Tired of ads? Want to support our progressive journalism? Click to learn more.LEARN MORE
Enjoy good journalism?
… then let us make a small request. The COVID crisis has slashed advertising rates, and we need your help. Like you, we here at Raw Story believe in the power of progressive journalism. Raw Story readers power David Cay Johnston’s DCReport, which we've expanded to keep watch in Washington. We’ve exposed billionaire tax evasion and uncovered White House efforts to poison our water. We’ve revealed financial scams that prey on veterans, and legal efforts to harm workers exploited by abusive bosses. And unlike other news outlets, we’ve decided to make our original content free. But we need your support to do what we do.
Raw Story is independent. Unhinged from corporate overlords, we fight to ensure no one is forgotten.
We need your support in this difficult time. Every reader contribution, whatever the amount, makes a tremendous difference. Invest with us. Make a one-time contribution to Raw Story Investigates, or click here to become a subscriber. Thank you. Click to donate by check.
Value Raw Story?
… then let us make a small request. The COVID crisis has slashed advertising rates, and we need your help. Like you, we believe in the power of progressive journalism — and we’re investing in investigative reporting as other publications give it the ax. Raw Story readers power David Cay Johnston’s DCReport, which we've expanded to keep watch in Washington. We’ve exposed billionaire tax evasion and uncovered White House efforts to poison our water. We’ve revealed financial scams that prey on veterans, and efforts to harm workers exploited by abusive bosses. We need your support to do what we do.
Raw Story is independent. You won’t find mainstream media bias here. Every reader contribution, whatever the amount, makes a tremendous difference. Invest with us in the future. Make a one-time contribution to Raw Story Investigates, or click here to become a subscriber. Thank you.
Report typos and corrections to: corrections@rawstory.com.
Expert explains why you pay more taxes than corporations -- and the people who own them
January 26, 2021
Now that we have a seasoned Washington hand in the White House working with a team of competent appointees and a plan to distribute coronavirus vaccines we can begin to rebuild our economy.
But there is a major problem that the Biden administration doesn't appear to be planning to tackle—our hidden welfare system for people who neither need nor deserve a handout, yet Congress lets them scoop up welfare money by the boatloads.
<p>Raising tax rates on incomes above $400,000 and on corporate profits, as Biden pledged, will bring in revenue. It will make our tax system less unfair. That's all well and good. But it also misses the big money. It misses our hidden system of upward redistribution which I've spent decades documenting from the public record.</p><p>The core problem: Not all income is verified equally nor taxed equally, if at all. The current tax system is has big holes that can be easily closed by tweaking our existing law. In terms of drafting new law—that's easy. Getting the American people to demand it and overcome the influence of those who currently benefit is another matter entirely.</p><h3>Earn Now, Pay Taxes Later</h3><p>The first hole allows corporations and partnerships to earn now but pay their income taxes by-and-by. The second hole is income from legal sources that the IRS never knows about, especially in real estate and art. We'll examine this second hole in a future <em>DCReport</em> article.</p><p>Unlike you and me, corporations and certain partnerships large enough to afford sophisticated advice–and super-rich individuals who own and control big businesses–get to earn now and pay much later.</p><p>This happens because Congress literally requires them to keep two sets of books. If that sounds like the kind of organized crime schemes made famous by Eliot Ness in pursuing Al Capone, you got it right. What should be a crime is now legal thanks to Congress.</p><p>The number for income tax that a <a href="https://www.cnbc.com/2019/02/15/amazon-will-pay-0-in-federal-taxes-this-year.html" rel="noopener noreferrer" target="_blank">big company like Amazon</a> puts on its financial statement line does not indicate taxes actually paid. It's not like your W-2 wage statement of taxes withheld from your paycheck and promptly turned over to our Treasury. <a href="http://d18rn0p25nwr6d.cloudfront.net/CIK-0001018724/4d39f579-19d8-4119-b087-ee618abf82d6.pdf" rel="noopener noreferrer" target="_blank">That line</a> (see Item 6) just shows the tax that the company may, someday, pay.</p><h3>Hidden in Plain Sight</h3><p>The actual taxes paid in any given year may be less than zero as a company collects refunds on past taxes. <a href="https://www.cnbc.com/2020/02/04/amazon-had-to-pay-federal-income-taxes-for-the-first-time-since-2016.html" rel="noopener noreferrer" target="_blank">Many big companies including Amazon</a> have enjoyed a negative income tax in recent years. Matthew Gardner of the <a href="https://itep.org/" rel="noopener noreferrer" target="_blank">Institute on Taxation and Economic Policy</a> explains more <a href="https://itep.org/amazon-in-its-prime-doubles-profits-pays-0-in-federal-income-taxes/" rel="noopener noreferrer" target="_blank">here</a>.</p><img alt="" src="https://www.dcreport.org/wp-content/uploads/2021/01/elon-musk-worlds-richest-person-2-1024x1024.png"/>Source: <a href="https://www.visualcapitalist.com/elon-musk-is-the-worlds-richest-person-in-2021/" target="_blank">Visual Capitalist</a>[/caption]<p><br/></p><p>Taxes actually paid are disclosed, sort of, in a footnote to the financial statements. But even that is misleading because our government's disclosure rules lack transparency and integrity.</p><p>And the taxes that should be paid are known only if the very best IRS tax auditors conduct an examination. But under rules that Congress enacted two decades ago, the IRS must notify companies in advance of what they are looking for. The IRS auditors are not allowed to pursue anything else they find, no matter how much money is at stake, unless they have clear evidence of fraud. That's official corruption.</p><p>Contrast this with Congress requiring your employer, pension plan, mutual fund, bank and stock brokerage to report how much money you collected. Petty merchants have the total of their credit card payments reported to prevent understating revenue. And it's all automated so the cost of ensuring that gross incomes are fully reported is low. The system for making regular people pay their taxes is almost perfect in its effectiveness.</p><h3>Taxes as Profits</h3><p>Complaints about the burden of taxes on the wealthiest among us and corporations make the front pages in the evening network news frequently. But you will almost never hear that many of these complainers profit off our tax system. That's because through the modern alchemy of accounting and tax rules they can convert the burden of taxes into a profit center.</p><p>The trick is to get a loan from Uncle Sam at 0% interest. Better yet, take out a new loan every year and the amount of capital the taxpayers are giving you to invest snowballs.</p><p>How do you apply for and qualify for these 0% interest loans? That's one of the best parts. You don't. Congress hands them out automatically under our accounting and tax rules. For simplicity, we will ignore inflation in explaining this stealth welfare for the rich program.</p><h3>Don't Pay for 30 Years</h3><p>Now please imagine our government sent you a letter today saying you can keep all the taxes withheld from your 2020 paychecks for the next 30 years, but you must pay up at the end of 2050.</p><p>Now invest that money in a stock that pays no dividend and increases in value at a modest four percent annual rate of return through 2050.</p><p>For each dollar of deferred tax, you will have $3.24 in 2050. After paying the $1 tax you are left with $2.24. You'll owe a 20% long term capital gains tax on that money. That leaves you with $1.79. You are richer than if withholding took the tax in 2020.</p><p>If the investment you made grew at a 10% annual rate, which wealthy individuals with sophisticated advisers should be able to achieve, the riches that flow from tax deferral balloon. Each dollar of deferred tax becomes $17.45. After paying both the deferred tax and the 20% levy on the capital gain you walk away with $13.16.</p><p>See how tax deferral can make you rich? See how it enables dynastic wealth?</p><h3>How to Become a Billionaire</h3><p>Now multiply that $13 by millions and billions. And now further imagine you do that year after year, as many corporations controlled by a single individual do. But for his propensity to squander money and cheat, Donald Trump's solely owned Trump Organization really would be worth more than $10 billion today thanks in good part to legal tax deferral.</p><p>Wage-earners, small and medium-sized businesses are not allowed this deferral, except in retirement plans. But you don't get the same tax deal.</p><p>When you collect from your pension, IRA or 401(k) you won't enjoy the low rates Congress levies on capital gains even though most of the money in your retirement plan comes from such gains. Congress says you must pay at the higher rate for labor, up to 37%. Except for those so poor they are exempt from all income taxes you will be burdened more than the owner of a company that deferred.</p><h3>More for Their Heirs, Too</h3><p>Also, while business owners can exempt more than $11 million from the estate tax whatever is left in your retirement plan when your time runs out will be fully taxed before your heirs collect a dollar. And it will be taxed at the highest rate your heirs pay Indeed, under new rules if you leave $4 million or more your heirs will be taxed at the highest income tax rate while heirs of a business owner leaving the same would pay nothing.</p><p>Paying higher tax rates and losing out on the estate tax exemption are not the only way Congress puts workers at a disadvantage to the wealthiest business owners.</p><p>Those 0% interest loans are not free. Someone had to extend the loan money. That someone is you. A dollar of tax not paid is no different from a dollar given out by our government. And in this area, we are talking in billions, perhaps trillions, of dollars of interest-free loans.</p><p>Here's how you pay. Congress spends each deferred $1 today. To cover that expense, it borrows money equal to what is deferred.</p><p>At the current blended average federal borrowing rate of about 2%, the value of the tax-deferred for three decades will cost you 81 cents in interest paid on government debt. But wait, it gets worse.</p><p>After taking those interest payments into account our government will net 19-cents on each dollar of tax-deferred for 30 years.</p><h3>Warren Buffet Gets a Free Loan</h3><p>One of Warren Buffett's companies has a loan that, the last time I found it in his disclosure filings, was worth $660 million. Half of it would still be unpaid 38 years later. With apologies to Mel Brooks, it's nice to be Warren.</p><p>Thanks to dynasty trusts that help generations of rich families build their wealth even as the number of descendants expands, and to the eternal nature of corporate persons, deferring a tax today is one of the most lucrative opportunities out there.</p><p>These are riches made first in the marketplace, where riches should be made, but then grow thanks to a stealth welfare program.</p><h3>How to Do Something About It</h3><p>The solution? Require one set of corporate books and a definition of profits set by the government instead of the cumbersome system of reconciling General Accepting Accounting Principles to tax rules. And then require that income taxes be paid under the same rules as your pay – when you make your money.</p><p>Congress could also end all existing deferrals, as it did in 2017 for profits siphoned out of America untaxed and nominally held overseas. The Republicans established that principle in the Trump/Radical Republican Tax Law in 2017.</p><p>To prevent a shock to the system Congress could require companies to declare how much is deferred, send the IRS a detailed report documenting this and then allow companies to spread tax payments across four years with an annual interest charge on the unpaid. A rate equaling our government's blended average borrowing rate would be a boon to these companies. That rate plus 1 percentage point (so about 3%) would encourage prompt payment.</p><p>Failure by the Biden administration and the majorities in Congress to address this stealth welfare for the rich would be a betrayal of the voters. It would run contrary to the promise in the preamble to our Constitution to promote the general welfare.</p><p>But unless you spread the word so people know how they are paying taxes to make zero-interest loans this burden on working Americans will continue.</p>
CONTINUE READING
Show less
Hours after President Biden declared that "democracy has prevailed" during his inaugural address, longtime Republican strategist Karl Rove urged Republicans to pressure GOP election officials and legislators to create "a model election code" to reconsider the laws surrounding 2020's two voting options that lead to the presidential election's record turnout.
"Republicans should also encourage GOP secretaries of state and state lawmakers to develop a model election code," Rove wrote in a January 20 commentary for the Wall Street Journal entitled, "The Republican Future Starts Now."
<p>"The job of proposing electoral reforms shouldn't be based on the unsupported claims of widespread fraud peddled by Rudy Giuliani and Sidney Powell," Rove continued. "Instead, the goal should be to suggest measures that restore public confidence in our democracy. How do states with extensive mail-in and early voting like Florida and Texas get it right?"</p><p>Rove's commentary comes as Republican-majority legislatures in battleground states such as Georgia, <a href="https://www.ydr.com/story/news/politics/elections/2021/01/21/pa-secretary-state-kathy-boockvar-testifies-election-hearing-state-house/6660041002/" rel="noopener noreferrer" target="_blank">Pennsylvania</a> and <a href="https://www.fox10phoenix.com/news/voting-rights-advocates-decry-gop-bills-in-arizona-state-legislature-saying-it-amounts-to-voter-suppression" rel="noopener noreferrer" target="_blank">Arizona</a> have proposed bills or convened hearings to review the laws that allowed people to vote with mailed-out ballots or early in-person in 2020.</p><p>"Whenever Karl Rove writes a piece in the Wall Street Journal, the history of it suggests that Democrats should pay careful attention," said David Daley, author of <a href="https://wwnorton.com/books/9781631495755" rel="noopener noreferrer" target="_blank"><em>Unrigged: How Americans are Battling Back to Save Democracy</em></a>. "Because the Wall Street Journal is where Republicans can signal to their donor class their key projects."</p><p>In March 2010, Rove penned a Wall Street Journal <a href="https://www.wsj.com/articles/SB10001424052748703862704575099670689398044" rel="noopener noreferrer" target="_blank">commentary</a> openly discussing the GOP's <a href="http://www.redistrictingmajorityproject.com/" rel="noopener noreferrer" target="_blank">REDMAP project</a>, which targeted 107 state legislative seats that "would give them control of drawing district lines for nearly 190 congressional seats." REDMAP <a href="https://www.newyorker.com/magazine/2016/06/27/ratfcked-the-influence-of-redistricting" rel="noopener noreferrer" target="_blank">succeeded</a>, creating GOP majority legislatures and congressional delegations in the otherwise purple states of Ohio, Michigan, Pennsylvania, Wisconsin, North Carolina and Alabama.</p><p>The website of the American Legislative Exchange Council (ALEC), which drafts model bills for social conservatives and economic libertarians, did not yet promote election reforms on its website. However, it linked to the Conservative Action project, which <a href="http://conservativeactionproject.com/cruz-hawley-brooks-and-colleagues-follow-the-constitution/" rel="noopener noreferrer" target="_blank">posted a defense</a> of the GOP lawmakers who opposed certifying the Electoral College slates from Arizona and Pennsylvania. The expanded use of voting via mailed-out ballots and early voting must be examined, it said.</p><p>"The 2020 election was conducted in an unprecedented manner: largely by mail, and in a way that overwhelmed the capacities of many states. It is not at all unreasonable to review the manner in which votes were counted," said the Conservative Action Project <a href="http://conservativeactionproject.com/cruz-hawley-brooks-and-colleagues-follow-the-constitution/" rel="noopener noreferrer" target="_blank">memo</a>, which was signed by more than 100 activists and organizations. "Indeed, if the goal is to restore faith in future elections, then a comprehensive review and analysis to determine what went wrong, what went right, and what is in need of reform should be a critical next step."</p><p>Daley, whose prior book, <a href="https://www.barnesandnoble.com/w/ratf-ked-david-daley/1123515748" rel="noopener noreferrer" target="_blank"><em>Ratf*cked</em></a>, profiled REDMAP and its impacts on the past decade's political battles and extreme politics, said Rove's commentary was a warning sign.</p><p>"Whenever Rove writes in the Wall Street Journal, it not to be a public intellectual but to put ideas in front of the Republican donor class," he said. "It fits perfectly with much of the Republican strategy on voter suppression."</p><p>"So much of it sounds reasonable," Daley continued, referring to the suggestion that a model election code be developed and embraced. "How can you be opposed to a blue-ribbon bipartisan commission that is going to step back and ensure that our elections are free, fair and secure? Except, that's not actually their intention, because we just had an election that was free, fair and secure. And [Sens.] Hawley and Cruz and 130-plus Republicans in the House voted to decertify [the popular vote results and Electoral College slates from] Pennsylvania and Arizona—even after a Republican governor [in Arizona] signed off on certification."</p><p>Already, Republican legislators in 2020 battleground states held hearings where they are badgering statewide election officials—some elected Democrats, some career civil servants—about decisions they took last fall that made it easier to vote with absentee ballots.</p><p>For example, on Thursday in Pennsylvania, Secretary of State Kathy Boockvar, a Democrat, <a href="https://livestream.com/pahousegop/events/9486299" rel="noopener noreferrer" target="_blank">was pressed</a> by Republican representatives advising county election officials to count the returned mailed-out ballots of people who forgot to put their ballots in a secrecy sleeve. The state's supreme court subsequently ruled that the "naked" ballots should be disqualified.</p><p>"You disagree with the decision that was rendered by the Supreme Court?" <a href="http://www.repmackenzie.com/" rel="noopener noreferrer" target="_blank">Rep. Ryan McKenzie</a>, a Republican, asked Boockvar.</p><p>"It doesn't matter whether I disagree with a decision rendered by the Supreme Court, because the Supreme Court's rule governs," she replied. "But what I would say is, and maybe this is part of your question, do I think that is the right approach for voters for making sure that every eligible voter's vote counts? No, I'd love to see the legislature change that law and say, 'Look, if a voter makes a mistake that does not have anything to do with their eligibility or their qualifications, such as a naked ballot, that vote should still count."</p><p>The Thursday legislative hearing was <a href="https://www.ydr.com/story/news/politics/elections/2021/01/21/pa-secretary-state-kathy-boockvar-testifies-election-hearing-state-house/6660041002/" rel="noopener noreferrer" target="_blank">one of 14</a> that are slated in Pennsylvania to review voting laws and administrative rules that were in effect during the 2020 election. A separate GOP-sponsored proposal would <a href="https://www.mcall.com/opinion/mc-opi-judicial-gerrymandering-pennsylvania-muschick-20210122-ydzmmvkmavdyppqkxw3euph56m-story.html" rel="noopener noreferrer" target="_blank">create districts</a> for electing state supreme court judges. If put into effect, it could become a judicial gerrymander to recast Pennsylvania's appellate courts—including the state's supreme court.</p><p>These steps and others, such as Republicans in <a href="https://wisconsinexaminer.com/2021/01/08/gop-eyes-bill-to-reallocate-wisconsins-electoral-votes-by-congressional-district/" rel="noopener noreferrer" target="_blank">Wisconsin</a> (and <a href="https://www.fairvote.org/pennsylvania-senate-leader-pileggi-wrong-on-prescription-for-electoral-college-reform" rel="noopener noreferrer" target="_blank">Pennsylvania</a>) talking about <a href="https://www.270towin.com/alternative-electoral-college-allocation-methods/" rel="noopener noreferrer" target="_blank">changing the way</a> their states choose presidential electors, or Georgia possibly turning the secretary of state from <a href="https://www.savannahnow.com/story/news/2020/12/12/georgia-david-ralston-wants-lawmakers-pick-secretary-state/6521745002/" rel="noopener noreferrer" target="_blank">an elective to an appointed</a> office filled by the legislature, seek to change the laws so Republicans can win elections, Daley said.</p><p>"Republicans talk a lot about following the rule of law, but what they are trying to do is change the law to make it make it easier to do in 2024 what they were unable to do in 2020," he said.</p><p>Daley said Rove's push to review ballot access laws after an election where no evidence of fraud was provided by Trump's allies—despite 65 lawsuits—posed a longer-term threat to representative government than the pro-Trump mob that attacked the Capitol.</p><p>"In 2020, there were two mobs that attacked the Capitol," he said. "One mob did it with baseball bats, Trump flags and Camp Auschwitz shirts. And they tried to overturn an election through fear and terror and insurrection. And then there was the mob that wore tailored suits and congressional pins that walked in after that [first] mob, while there was still blood in the hallways and bullet holes in the walls, and they voted not to certify free and fair results from Pennsylvania and Arizona. They gave that mob everything that they showed up for."</p><p>"We need to be more fearful of that second mob," Daley continued. "Because they remain inside the House. They have been elected to the rules so that if this happens again, with better lawyers making the cases, they will have statutes that they can rely on to press fraudulent claims of election fraud."</p>
CONTINUE READING
Show less
Trending
Latest
Videos
Copyright © 2021 Raw Story Media, Inc. PO Box 21050, Washington, D.C. 20009 | Masthead | Privacy Policy | For corrections or concerns, please email corrections@rawstory.com.