like a way to literally make everything I spoke about worse.
I don't know what your local / state is shafting you for, but the estate tax rhetoric is totally a put on by rich people.
Even if you leave your estate to your kids or grand kids, it's only £500K ($700K) and that is only if you're leaving the family home (another example the UK being obsessed with property ownership).
It's also payable by the recipient, not the executor of the will.
On the other hand, an inheritance tax is one of the few mechanisms I can think of to keep a wealth distribution at least somewhat under control. There's a constant accumulation of wealth at the top already anyway; re-distributing some of that back down the ladder when rich people die seems like a good idea.
It of course would make more sense if the (elusive) middle class was hardly taxed at all in this scenario, and the 1% a ton, but... that would of course upset a lot of people with a lot of power.
Money going into government hands isn't exactly the same as redistributing it down the ladder, though.
Because of corruption?
It will still generally find itself in the hands of people with less wealth than the richest portion of society, but it almost always stops much higher than the bottom run.
The problem isn't that we don't tax rich people enough. It's that the way the system is built, rich people become black holes that suck in any wealth that enters their orbit. Once they have it, it's effectively locked away from everyone.
Taxes are one way to try and slow that down but it's clearly not a perfect solution and simply turning up the amount of tax isn't going to stop it.
He could be actually slipping from middle-class as we speak.
[1]: https://americansfortaxfairness.org/tax-fairness-briefing-bo...
We aren't talking about "free riches" here, we are talking about keeping a country and society stable. And I'm convinced you can't do that without keeping inequality of all kinds -- income, wealth, education -- in check, because you'd cripple the country and ultimately end up with revolts otherwise, and probably justifiedly so.
Every individual benefits from the (infra)structure and stability that a country and society offers them, so pretending it's okay for someone to make millions by using those benefits and then turning their back and saying "yes but all this is now solely my own and taxation is theft" is kind of ridiculous.
The company employing you likely paid tax on the money it got, now it passes it to you as wages and you pay "another" tax. The same for investments. Why shouldn't you pay on inheritance? You haven't paid tax on that property before right?
And with an inheritance, the inheritors haven't done anything to deserve not to be taxed. Workers have worked, investors invested, inheritors are basically lottery winners.
People don't like how inheritance tax feels but its actually one of the most logical, fairest, least economically expensive taxes.
Since you didn't contribute anything for this house, why should it go to you? Why shouldn't it go back to society at large?
I understand that we've all grown with this cultural idea of legacy and inheritance, but I find it more and more problematic and morally unjustifiable as I get older. It just seems like as much as we try to create equal opportunities for all children, we keep around this massive inequality where children whose parents have more wealth pass it along and create privilege classes, giving some unfair advantages over others.
Already we see that the wealthier the parents the more successful the child, due to better education and care. To also have them inherit wealth they didn't amass themselves seems a tad too much in my opinion.
I can see some reasonable scenarios, like when the child is still a dependent, or leaving behind a certain amount of sentimental goods, but beyond that it seems unfair to me.
I tend to be very much aligned with the idea of equal opportunities, unequal outcomes. Each one of us should be able to compete on an even playing field with the rest for a bigger slice of the pie, and so if you contribute more to making the pie bigger you deserve a bigger slice and can enjoy it for yourself. Your kids though didn't, and shouldn't have unfair advantages of opportunities. Similarly, I think everyone deserves a minimum, which allows you to again have the necessary safety net to be able to equally compete with others. Traditionally this safety net has been provided through these inheritance schemes and the parents you have determined if you get a safety net or not.
That's the wrong way to look at it. The former (deceased) owner of the house did contribute to it. It belonged to her and she had every right to dispose of it as she wished. That includes giving it away to someone else of her choosing upon her death. It's not the recipient's property rights that are being infringed upon here, but rather the donor's. The only thing "unfair" about this situation is that the effort of earning and deferring consumption and investing which the deceased put into acquiring the property is being stolen by uninvolved parties who contributed nothing toward it for their own enrichment contrary to the explicit wishes of the owner, and not left to the beneficiary the owner intended.
That's a moral argument, but the issue with moral arguments is they can be made in every direction just as easily.
For example, Thomas Jefferson said:
"A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of property is quite unnatural."
And Smith said: "There is no point more difficult to account for than the right we conceive men to have to dispose of their goods after death."
Morally speaking, the founding fathers were against inheritance and the right of one person to be binding over future generations after their death.
- https://www.economist.com/lexingtons-notebook/2010/10/14/you...
Morally I agree with this, as I can't really see the justification for it. But as I said before, that's the issue with moralist arguments, they can be made both ways. So I'm more interested in practical aspects, maybe inheritance is actually responsible for greater wealth inequality, free market inneficiencies, political instability, and other downsides, but maybe it has upsides as well, though more and more I'm starting to see it as a net negative personally.
Haslett argues the practical angle pretty well, summarized here: http://www.ditext.com/current/0022.html
I recommend reading it, it's a short read.
As for Smith, here we'll just have to disagree. I find it beyond bizarre that anyone would claim that a person has the right to dispose of their property as they wish at any point before death, but not at the moment they die. That distinction is nothing but the most trivial technicality.
Did you read the article I linked? Cause that doesn't seem to be the case. He repealed the laws of primogeniture and entail, and he himself quoted Smith, showing that he was in agreement with Smith.
And confirmed here as well:
> Some founders wanted to eliminate inheritance entirely. In a letter to James Madison, Thomas Jefferson suggested that all property be redistributed every fifty years, because "the earth belongs in usufruct to the living." Madison gently pointed out the plan's impracticality. Benjamin Franklin unsuccessfully pushed for the first Pennsylvania constitution to declare concentrated wealth "a danger to the happiness of mankind."
From https://origins.osu.edu/history-news/death-taxes-and-america...
The article that you linked was behind a paywall, but I read as much of the intro as I was able.
Jefferson himself was mostly anti-property in general, as your quote about redistributing all property every 50 years shows, but that was a fringe position among the founders.
Jefferson, Franklin, John Adam, Hamilton, Washington, Madison, all seem to have some quotes referring to this. And Paine, Smith, Tockevile which were all influential thinkers similarly.
In general I feel the consensus of that stackexchange answer seems right to me:
> Although quotes from founding fathers directly addressing an estate tax are scarce, it is commonly argued in related articles that they did not want a privileged aristocracy; and that they believed individuals should achieve wealth through merit and hard work, not inheritance. The founding fathers were rebelling against empires that had large concentrations of power, generational wealth, and class status that was earned through birth rather than labor
So while there's no way to know where precisely they'd land on the matter of abolishing inheritance, it seems pretty clear to me they'd at least have some concerns over any form of inheritance schemes or other schemes that allows wealth to be acquired or transferred without risk and/or labor.
But again, what the founding fathers would think don't make it best, we can value their hindsight, but we should be able to argue for our positions on its own as well.
Morally there is the natural right to property, which neither of us disagrees with. But I consider the right to transfer your right to someone else problematic, in that, once you choose to let go of your property, I'm not sure you own it anymore, and don't get to decide who it goes too similarly.
Also, your natural right to property is conditional on having acquired it fair and square. If you stole it for example, it doesn't count. In my opinion, within the value framework of capitalism, that would extend to if you didn't earn it it doesn't count, and I don't see how inheritance can be defended as having earned it. Same goes for having it be gifted to you. Anything outside the markets shouldn't count as earning it in my opinion. You got to show up for it with merit and hard work, which the markets are a measure of.
So schemes where you can acquire wealth by birth or blood association, or by friendship or courting, they seem immoral to me.
And on a non-moral angle, from a practical standpoint, I do feel it hinders free markets, optimal competition, and societal stability. Now I reckon it would be tricky to get rid off now, and finding the replacement strategy will be challenging as well, some alternatives could be worse, so we'd need to be careful, etc. But basically because of all I just said I've started to rethink this whole inheritance thing.
And maybe like Theodore Roosevelt of the Republican Party did a while back, a graduated estate tax is the best solution, and we should revise it to today's proportions and inflation. As he said:
> We grudge no man a fortune in civil life if it is honorably obtained and well used. It is not even enough that it should have been gained without doing damage to the community. We should permit it to be gained only so long as the gaining represents benefit to the community … The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and … a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.
Though I'm not as onboard with the graduated income tax, some amount of it as needed to provide the minimum of opportunity to others, but beyond that if you earned it, you deserve it. That said, gifting it to others or transferring it to heirs or friends or spouses, that doesn't sound merited to me.
Here's some literature around it:
* http://www.ditext.com/current/0022.html#:~:text=No%2C%20Hasl....
* https://www.theatlantic.com/business/archive/2011/06/why-do-...
It also appears that Adam Smith and Thomas Jefferson similarly were against inheritance, or at least struggled to fit it in a capitalist model.
Moreover correctly paying your taxes starts to get really difficult the more and more money you make: income starts to come from many different sources and figuring it all out is super difficult.
If we drastically simplified the tax code, I think the IRS would collect more taxes, people would pay more taxes, and high earners could easily calculate their tax burden without hiring very expensive professionals. This would unequivocally be a net win, though entrenched interests would never allow it to happen.
The wealthy have wealth managers who know exactly what they are doing.
Just because you are in the top 1% doesn't mean you have people aggressively managing your finances and investments.
Yeah, it’s all “really simple” but it’s simple, as in “distributed systems are made of simple things, how can it be complicated?” It gets complicated, quickly, and with enough bank accounts in enough countries, it is easy to forget one or two.
You are being disingenuous and a distraction from the actual conversation.
Wouldn't complete confiscation of the wealth of billionaires finance something like Medicare for All for around 3 years?
I don't think people understand how utopian and ultimately ill-conceived their plans are.
So if you took all those assets, somehow found $4 trillion of buyers (lots of Chinese, Russians, and Saudis would line up, I'm sure) we'd get 1 year, not 3.
So if the US could implement Canada's system wholesale not only would your health insurance costs and direct payments drop vastly but you'd also get a tax refund.
[1] - https://www.cdc.gov/media/releases/2017/p0718-diabetes-repor...
They're talking about shell games. Basically, you can play audit chicken with legal fictions.
In order for the IRS to enforce accurate tax collection, they rely on you and everyone else you work/interact with to provide an accurate picture of your fiscal status quo. That requires footwork once you start making any amount of money sufficient enough where it becomes doable for you to establish multiple independent legal entities worth of books that then have to be combed through in order to ensure compliance.
The IRS continually has their funding restricted to the point they can't muster the kinds of effective enforcement actions that span multiple taxable entities, possibly distributed across international boundaries.
They can, however, root out Susie Q. Small-Business-Owner taking out deductions she shouldn't be.
That's what they mean by legalized obstruction of justice, even if they are abusing the term a bit. Those that make their affairs difficult or time conbsuming enough to work through, but also avoid "low-level gotchas" are effectively shielded from the risks of enforcement actions. You'd really need some pretty significant whistles to be blown to even get enough auditors mustered to a case to make it worthwhile to invest the effort, and if you're making enough to be worth it, you probably make enough to hire a few tax attorneys capable of getting you off the hook, miring the tax authority in jurisdictional squabbles or doing the requisite financial engineering to exploit the loophole of the year. That's the issue.
Nevermind the IRS makes more money for the government for every dollar invested. Never mind that the tax code is a nightmare because of Congress more so than the IRS. It's a multi-faceted perennial political problem that shows no hint of going away until 99% of tge country accept that in order to get the government funded to do their job better, you've got to equip it enough to make everybody's life miserable, and at that point you're kind of at best back to square one, where operationally, you'll have 1% screaming their unfairly burdened and everyone else isn't pulling their weight, and it's unfair, yada, yada, yada. Of course, this is all exacerbated by all kinds of deficit spending doubled down on every couple of years, which if we're ever going to dial that back as a country and stop playing games with MMT... Eh. Let me stop. The horse is dead, no use beating it further.
The whole environment that made it possible for them to have a high income and keep, from instracture to law, and from defense to consumer markets, has been paid almost entirely by others.
It's the price for the locals to accept an otherwise freeloader with no ties to the place, to live in the country they've built.
They get high incomes.
Not the government, no.
It isn't in any sense a moral justification for taxes.
Obviously it'll depend on your actual implementation.
Tim Cook only makes a few dollar a day and lives in a ghetto?
Surely you jest.
Most people here are either 1. employees who can't evade taxes because of how the system is setup, or 2. Entrepreneurs who are virtue signalling because of the magic internet Karma or 3. Simply have no money and think somebody else should pay for stuff. In reality, pretty much everyone will try to avoid taxes if he gets the chance (isn't that what the article is about?).
But truth be told, there are many wealthy people that have grown up rich, in those safe countries, or have grown complacent.