US’s wealthiest 1% are failing to pay $160bn a year in taxes, report finds
theguardian.com
theguardian.com
I also find the headline seeming to contradict what it says later: "Sarin said that tax gap – “the difference between taxes that are owed and collected” – amounted to “around $600bn annually and will mean approximately $7tn of lost tax revenue over the next decade.”"
Not sure how we got from 600B to 160B. Also, isn't that closer to 6TN versus 7TN over a decade?
Lastly, whatever these numbers are, I'm sure it in reality could be far, far larger if there weren't so many loopholes, strategies of long-term gains and loans, etc. I happen to have a friend that's ultra ultra rich, and he already has said Forbes estimate is completely off (way underestimated) and they have no idea what his real net worth is (as it's private companies and not public).
Goldman & Credit Suisse have a much better idea of the true value here...
2. That captured about 20% of GDP in revenue, and we’ve never captured a larger percent for more than about a single year.
3. We currently capture north of 17% of GDP, which is the post war average.
Sure, they could start saying those loopholes are not good enough but then the political system would have a 600bn pressure to implement different loopholes or risk losing all of the tax revenue with people moving somewhere else.
These days the USA main advantage is offering highly paid jobs and venture capital - and the ultra rich definitely don't need that.
If they're still in the States and pay little tax, they most likely own the system.
I don't think there's much of a worry that the rich will leave the US if tax rates (or enforcement efforts) go up. Federal income taxes have been much much higher in the US at various points in history, and this "rich flight" never came to pass. Certainly there will be grumbling if taxes are raised, but the rich will remain rich.
And even if they move away, they still carry US tax liability, unless they renounce their US citizenship. Granted, it's harder to collect in that case, but it's still owed, and if the US government really wanted to find a way to collect it, they'd probably do a pretty good job of doing so.
$600B (or the $160B piece owed by the top 1%) is just the gap between what everyone should be paying based on current tax rates, and what they actually are paying. If you increase the "should be paying" by, say, $1T by increasing taxes, that says nothing about what will happen to the rate of tax evasion. Sure, that $600B figure may go up, but so will overall tax revenues.
And if this effort to crack down on tax evasion works, all the better.
They probably are using nominal dollars and the gaps per year are expected to increase at a rate similar to, or greater than, collected revenue.
the estimates have several assumptions that are all off. for example, aside from publicly disclosed equity holdings, nothing else is listed unless someone was sloppy about their real estate holdings. but for one-off payments, like an actor in a big movie, they assume it is never spent.
they have no way of knowing anything, which is actually pretty nice. but I would say the whole list is completely wrong, even at the top, about who is at the top, even when limiting the list to non-state actor wealth.
edit due to rate limit: this comment is purely about a data collection realities and limitations, and is devoid of any comment on tax realities
I can't quite square your characterization with, for example, the reality that Warren Buffett's secretary pays a higher tax rate than he does.
Some of us don't lust for wealth as much as we simply dislike that loopholes exist exclusively for the ultra-wealthy.
There are alot of problems with Capital Gains taxation in the first place (like for example the fact it does not factor in inflation at all which is a problem for assets held for a long time)
Treating it pure income is not the solution
I understand your point about inflation, but then you would have to count that in in interest earnings, and a lot of other places. The Federal Reserve essentially uses inflation as a club to force people to keep their money moving, thus simulating the economy. Why would we kill that club for capital gains?
Treating capital gains as regular income absolutely is a solution to even out the playing field. I would even take taxing them at more (even though it hits my pocket book). But an even playing field where business owners don't get to play around with their income to have it rated better than their employees sounds like a good start.
Sounds like you think this is acceptable, to manipulate the currency to force people do things they would not normally do..
We have fought wars over other nations doing things like that...
I do not find that practice to be acceptable. So we are starting very different economic worldviews chances are we will not agree on much when it comes to taxation
Not sure how true that is in practice, but I thought it was at least worth considering.
The fact is that "Warren Buffett paying more in taxes than his secretary" is the first thing you think of, instead of say... Bob Smith, a random generic unassuming American heir of a random slave trader who invested the proceeds in trusts and private equity funds. If they don't have publicly traded wealth, then the lists will be filled with the wrong people and the wrong amounts.
Though the wealthy have been increasing and amassing their fortunes more and more over the past decades while the rest of the world has been getting squeezed out my blood isn't boiling at all. Personally, I have been able to thread the needle and live more comfortably than my parents.
I worry more about those whose blood is however boiling and likely to do something violent if the status quo continues. I wish that we could get some laws without loopholes, with teeth, to reign in the growing wealth disparity before we cross the Rubicon and it becomes too late.
I'll probably play both sides, like how Thomas Jefferson allowed his mansion to be used by French Revolution rebels, and dipped back out to the US to bang his slaves. Squad goals, I mean not the slavery part, just recognizing who exactly our founding fathers and examples and role models are.
600B is the full tax gap, 160B is what the richest 1% are not paying. It is very clear if you read the previous sentence:
> the wealthiest 1% of US taxpayers are responsible for an estimated $163bn in unpaid tax each year, amounting to 28% of the “tax gap”.
The numbers contradict the article. They actually say that the top 1% pay a larger percentage of the taxes they owe.
1: https://www.politifact.com/factchecks/2019/oct/17/rand-paul/...
Virtually certain that's exactly the opposite of the truth. CEO income is primarily in the form of pay that's subject to income reporting and withholding - which are the areas which are least subject to misreporting.
On the other hand, doctors and lawyers are more likely to have pass-through businesses like sole proprietorships, partnerships and S-corps - and those are the areas which the IRS considers to have the most misreporting.
Do you have any reason to believe this, to the point where you think the report is wrong?
I find it much more likely that rich people simply don't commit tax evasion as much as less rich people. For one, they can afford the tax bill. They can also afford accountants and tax lawyers to help them lower their tax bill without commiting tax evasion.
A sovereign currency country is not a household.
It's much more complicated than ("spend" > "income")=bad.
That loan has to be paid back with interest, and so it only makes sense when you are paying for soemthing now that will save you more money in future than you would pay in interest.
The main differences are quantitative - effectively the (US) government has an insanely high credit score, and so many people are willing to lend them money (buy bonds).
If a household misses payments on a loan, it will worsen their credit score. Likewise, if the government prints more money to make the interest payments on bonds more manageable, then it also dis-incentivises entities from investing in those bonds in future. In both cases future borrowing will be at a higher interest rate.
edit:
Also, that's tax-payer money that's being spent paying off the interest on outstanding bonds, which could have instead been spent on healthcare or infrastructure.
Voluntary tax compliance rates are surprisingly high in the U.S., even higher than countries like Germany. See https://www.theatlantic.com/magazine/archive/2019/04/why-ame... It's a little known factoid that gets lost in all the cynical political rhetoric.
It’s probably more than half at present value.
Also, it's interesting that the five-percenters (95-99th percentiles) are the ones responsible for the most 'failure'. This is from the table in the report, not the article.
https://home.treasury.gov/news/featured-stories/the-case-for...
Update: from the citations in the IRS post, it looks like they're talking about estimated tax evasion.
https://ntanet.org/wp-content/uploads/2020/05/Jason-DeBacker...
It's a lot less robust than I would have liked. It really seems more to me that since the top 1% are not salary, their taxes are using more complex calculations on Schedules C, D, and E, that differences in opinion on taxes owed exist more frequently - which should be expected.
The original source also notes: "Higher income individuals have larger amounts that are misreported, but they are small compared to their overall income. This results in small but statistically significant reductions in the Gini coefficient"
...of course, the headline has already been let loose on social media, so the truth behind whether it's even true that 1% are tax dodging or not is more or less irrelevant.
(Note that this is specifically about income taxes, not payroll taxes that fund entitlement programs)
You could also just start injecting more money at the bottom via a UBI designed to constantly grow to chase inflation, and watch the real purchasing value of the 1%’s piles of dollars start to decline precipitously as the dollar entered a hyperinflation spiral, but that would mean international trade would drop dollars for another currency that was more stable.
What I was more talking about is the negative effects of spurious enforcement, much like how more cops means more police brutality, especially for the weak. This plays out more in small business.
But if you've dealt with tax agencies beyond being a plain employee, they can often be just plain wrong, and you have to go through a lot of time, money and effort to prove that they are wrong, with them potentially just confiscating your bank account until proven wrong. Or your accountant / payroll provider has screwed up and now you have to go through a lot of bullshit to fix that problem, because YOU are ultimately on the hook.
More cops on the road doesn't necessarily mean more 'crime' is solved, it also means there is more cases of police brutality. If you're a small business, you don't have nearly as much strength to defend yourself. The large and rich will always have that ability, as it has been shown for 1000s of years of human history.
If a society 'arrests' every perceived jaywalker (whether or not they were jaywalking), and then pressured into a guilty plea deal because fighting it is worse than the price of the plea deal, is that really good for society? This is what I meant by the double edged sword of increased budgets for tax agencies.
And it's not like that $600B will be pulled out of circulation; it'll be used to fund things that generate economic activity, or even used to pay down debt, and those creditors can put that money back into the economy.
In many cases this is perfectly legal, and many companies do just that (not directly with toothbrushes, but pay licence fees to offshore companies where taxes are low).
For another example, in slovenia, i can start a company, earn 100k (profit), and that profit gets taxed at 19% at the end of the year, and to take it out (pay it to me, the owner) aditional 25%. If I open the same company in bosnia, I can still to the same jobs with the bosnian company, but I only pay 10% on the money I take out (so, 100k->81k in slovenia, and to pay out, i get 60.75k... or i get 90k with a bosnian firm).
This is completely legal in slovenia in bosnia. Our "IRS" can't do anything about that.
So, first the laws have to change to make it fair, so facebook would pay taxes at the same rate a small local plumber would, and only than can IRS start their job.
Also, your toothbrush example is actually illegal and considered a tax evasion by EU and probably most Western countries.
Taxes are way more complicated than you're trying to show. Also, don't underestimate the IRS.
What exactly does one do with a billion dollars? Or 10 billion? Or 100 billion? If a global financial disaster strikes (no evil tax man, just some giant catastrophy), what does losing half of 100 billion dollars actually mean to someone?
Imagine for a moment that you could eat the finest food every day, without fail. Whatever you wanted would always be available. Would you be satisfied with stuffing yourself, or would you need to have 10 or 100 tables around you decorated with every possible other food you might want, but unfortunately do not have the space to consume?
If the poor people outside asked, "Can you please share?", would you say, "No, I earned all this! It is mine, and anyone who wants to take it from me is (choose your negative title)!"
Many of us here have played video games. In gaming, there are always people who are either really talented, really motivated/disciplined, or cheaters. They can far surpass the normal player in various measures. But for what gain? After the thrill of being best at one thing, or being richest wears off, what then? (Ok, yes, politics. But that's beside the point.)
I would rather be loved and appreciated by everyone around me than admired by throngs of poor people outside the walls of my castle. I suspect some of the people who chase and fight to hold riches have missed something important in early childhood and are doing the only thing they know to do to try to meet that need.
For the most part, people who have that much wealth own a large share of major companies. Many founded and/or control those companies. Their "billion dollars" is often mostly stock in those companies.
So one answer to your question is: operate a company that provides something that millions of people want.
But I will play this game anyway. If you have 1 billion dollars worth of your company's stock, in addition to your other assets (which you surely have, as you do not live on stock alone), then would it pain you greatly to sell off some of that stock every year to pay taxes on your gains? Yes I know the current tax law doesn't require it, but that's the problem.
And in the case of Amazon, since that's a great example, are they a well-behaved company? And by that, I mean, do they really serve the customer and provide what millions of people want? Do millions of people want counterfeit goods? Do millions of people knowingly want their purchases to be packaged and transported by modern slave labor? If the richest American exmplifies why corporate value should be protected, then I'd say we have failed as a human civilization.
I'm not sure how old you are, but there was a time before Amazon. It worked pretty well. We went to a store and bought a thing. If what we wanted wasn't available, we waited or shopped around or decided it wasn't important (or we went for a second-hand thing or built it ourselves). Amazon did not supply a need that was unmet. They just replaced the existing suppliers with a more clever, profitable system. I daresay the end result is a net loss for most people.
I'm not saying it's right, or altruistic, or anything, just that it's unsurprising and not that hard to understand.
> I'm not sure how old you are, but there was a time before Amazon. It worked pretty well.
Not the person you're replying to, but I'm old also enough to remember having to physically go to stores to buy things, and all those other things you mention. It was annoying. Today I can tap around for 5 minutes on my phone, and then two days later a delivery service drops a box at my door. Why would I want to spend an hour or more driving to a store, wander around, hopefully find what I want, wait in line for a cashier, lug my stuff to the car, and drive home?
Sure, the old way worked fine, more or less, but the new way is such a much better experience in nearly every way. The main two ways it isn't is if it's something I really need same-day, or if it's something I really want to be able to see/try before I buy. Which you'd think would be more often than it actually is; in practice it's pretty rare.
I imagine it would be painful because you'd lose control of the company. If someone founds a great company, why should the taxman take it away? And why should we expect the new owner to be any better?
As to whether Amazon provides something millions of people want, the facts speak for themselves. People choose to shop at Amazon, despite all its problems, instead of a brick and mortar store or another website. No one forces them.
I'm not a big fan of Amazon myself, but whether you (or I) think Amazon is good is irrelevant. Millions of people love it.
I just checked [Fortune 500 list](https://fortune.com/fortune500/2021/search/) and most of companies didn't gained their status by monopolistic practices. Some of them (but it doesn't even look as majority), though, _maintain_ their status by questionable practices that may, in a broad sense, be called "monopolistic".
And hey, even if you do sell some of your stock, a 20% cap gains tax isn't so much when your stock is going up faster than 20%.
Also, random people don't value your company at billions. Other unreasonably wealthy groups of people seek places to stash their wealth, since there is a glut of money in a few hands. So they find the most stable or reliable stores of wealth. Amazon stock is certainly one.
I don't know, but what I know is that this country was built on the idea of life, liberty and the pursuit of happiness. These guys are pursuing their happiness, I'm pursuing mine. It's not my place to question their choices in life. If they break the law, they should be punished, until then, I do believe in the presumption of innocence. If they want to share their wealth, good for them, if not, I'm free to share my own wealth.
I know tax time there is almost not a single loop hole for me to exploit (dont know if that is the cause or symptom of me not being a top 1%)? The best "advice" my tax advisor gives me is "oh if you don't want to pay more tax now why don't you pay more of it during the year"? Sometimes I wonder if the advisor is just taking the Mickey out of me!!
Require the tax lawyers to formally sign off on the validity of the returns, and give them some form of liability or consequence if the dubious tax shelters they recommend turn out to be plain old tax cheatin'.
Also, tax lawyers already have this responsibility. Go look at all the tax shelter cases that go brought against the Big Four and associated law firms.
Tax attorneys are different; they don't validate returns, they handle legalities around tax lawsuits and IRS negotiations. I don't think a tax attorney would generally be involved with preparing a return, except maybe for reviewing ultra-wealthy clients for potential legal consequences.
A hat tip to whoever on Twitter mentioned this: the top 1% of income earners pay 40% of income taxes. So by these numbers they're dodging tax in lower proportion to everybody else.
There's supposedly $211bn unpaid in P90 through P99; $155bn in P60 through P90.
Is tax evasion more OK for people with lower incomes?
Legally, no, but morally... kind of? It's certainly not great, but I -- subjectively, certainly -- find less fault in a person who makes $80k a year "hiding" a couple thousand of income vs. someone who makes $10M a year hiding a couple hundred thousand. The middle-class person possibly really needed that extra cash lying around, while the rich person probably would be fine without it.
In short, those who partake in such maneuvers may have to spend several million in legal fees, but it may be worth it to avoid even larger tax bills.
Taxes are not really a means of a federal government raising funds to pay for things, since they can after all print whatever they need, but instead a way to take money out of circulation to help control inflation.
So a thing like war bonds is never for actually financing a war effort, but help control inflation for all the printing that probably is going on.
So tax compliance and tax code is a monetary tool to control inflation/deflation, not a financing/fiscal tool to pay for stuff. To be clear, local/state government can't print their own money obviously, so taxes actually are raised to pay for things.
The US government cannot (legally) print whatever they need. The Federal Reserve can, but the government cannot. And the government legally has limits on how much it can borrow, too, though the limit gets extended every time they bump into it (sometimes after some political drama).
Now, you could argue that we should change the rules so that the government can print. But, historically, that has worked out really badly. To see why, don't think in terms of money. Think in terms of stuff. Who gets the stuff? Well, the government prints money so that it gets more stuff than it can pay for just by taxes (without causing a political revolt.) That means that there's less stuff for the people. (Printing money doesn't cause more stuff to appear.) So there's more money circulating, and less stuff for the people to buy with it, so there's inflation. But that means the government's printed money is able to buy less than they planned, so they print some more. So they get more inflation, and still can't buy as much as they wanted, so they print some more. This gets you to runaway inflation.
Now, you might be able to get out of this by taxes. But the reason you got into this was that the people weren't willing for you to charge them the needed taxes...
however every crisis for which the government feels it needs to print money it asks the federal reserve which appears to usually oblige them
their seperation to me seems just like some kind of circuit breaking control, but generally they will align to print money when they want, unless im missing something?
Yes, it can.
> The Federal Reserve can, but the government cannot
The decision-making part of the federal reserve (the Board of Governors) is:
1. An executive branch agency, independent within the government, the same as (e.g.) the FCC, and
2. Has all of its authority delegated from Congress from Congress’ Constitutional powers via statute.
Anything it can legally do is a subset of what the government can legally do, which can be recalled and reassigned to other parts of the Government, or exercised directly, by Congress at will.
So let's say the economy is actually doing well but a war breaks out and the government needs to pay for it. In that case lets say for whatever reason, taxes can't cover it, so the government prints money, but to keep prices under control it needs to suck out a certain amount of cash out of the economy, so it can either increase taxes or issue an emotional appeal for consumers to purchase war bonds. But to your point, in war time economy there can definitely be shortages of consumer goods and an upward pressure on prices.
Again I'm a total novice so I'm curious what I might be missing.
We have a spending problem. Not a taxation problem.
EDIT: downvotes, but no rebuttals. Classic HN. We downvote what we don’t like, facts be damned.
https://en.wikipedia.org/wiki/File:2018_Total_US_Government_...
And a huge sum again on healthcare, overwhelmingly used by the aged (50% of healthcare costs in the final 5 years of life).
America is a giant nursing home...
The US is a massive welfare agency with a small military on the side.
a musician writes a song, one million people buy it for one dollar, the musician becomes $1M richer while every purchaser is now $1 "poorer". This is your "unfair" wealth inequality in a nutshell.
In the past, you had to go through a label which would give labels a ton of power and the ability to write one sided contracts.
Now, you can just upload to soundcloud, spotify, or apple music. Seems much more fair right? Yet it's not perfect. These platforms compensate pretty poorly. Spotify pays $0.004/stream, Apple Music somewhere around 0.005-$0.007/stream [0], Youtube even less at $0.002/stream. That means to truly earn a million dollars on these platforms, you need more than 200,000,000 views. Only very well known artists can even approach this many views.
Lots of musicians are begging for an opportunity to appear on playlists so their view counts are steadily growing. This reveals a flaw in the payment model. Some artists are played a lot, in the background, as part of larger collections of curated playlists. That means popular artists have a leg up.
Consider this: One subscriber listens ONLY to obscure artists. They spend 10 hours a week listening to their favorite unknown bands. These artists will only see a few pennies from this devoted follower who pays $11.99/mo to the streaming service.
Another subscriber doesn't care what they listen to, but they always have music playing in their building. They listen to 100 hours of pop playlists. Their total view count will be higher - much higher than the obscure artists. The artists this subscriber listens to might collectively get $1-2 for the month.
You might imagine that this incentivizes click-farms where desperate artists lacking self respect pay for inflated view-counts. It does. The streaming services may actually be in favor of these click-farms, because they profit off of every profile.
Music is no longer a viable career path to people who are not risking their livelihoods. That leaves only people with more money than sense filling the cultural gap.
[0]: https://soundcharts.com/blog/music-streaming-rates-payouts, https://freeyourmusic.com/blog/how-much-does-spotify-pay-per...
Apparently that put your yearly income at $361,020 (according to some searching I did). To be in the top 1% net worth wise you'll need $11,099,166.
The first seems strange to me. At $361k/year I do not see many avenue to find tax loop holes. You'll get a salary, maybe some RSUs, and you'll just duly be taxed.
If, on the other hand, your net worth is $11m, you'll probably be able to find many avenues to save on taxes (maybe all you have is long term capital gains, or whatever).
But since the talk about income in the article, I'm somewhat confused.
Top US Congressional campaign donors are failing to pay billions in taxes
Lots of reasons why this wouldn't happen (it's of questionable constitutionality under Citizens United and some other precedent), but it's fun to think about.
I was kind of hoping we'd jail legislators who wrote law and dispensed federal power (eg:DoJ as-a-service for copyright donors) in response to major campaign donations.
75% of tax gap is from 99%ers (who also only pay 60% of taxes, so they dodge at a higher rate than 1%ers)
How in the world does it cost $80B to step up IRS enforcement efforts? That's 80,000 IRS agents at $100k/agent (which is probably more than they make). Or let's say 60,000 agents, plus a budget of $20B to find them office space and fund their expenses, to the tune of $300k per agent.
Do I just not get the scale of this work? It feels like to me that this work could be tackled pretty effectively with a few thousand agents, maybe 10,000 at the most. Am I missing something here?
Sure, if that $80B gets us all $600B in lost tax revenue (or even just the $160B missing from the 1%), I will definitely agree it's money well spent, but it still seems that it's more money than is necessary to spend.
The Guardian is hard* left-wing and I mostly respect their reporting because their bias is so obvious. However I really hate it when they report on US issues with such egregious bias.
Disclaimer: I am from New Zealand, and there are plenty of things about the US I dislike, but I don’t like constant bashing.
* Edit: not hard left - just left bias - sorry for using the wrong word.
me: falls about laughing
It's a middle of the road, deeply middle-class newspaper.
Edit: I don't normally worry about downvotes, but if anyone thinks of The Guardian as a hotbed of Marxist-Leninism, then they have never read it.
I'm not particularly running down the middle-classes (I think that they are often something of a force for good, and I am one of them myself) but I don't think that reading the Grauniad (sic) turns us into Che Guevaras.
Anyway, no-one seems to comment that the Grauniad seems to lack balance in its articles on the US. Or perhaps it is just the bias of what gets commented on on HN.
It's these sort of news stories how the current administration is trying to justify radical tax changes to limit your retirement accounts to $5m[1], eliminate investing advantages (tax capital gains if income > $1m as ordinary income)[2], and do-away with the American Dream by taxing business owners and upper class citizens dramatically under the false pretense of taxing billionaires.
[1] https://www.cnbc.com/2021/09/08/democrats-may-change-the-rul...
[2] https://www.cnbc.com/2021/06/21/biden-tax-plan-raises-top-ca...
Fact is, enforcement has been intentionally undermined, and it isn't the least bit subtle:
https://www.cbpp.org/research/federal-tax/depletion-of-irs-e...
And the rest is just inflammatory word salad:
> radical tax changes > limit your retirement accounts > do-away with the American Dream
I rather suspect this sort of post will be outsourced to GPT3 soon enough.
My point is, regardless of whether it is legal, I think the wealthy in particular ought to be pushing to make changes that narrow the wealth gap in this country. I have certainly read that bothBill Gates and Warren Buffett have suggested we tax the wealthy more.
I want to grow my wealth, I don't understand why people are pro-taxes at all. I am not outraged by smart accounting, lawyers, and savvy business. I am aspiring to become rich myself.