Wayne O'Leary

Clawing Back the Giveaways

“There’s a peculiar thing about money. In large quantities it tends to have a life of its own. The power of money becomes very difficult to control.” — Raymond Chandler, “The Long Goodbye”

An outstanding exception to the Biden administration’s obsession with identity politics has lately emerged from Secretary Janet Yellen’s Treasury Department in the form of an overdue reordering of US tax policy. In an unacknowledged bow to the influence of the Sanders-Warren progressives, the Biden team has begun focusing on one of the economic left’s longtime objectives, forcing America’s rich and its corporations to pay a fair share for the nation’s upkeep.

A brief refresher on why this is justified may be in order. At a time when the government is deficit-financing its way to recovery and when average Americans are struggling economically as they haven’t for decades, the country’s wealthy elite and the corporations they own have never had it so good. Data provided by University of California (Berkeley) economist Gabriel Zucman and the Federal Reserve Bank of St. Louis indicates that incomes for the middle- and working classes have barely budged since 1980 (up an average of just 30% for the bottom half of earners), while the top 0.01% have seen their incomes soar by approximately 500% over the same period.

The disparity has only grown more marked in recent years. Since the 2008 financial crash and the ensuing Great Recession, average incomes for the upper 0.01% have surged, leaving the rest of the population financially in the dust. Forbes magazine reports leader of the pack Jeff Bezos of Amazon, whose wealth totaled $18 billion in 2011, is now worth $187 billion and counting.

Bezos’ income, like that of fellow plutocrats Elon Musk ($151 billion), Bill Gates ($124 billion), Mark Zuckerberg ($97 billion), Warren Buffett ($96 billion), et al., is totally sourced in the stock market, whose member corporations have seen their cumulative taxes steadily reduced for over a half-century — from 6% of GDP in 1950 to less than 1% today. According to the Congressional Budget Office, US corporations paid 22% of federal taxes even as recently as 1969; they paid just 8% in 2019. And in 2020, the Institute on Taxation and Economic Policy reports, at least 55 of the biggest firms paid nothing whatever in federal income taxes.

Generally speaking, wage income is taxed in modern America, but investment income is not. Put another way, labor pays to support the capitalist system, but capital does not. To be unimaginatively wealthy in the US is in a very real sense to be exempt from taxation. The connection between individual wealth and stock ownership that enables this situation cannot be overemphasized. An analysis earlier this year by the New York Times is illustrative: The richest 10% of Americans now own 92% of all directly held stock, the richest 1% own 51%, and the poorest 50% own none at all.

The news organization ProPublica recently revealed how the no-tax game is played by publishing confidential IRS data on 25 of the nation’s wealthiest tax filers provided by an unknown source. America’s financial elite, it appears, paid comparatively little in federal income taxes from 2014 to 2018 — $13.6 billion, which amounts to a combined 3.4% on what Forbes tabulated as an increase of $401 billion in their collective net worth.

The beauty of the system for billionaires is that converting most of their growing income to stocks effectively shields it from taxation. One example will suffice. Jeff Bezos added $99 billion to his wealth in 2014-18, but reported only $4.2 billion in taxable income; the rest will remain untaxed until disposed of at a profit. Meanwhile, Bezos can borrow against the value of his holdings, write off lending costs, and support a lavish life style without collecting a taxable salary.

This brings us to the Biden administration’s first tentative moves in the direction of reform. On the surface, they’re an expression of economic populism, but regrettably, they’re predominantly half-loaf measures. The first proposal would raise the top marginal individual income-tax rate from the 37% set by Donald Trump back to 39.6%, where it was under Obama. Elizabeth Warren, who, along with Bernie Sanders, favors a pure wealth tax (a nonstarter inside the Biden White House), doubts raising the marginal rate on the billionaires by 2%, or even 10%, would make any difference to the plutocracy; too little of its accruing money would be classified as taxable.

Next to be considered will be doubling the capital-gains tax for those earning over $1 million annually (0.3% of taxpayers) from 20% to 39.6%. The change seems substantial except for one thing: Capital-gains taxes are paid only when assets (stocks, homes, yachts, etc.) are actually sold; they can be indefinitely avoided simply by holding the assets, hiding them in tax shelters, or passing them on to heirs. Economists Emmanuel Saez and Gabriel Zucman estimated in April that wealthy Americans were sitting on $2.7 trillion in untaxed assets.

The third leg of the Biden tax stool is far and away its most important. It involves changes to the corporate tax structure to reverse what the administration aptly calls an international “race to the bottom” in revenue collections. Here again, however, the Biden plans fit into the half-loaf category.

The first order of business is to bring US corporate-income taxes into better alignment with the rest of the advanced world. In terms of its corporate rate, the US ranked a pathetic 46th among countries in 2020 at 21%, according to the website Trading Economics, a result of Trump’s massive tax giveaway of three years earlier. (It had been 35% under Obama.). The Biden remedy: raise the rate back halfway — to 28%, a classic, difference-splitting Bidenesque compromise.

A 28% rate would at least boost the US to 16th place internationally in nominal taxation of corporate income, but thanks to the 2017 Trumpian tax machinations, it would merely apply to domestically earned income (less than half of annual multinational profits); the rest, held in overseas tax havens, faces assessment at only half the standard corporate rate, or 10.5%. The Biden reform would double the tax on these foreign earnings, collectively called “global intangible low-taxed income” (or GILTI), to 21% — still egregiously low.

Finally, there’s the pièce de résistance: the administration push, led by Secretary Yellen, to encourage the G7 and OECD countries to follow through on a “global minimum tax,” variously pegged at 15% to 21% and owed to home countries on the $6 trillion in annual worldwide profits of the multinationals, no matter where they derive or are booked for tax avoidance. An agreement in principle has been negotiated. The claw back, however inadequate, is underway.

Wayne O’Leary is a writer in Orono, Maine, specializing in political economy. He holds a doctorate in American history and is the author of two prizewinning books.

From The Progressive Populist, August 1, 2021

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