Are We About to Become an Oligarchy?
With more conservative
billionaires set to run the next government, there is more focus on reducing
government waste, especially on projects supported by liberals. Some of that is
certainly justified. Thus far, there is less interest in increasing government
revenue. I think one goal is to increase revenue by eliminating chunks of the
government and firing employees. Republicans are known for tax cuts, but those
tax cuts are often targeted at corporations and any tax cuts for the poor and
middle class are often accompanied by tax cuts to higher-income earners. Elon
Musk wants to rein in the IRS from collecting taxes from wealthy tax evaders.
Bernie Sanders just introduced a bill that would levy a 100% tax on billionaire’s
assets beyond $1 billion. The incoming administration cabinet members (thus
far) have a net worth of $10.7 billion, compared to the Biden administration and
cabinet members' total net worth of $118 million. Thus, the new leaders have a
net worth of 100 times that of the previous administration. That does not include
Elon Musk and Vivek Ramaswamy. If they were added the new leaders would have a
net worth about 3000 times that of the previous administration. The total also
does not include the billionaire just nominated to run NASA and the billionaire
who will act as crypto/AI tsar. Thus, I would argue that it is not an
exaggeration to say that we are about to be ruled by oligarchs. The dictionary definition
of an oligarch is:
“a very rich business leader with a great deal of
political influence (particularly with reference to individuals who benefited
from the privatization of state-run industries after the collapse of the Soviet
Union)”
In the case of Musk as a CEO of multiple companies, he did
not benefit from the privatization of state-run industries, but he benefitted immensely
from government contracts and government subsidies. He also benefited from the politics
of climate change which supports cleaner energy, including electrification of
transport.
Tax Avoidance, Tax Reform, and IRS Enforcement
‘Creative accounting’ has long been
pursued to reduce the tax bills of the wealthy. Poor working people accept that
they have to pay taxes since they are usually taken out of their paychecks at percentages
of their total income that are far higher than wealthy working people. I never
knew that there was a limit to how much Social Security tax one must pay until I
exceeded it in a few years. Since I overpaid my quarterly taxes in those years
it was a pleasant surprise to get an extra 6.2% back on a chunk of my income. In
calculation terms that amounts to a 6.2% tax cut for anyone who makes more than
the max amount compared to those who don’t. Free money is always nice! Of course, that
points to the obvious solution to shoring up Social Security. Unfortunately, misinformed
politicians like Utah Senator Mike Lee, want to totally overhaul Social
Security, instead. Accountants are known for finding loopholes. Often, but not
always, a loophole is something that may be legal but would be deemed unfair by
many. It is the wealthy who pay accountants to do their taxes that can find those
loopholes. Thus, the wealthy are well-known to be the ones who far more often
cheat on their taxes. They have more to lose by going along and more to gain by
cheating or finding legal loopholes. Disdain for the government also encourages
finding workarounds. Once around 2016 I was at a library book sale, and I saw a
book from Trump University. The title was something like ‘How to Avoid Paying
Taxes.’ Thus, we can see that tax avoidance was taught as a class ,and strategizing
about how to avoid or reduce paying taxes is a common concern among wealthy
investors and business leaders. When executives with grotesque amounts of money,
businesses, assets, political influence, etc. are focusing on tax avoidance,
that is hard to wrap one’s head around. While I may have overestimated some of
my business expenses by a couple hundred bucks in some years, I always try to
be honest on my taxes. Now that finding and keeping work has become difficult
and I am poor, I am looking forward to any slim pickings I can get just from
being poor and I am thankful for it. I also realize that for the poor there are
few opportunities to cheat on taxes since your low tax rate, which acknowledges
that buying basic items has become difficult, means that you get to keep more
of your low pay. Few could argue that that is not fair, although some actually do.
Huner Biden pled guilty
to tax fraud, or rather evading about $1.4 million in taxes that happened
during the 2010s decade. His current net worth estimated at $1 million by some
and $10 million by others suggests that he would not have been able to pay the
money back anytime soon. His pardon will save the government money in
conducting planned investigations against Hunter Biden and save we news consumers
from hearing about it. Was it unfair? Possibly, but the ensuing investigations
are hard not to justify as politically motivated, so it also saves Kash Patel
and the Trump administration from being accused of partisan investigations. Now
he can focus on investigating the 2020 election (I wish that was a joke). So,
on behalf of all, thanks, Joe. Of course, Patel won’t have Dinesh D'Souza’s
support as the Trump-pardoned maker of the 2020-election fraud film ‘2000 Mules’
pretty much admitted recently what we all have long known, that the film was
complete bullshit based on fake information. It was featured at Mar A Lago when
it came out. Perhaps if the IRS had been better funded in the past to go after
wealthy tax evaders, it would have caught Hunter Biden’s tax deceptions sooner.
The IRA gave more money to the IRS for this effort, but Congress cut it back.
In the past year, about $1.3 billion was recovered due to this effort, an impressive
amount but behind projections. I wonder what the future of that effort will be
in light of Musk’s quips to defund the agency. Musk has recently said he wants to simplify the tax code to a flat tax with only a few different wealth designations.
“Musk claimed in a post on X (formerly Twitter) that
doing so would “increase productivity” instead of “incentivizing bizarre
tax-avoidance behavior.” Based on things both Trump and Musk have said on
Trump’s campaign trail, likely this would look like a federal flat tax, with
only a couple of tax levels based on income, instead of the current seven tax
brackets currently in place.”
Indeed, that has
long been an argument about taxing the wealthy more, that they will find workarounds
or ways to avoid paying the extra money they will owe. Avoidance and evasion
are closely related. Avoidance can be legally justified but evasion is
considered illegal. I say raise their goddamn taxes and close the loopholes. The
current system, apparently, incentivizes a significant section of the wealthy
to avoid filing taxes altogether, which means they are essentially stealing
from the rest of us, taxpayers. It’s grotesque. Thus, Musk’s suggestion that the
current system incentivizes” bizarre tax-avoidance behavior,” is right
in the sense that it incentivizes people not to file taxes as they are legally
required to do. In other words, they break the law because the consequences of
doing so (a misdemeanor) are not powerful enough to deter them. They are
incentivized to cheat because they can get away with it without consequences. According
to an NBC News article:
“Notices were mailed in February in 125,000 cases
targeting wealthy taxpayers who had not filed tax returns since 2017.”
“These were cases in which the IRS had received
third-party information — such as through Forms W-2 and 1099 — indicating that
these people received income of more than $400,000 but failed to file a tax
return.”
“Some of the individuals who are not filing tax returns
are spectacularly wealthy, according to the data provided to CNBC.”
“Of the roughly 25,000 wealthiest non-filers identified
by the IRS, nearly 2,000 of them likely had more than $5 million in income in
any given tax year for which they did not file a return.”
“In the approximately 10 months since these taxpayers
making $5 million-plus received their warning notices, just 551 of them have
filed returns, according to the data given to the Senate.”
The IRS is
considering making non-filers that bilk the government and we taxpayers out of enough
money subject to felonies:
“Treasury has proposed that the misdemeanor offenses of
certain non-filers should be reclassified as felonies.”
In these cases, the offense would be classified as a
felony, and would be punishable by a term of imprisonment of no more than five
years, a fine of up to $250,000, or $500,000 in the case of a corporation, or
both.
“Non-compliance by high-income taxpayers has a
significant corrosive effect on tax administration and collection,” Treasury
wrote in the proposal to reclassify the offenses.
The department noted that wealthy people who do not pay
their taxes shift the burden of financing the federal government to other
taxpayers.
“Increasing criminal penalties for high-income people who
willfully and repeatedly do not file a tax return would provide a more
effective deterrent to such blatant tax evasion, encourage voluntary compliance
and help close the tax gap,” Treasury wrote.
This all seems
fair and reasonable to me. Why should we allow people to cheat, especially
people who are wealthy? Tax reform and IRS enforcement of these loopholes seems
to be a fairer and much better solution than a flat tax which would also benefit
the wealthy over the poor. According to the DeMar Consulting Group people on
the cusp of a higher tax bracket are disincentivized to work so a flat tax would
do the opposite:
“It can incentivize people to work more if they don’t
feel like they will be penalized by going up a tax bracket and owing more in
taxes, which can promote economic growth. It can sometimes reduce loopholes,
which, depending on who you are, might be a pro or a con. Some people argue
that it is fairer and more equal.”
We have all entered
higher tax brackets unless we are minimum-wage workers. I never considered working
less to avoid a few extra percent of taxes. I think that is a crappy argument for
flat taxes. Simplifying the tax code is one thing but making it fair,
especially to those who need that fairness much more, is another thing and is
far more important. Fairness should come before ease but better to have both.
These issues are
only faced by the wealthy, not those of us making less than say $400,000 per
year, which is a whole lotta money. What’s the point of making things easier
for them? What about all of us who make far less than that? Why would we be
concerned about wealthy people who want to work more? I would also ask why an
unelected billionaire, the richest man in the world, should be given the power
to change our tax code, apparently to benefit him and his fellow big wheels. What’s
next, trillionaires? Don’t laugh. Musk is already a third of the way there. Maybe
he will be too busy firing the government and running his web of government contracting
companies to change how we pay taxes. There has never been a greater conflict
of interest than with people like him, but perhaps Trump’s invincibility in facing
any consequences for his actions has paved the way for other bigwigs to enrich
themselves and their fellow oligarchs without consequence.
Basis Shifting: Writing Off the Same Assets More Than
Once: A Method of Tax Bill Reduction
Apparently, it is
common for large business partnerships to write off the same assets more than
once to reduce their tax bill. According to a Washington Post article:
“Months after saying it expects to collect at least $50
billion over the next decade by stopping large business partnerships from
manipulating the taxable value of assets or depreciating the same assets
repeatedly for tax deductions, the Treasury Department has quietly updated its
forecast to more than $100 billion.”
“The IRS’s pledge to go after the practice known as
“basis shifting” has made waves among accountants for the largest and most
complex business partnerships. Some of them say that the true amount of taxes
avoided far dwarfs even the $100 billion figure, though the IRS is unlikely to
ever find anywhere close to all of the money.”
“Basis shifting allows complex partnership businesses to
shift the value of certain assets, such as land or machinery, by moving assets
from one business to another linked entity. The moves can allow the partnership
to depreciate the same asset over and over again in some cases, greatly
reducing tax bills.”
“Lawyers and accountants for the partnerships say that it
is legal and that Congress could pass a ban if lawmakers want to stop the
practice. Biden administration officials view basis shifting for the sole
purpose of reducing tax bills as illegal, citing a rule known as the “economic
substance doctrine” that says the transactions must have a purpose other than
just avoiding taxes.”
“As a structure for large business interests,
partnerships boomed in the past two decades while IRS oversight of them shrank.
By 2019, the IRS was auditing just 1 in 1,000 partnerships, even as the number
of partnerships with more than $10 million in assets grew into the hundreds of
thousands, a 70 percent increase during the 2010s.”
“Republicans have since tried to claw back the IRS funds
repeatedly and might succeed in their goal once they control both chambers of
Congress next year. But if the Treasury Department’s new $100 billion estimate
proves true, cracking down on basis shifting alone would more than pay for the
entire allocation of extra money for the IRS.”
“Some partnership tax experts said the incoming Trump
administration and congressional Republicans might favor continuing the
enforcement actions against basis shifting or enacting legislation restricting
the practice to raise revenue to fund tax cuts.”
My guess is that
Trump, Musk, and company will put a stop to this and allow the practice to
continue. However, as the article notes, it could help the incoming
administration and Congressional Republicans to help fund the continuation of
the 2017 Trump tax cuts.
“I think it’s inefficient to rely on the
IRS to shut these down case-by-case,” said Miles Johnson, a lawyer formerly in
private practice who now focuses on partnership tax issues at the New York
University Tax Law Center. “You need some sort of rule fix to turn these off.”
“The ongoing audits will keep revealing how
partnerships have avoided taxes for years, Johnson predicted.”
He predicted
that IRS tax revenue will continue to increase as long as the audits increase. I
sincerely doubt that the administration and Republicans, in general, would want
to appear anti-business by either continuing a more aggressive auditing program
or by changing the rules to make the obvious loophole officially illegal. As a
small business owner, I was able to write off some assets but the notion of
writing them off more than once was never a possibility and it shouldn’t be for
larger and much wealthier businesses either, right?
I do think that
the disparities between the wealthy and the poor tend to fracture our society along
class lines. Wealthy and poor people have different concerns and different abilities,
and they develop different perspectives. I went from a basically successful Middle-Class
scientist and businessperson to a lower class due to the loss of clients and my
inability to find a suitable job. As a result, my immediate concerns have
changed, my abilities, especially financial ones have shrunk, and my
perspectives on some issues have changed. Now, I really know what it is like to
be poor again, and frankly, it hurts. Anxiety, a sense of dread, and a sense of
humiliation have to be fended off, but I am doing fine at that. It is just that
such issues had not come up for a long time and I had not had to reckon with
such effects.
References:
Closing
asset loophole can raise $100 billion in taxes, Treasury now says. Julie Weil.
Wahington Post. December 4, 2024. Closing
asset loophole can raise $100 billion in taxes, Treasury now says
Elon
Musk Wants To Simplify the Tax Code: What That Means for Future Tax Refunds. Jordan
Rosenfeld. GoBankingRates. December 6, 2024. Elon
Musk Wants To Simplify the Tax Code: What That Means for Future Tax Refunds
Wealthy
Americans are still ducking the IRS crackdown on non-filers. Eamon Javers, NBC
News. December 6, 2024. Wealthy
Americans are still ducking the IRS crackdown on non-filers
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