
How Plutocrats Cripple the IRS: You pay more because elites pay less - nkurz
http://prospect.org/article/how-plutocrats-cripple-irs
======
ccvannorman
I find it surprising that so many HN users on this thread are rushing to the
comments to make the point that the rich do, in fact, pay more than "the rest
of us."

Did you not hear about the Panama papers? It should be quite evident that if
you are wealthy enough, you can use creative loopholes to pay very little tax.
It's also very well known that many big corporations use offshore accounts to
pay little/no taxes.

No, I'm not going to cite sources. If you are so living under a rock that you
don't know this is a real problem, a source isn't going to help you -- you're
just going to start arguing about sources instead of the real, actual issue
that should be fucking obvious.

~~~
asdfologist
Exactly. Percentage tax rates don't mean squat when you're hiding all your
income.

~~~
adevine
Percentages also don't mean much when you split "rich" vs "middle-class" based
on some arbitrary top x% of income. The real difference in the US is between
the landed gentry (people who live off their investments) and people who are
paid for their labor. That is where many people (like Warren Buffet) see a
fundamental unfairness, especially in cases where people who are paid for
their labor manage to get it taxed at investment income levels (e.g. carried
interest).

------
rayiner
You don't pay more. There is an important fact that rarely gets mentioned in
the taxation debate (by either side): the U.S. tax system is much more
progressive than in similar developed countries:
[https://www.washingtonpost.com/news/wonk/wp/2013/04/05/ameri...](https://www.washingtonpost.com/news/wonk/wp/2013/04/05/americas-
taxes-are-the-most-progressive-in-the-world-its-government-is-among-the-
least). The top 10% in the U.S. carry much more of the tax burden relative to
their share of the income (33.5% of income, but 45% of taxes). In Germany, for
example, the top 10% earn 29% of income and pay 31% of taxes.

Middle class people in the United States pay _very low_ taxes. I met a young
woman from Germany, who has a typical entry-level desk job at a logistics
company. Her tax bill was about 40%, which is level only high-income people
here in the U.S. would pay. A typical middle class family eligible for the
various deductions pays about 25% in state and federal taxes.

My two cents: A welfare state requires buy in from the population. You can't
have a successful one just taxing the rich heavily to pay for middle class
benefits like college and expensive old-age care. You need to flatten the tax
curve and raise taxes on everyone to pay for services you expect everyone to
use. People need to feel like they are getting something from the system, not
just being forced to fund it.

~~~
lumberjack
I don't agree with you on two accounts:

1\. What Germany does is completely irrelevant to the question of whether or
not the US middle class is paying more because US plutocrats are cleverly
shielding some of their gains from taxation.

2\. If you want welfare state acceptance by all remove means testing and have
it available to all. That's how it's done in Europe. Often times the public
service is superior to anything the private sector can offer so even the rich
support it.

~~~
chimeracoder
> US plutocrats are cleverly shielding some of their gains from taxation

But even _after_ that, they still end up paying a greater proportion of taxes
collected than in other countries. That is rayiner's point.

~~~
alexqgb
Which only goes to show that the rich in America are far richer than their
counterparts in other well-developed countries. In terms of inequality,
American ratios are closer to those found in straight-up kleptocracies. When
people talk about the bananafication of the republic, this is what they mean.

------
lkrubner
Relevant:

"Chutzpah, according to the traditional definition, is when you murder your
mother and father, then plead for mercy from the court on the grounds that
you’re an orphan.Something like that is now happening in the tax debate."

[http://krugman.blogs.nytimes.com/2011/05/07/federal-tax-
chut...](http://krugman.blogs.nytimes.com/2011/05/07/federal-tax-chutzpah/)

Since 1962, and especially since 1982, the USA tax system has relentlessly
reduced the taxes that the rich have to pay. The point is, if you change the
tax system, so that all the money goes to the rich, then even with the lower
taxes, the rich will end up paying a lot of what taxes are collected, because
they have all the money. And that is basically what is happened. But now the
rich like to claim "Hey, we are paying 70% of all the taxes!" But of course,
their share of all wealth has expanded dramatically, so even with lower taxes,
they still end up paying quite a bit.

But of course, all of these taxes are voluntary. They could voluntarily give
up their wealth, and donate all of it to charity, and then they would be poor,
and they would not have to pay taxes. That they choose not to do this suggests
that they mind the taxes less than they would mind being poor.

~~~
yummyfajitas
In reality, the US rich pay a higher proportion of taxes _relative to income
earned_ than any other OECD country.

[http://taxfoundation.org/blog/no-country-leans-upper-
income-...](http://taxfoundation.org/blog/no-country-leans-upper-income-
households-much-us)

It's true that poorer folks in the US are unproductive and contribute very
little to society via market mechanisms (most don't even work). They are in
fact a net drain after accounting for taxes and transfers.

I fail to see how the rich continuing to be productive and paying far more
than their fair share is "chutzpah".

~~~
plandis
I'm not the most well versed but it doesn't look like that says anything about
"income" that is derived from capital gains. For instance Warren Buffet has
remarked that his effective tax rate is actually around 17.4%.

~~~
yummyfajitas
Capital gains is personal income. So yes, it almost certainly does.

Additionally, that figure (much like Warren Buffer) understates what the rich
pay - first the corporation they own pays taxes, then they pay taxes again
when the profit is distributed to shareholders.

It's a misrepresentation equivalent to claiming that middle class folks don't
pay the employer portion of payroll taxes.

------
ef4
"You pay more taxes because somebody else pays less" is fundamentally
misleading. If the government had to balance its income and expenses, then
yes, one person paying less taxes would imply somebody else had to pay more
taxes.

But that is not how it works. Not for a government that can borrow at
practically zero cost.

The reality is that when somebody else doesn't pay their taxes, it has no
bearing on how much you pay. It just causes the treasury to issue
incrementally more bonds.

This may seem like a minor point, but it's important in understanding what
taxes are really for in a country that issues its own reserve currency: they
support the value of the currency by ensuring everybody needs to use it to pay
their taxes.

~~~
sgift
> But that is not how it works. Not for a government that can borrow at
> practically zero cost.

"practically" zero cost is far different from "zero cost". If someone pays
less taxes and the government has to issue bonds someone has to buy the bonds,
so the government can get money. And who buys the bonds? Those people who have
money. Who are those people? Probably those who didn't pay much tax, so they
still have much money. And no one buys bonds if he doesn't get something out
of it. Even low interests ("practically" zero) are far more than no interest.

~~~
GunboatDiplomat
Unless the interest on the bonds is lower than inflation.

------
blue_dinner
"Plutocrats, the richest 0.1 percent of Americans, get the most benefit from a
weakened IRS. Because they have the money, the lawyers, the lobbyists, the
accountants, and the secret campaign funds, they are able to ensure that the
IRS won’t have the resources to effectively collect the money they owe to it.
"

Since when is generalizing an entire group acceptable?

Also,

How do you explain this?

[http://money.cnn.com/2013/03/12/news/economy/rich-
taxes/](http://money.cnn.com/2013/03/12/news/economy/rich-taxes/)

In 2013:

top 10% paid over 70% of total federal taxes 47% of all Americans pretty much
paid nothing in terms of federal taxes

This also doesn't include the multitude of other taxes the rich pay (property
taxes, use taxes, gas tax) and the fact that they employ many people that also
pay taxes into the system (indirectly paying more into the system).

There are definitely some people using off-shore accounts, but it's not nearly
as bleak as this article would like us to believe.

The US also has one of the highest corporate tax rate in the world.

If people are taking the risk and leaving the country with their money, we may
need to take a look at our existing tax laws and figure out why they are
taking the risk.

~~~
anoonmoose
>> How do you explain this?

How do I explain the top 10% paying over 70% of total federal taxes?

I would wager a guess it has something to do with them having about 70% of the
total wealth of the country.

[https://en.wikipedia.org/wiki/Wealth_inequality_in_the_Unite...](https://en.wikipedia.org/wiki/Wealth_inequality_in_the_United_States)

~~~
srj
You're assuming a large overlap between top 10% income and top 10% wealth. I'm
not able to find great data on this, with most sources just focusing on one or
the other. It seems to me though that many of the wealthiest individuals,
including those drawing down retirement savings, probably have low W2 income.

~~~
marrington
This discrepancy, and people's unwillingness to intellectually engage with it,
is what allows the extremely wealthy to be just fine with society demonizing
high income people. Once you have stored wealth, you don't care any more
because there is no wealth tax (other than property tax and inflation). Taxing
high income people into oblivion is what allows the very rich to keep their
club small.

------
KKKKkkkk1
Here's a counterpoint: How I get harassed by the IRS because Americans hate
rich people.

I'm earning a below-average Bay Area income, but as foreigner I have a bank
account and an IRA abroad, so I get to file a 30-page paper return that costs
> $1K to prepare, in which I pay taxes on foreign income I did not actually
earn, and get audited every year. So remember that every $1 spent on the IRS
also generates an $X amount in time and money wasted for taxpayers.

~~~
ptaipale
For me this is a major deterrent for considering to work in the US. What I
hear about NSA surveillance does not bother me that much. What I hear about
IRS makes me want to stay away.

~~~
kmonsen
I am a European citizen living in the Bay Area and although I like to whine
about it, paying taxes is not a big deal.

It is also getting simpler as I now have almost only US assets. I used to have
some stocks vested that was awarded when I worked for the same company in the
UK. The tax authorities of the two countries decided to split my earnings
leaving me with more or less nothing.

Another thing most people say is that US tax gives a lot less back even though
we pay about the same as in Europe. This is true, but to some degree this is
instead given to you by your employer (like health care).

~~~
ptaipale
Yes, but that getting simpler then means having to get rid of property, bank
accounts etc outside of US. Things like the puny family estate which I hold
dear - high emotional but little financial value, yet large bureaucracy
burden.

------
zaroth
As first impressions go, the first sentence of OP is pretty bizarre; "For
every dollar appropriated to the IRS the public collects more than $4 in
taxes."

Missing a couple zeros there? The IRS annual budget is $11.2B and total
federal revenue is about $7 trillion.... As far as meaningless stats go that's
a factor of 625x, not 4x.

Talk about blowing any credibility from the start!

~~~
danieltillett
I think they missed the word extra after every.

~~~
zaroth
Now that would be an interesting stat... So they collect $7 trillion a year,
but to collect 1% more ($70B) we would have to pay them 1/4th of that, or
$17.5B -- an additional 150% of their current budget.

Hardly seems worth it, aside from the satisfaction of holding all those tax
cheats feet to the fire.

~~~
danieltillett
Well I guess it all comes down to how you feel about tax cheats.

Given the current state of US tax law it would be a far better to simplify the
rules and thus making it easier for the IRS to do its job within its current
budget. Everyone recognises this, but given the political constraints it
appears to be impossible to do.

------
aetherson
So, while I'm sure that the very wealthy ("plutocrats"? Really?) include some
people who actively work to defraud the government, I don't think it's mostly
that.

Here's the fact: If you have a net worth north of say $20 million, you're
going to hire an accountant to do your taxes. Not, like, an H&R Block come
down with a box of your documents accountant, a real accountant. That
accountant's _job_ is to interact with an incredibly arcane tax code that
includes a lot of special cases and exceptions, and come up with the lowest
tax burden possible for you. Legally.

Even if you don't super care to shave another 5% off your taxes, your
accountant will probably do it for you without your asking. How else would it
work? Would an accountant say, "Come use me! I'll increase your tax burden!"?
If at the end of the process you feel like giving away more of your wealth,
then you can always choose to do that.

------
tmptmp
I want to point out another angle to this issue.

The US tax system may be okayish but renting system is way too much flawed and
is giving undue advantage to the dirty-rich few (read the top 0.1%). There
should be some law (e.g. ceiling on land holding act) to restrict the
ownership of real estate. Some low enough ceiling on land should be there so
that no one be in a position to keep on gaining ever increasing rent revenue
and thus keep on putting huge burden on the rest of the society. The tax laws
should be accompanied by laws that put hard limits on ownership of real
estate.

Else the dirty-rich will soon "own" this entire nation for all "practical" and
"important" purposes.

~~~
dbcurtis
Please present your data on rates of home ownership in the US compared to
other industrialized nations. Also, what do you think should be done to
encourage home ownership beyond the current scheme of making mortgage interest
deductable for primary residences?

~~~
tmptmp
Why compare with other nations? Don't you think the USA should show some
leadership here?

>>Also, what do you think should be done to encourage home ownership beyond
the current scheme of making mortgage interest deductable for primary
residences?

This is a good question. First and foremost, make houses affordable. For this
to happen in any meaningful manner, the excess houses/spaces owned by
people/companies should be freed from their clutches. Another point is the
development across the nation must be more evenly distributed across the
entire nation as the population grows, this will help lessen the burden on
certain areas.

Also, home ownership rate in itself doesn't speak much, what is more
significant is how large (i.e. how many tens, hundreds or even thousands of
houses) living space is owned by how many individuals/companies and what is
the rent-income of these people/companies?

This will show that the rent seeking is already rampant in USA. See this news
"The affordable units will range for $950 to $1,492 (£615 to £966), and
market-rate units will start at $2,000 (£1,294). Monadnock Development is
backing the project." [1].

Why these people (like the Monadnock) should be allowed to own such excessive
pieces of land, which they are not using for living themselves or not using
for any manufacturing activity?

No one (individual or company) should be allowed to own multiple houses or
even "too big" houses/spaces for living/renting.

The dirty-rich owning even the supposedly "public" space is also already
happening. See the news about Vinod Khosla [2]. Or see this news about Mark
Zukerberg [3].

I understand there are various issues here (e.g. cartels building hotels, in
the name of hospitality industry, and using that space to achieve some sort of
rent-seeking and/or seeking some sort of leverage through excessive land
ownership). But these issues can be tackled through good legislation and
enforcement, without harming the interests of the large populations.

[1] [http://www.dezeen.com/2015/10/21/narchitects-my-micro-ny-
mod...](http://www.dezeen.com/2015/10/21/narchitects-my-micro-ny-modular-
residential-tower-affordable-housing-new-york-usa-adapt-nyc/)

[2] [http://www.theguardian.com/us-news/2016/feb/23/vinod-
khosla-...](http://www.theguardian.com/us-news/2016/feb/23/vinod-khosla-
martins-beach-silicon-valley-billionaire-public-access-beach)

[3] [http://www.mercurynews.com/business/ci_24285169/mark-
zuckerb...](http://www.mercurynews.com/business/ci_24285169/mark-zuckerberg-
buys-four-houses-near-his-palo-alto-home)

------
lavamantis
Discussions like these, among many clearly intelligent people, can sometimes
get lost in the weeds. What's missing is a basic contextual foundation,
without which all the wonky details in world are nearly meaningless. Why
discuss AMT, Germany, and tax loopholes without first agreeing on inequality.

Most would agree that in a capitalist system there MUST be some inequality to
provide incentive; extreme inequality is unsustainable; an economy (and
society) is at it's best when inequality is low; and progressive earnings
taxation is in fact the only proven and viable solution to address extreme
inequality.

I rarely see this foundation laid here or in "the media". We can bitch and
moan about the 0.1%ers and the tax code they've written for us, and it's
certainly entertaining. But let's try to agree generally on where we want to
go before discussing how to get there and who's going to drive.

------
simonebrunozzi
In this article, I like that they talk about the plutocrats being the "0.1%"
instead of the more common "1%".

The 1% is NOT plutocrats; they are lawyers, doctors, engineers, that pay high
sums in taxes.

The 0.1%, instead, starts to become really "interesting". Glad that they used
the right percentage amount.

------
mikekij
I was very disappointed to see no mention of the fact that the US is one of
the only developed nations that taxes companies' offshore profits. The
trillions in profits held offshore by American companies is an unintended
consequence of an overly complex tax system.

~~~
SomewhatLikely
The article does point out how easy is it is make profits appear as though
they were earned offshore however.

------
jbpetersen
Anyone else think we'll see "tax havens for the masses" become a thing in the
next several years?

