Sunday, June 13

A Voluntary Tax – The New York Times

It’s been a back-and-forth struggle over the course of American history: How much tax should the wealthy pay?

In colonial times, parts of the North taxed the rich more than Europe did, with Massachusetts going so far as to enact a wealth tax that covered financial holdings, land, jewelry and more. Southern colonies, by contrast, kept rates low and collection ineffectual, to prevent taxes from undermining slavery by eroding the wealth of slaveholders.

After the country’s founding, the low-tax advocates generally won out — until the 20th century, when soaring inequality, two wars and the Great Depression led Washington to create the world’s most progressive tax system. Then the situation flipped again, and top tax rates have plummeted over the last few decades.

Yesterday, the news organization ProPublica published a scoop, based on the tax returns of thousands of wealthy Americans, including Jeff Bezos, Warren Buffett, Bill Gates, Rupert Murdoch, Elon Musk and Mark Zuckerberg. An anonymous source sent ProPublica the material after the organization had published articles about the I.R.S.’s lax enforcement of taxes on the wealthy. (Here’s ProPublica’s explanation of why it decided to publish the new story, despite privacy concerns.)

Legal tax avoidance by the wealthy has become more widespread over the past half-century for several reasons. For one, inequality has soared, meaning that the rich have more wealth to protect. And tax rates have fallen significantly.

“It’s amazing how much we’ve cut taxes even since 1997 — on dividends, the estate tax threshold, capital gains and the top rate,” Owen Zidar, a Princeton University economist, told me. “All of those things have become more favorable to the top of the distribution.” The decline in the corporate tax rate — effectively a tax reduction for shareholders — has also been important.

You sometimes hear the cynical view that raising taxes on the wealthy is pointless, because they have the resources to evade any taxes the government tries to impose. But history suggests otherwise.

While some tax avoidance is inevitable, the federal government has largely succeeded in raising taxes when it has tried. The very richest Americans paid more than 50 percent of their income in federal taxes during the 1950s and ’60s (and were less successful at shielding their wealth from taxation). Today, that percentage has fallen below 30 percent.

There are three main ways to reverse the decline in tax payments by the wealthy, Gabriel Zucman of the University of California, Berkeley, said. One is a direct tax on wealth, like those proposed by Senators Bernie Sanders and Elizabeth Warren. Two is a tax on unrealized gains — assets that have become more valuable — as Senator Ron Wyden of Oregon has proposed. Three is an increase in corporate taxes, as President Biden favors. There are also more modest ideas, like a larger estate tax.

Societies can choose how much they do or don’t tax their wealthiest people, Zucman said. “For billionaires,” he added, “the federal income tax — the pillar of the U.S. tax system — has become a voluntary tax.”

Michael Linden, Biden administration official: “We already knew that some of the biggest corporations pay no income tax. Now we know that some of the wealthiest people can also get away with paying no income tax. Time for reform.”

Binyamin Appelbaum, New York Times Opinion: “The wealthy are living by a different set of rules, lavishly spending money that isn’t taxed as income.”

Jody Avirgan, podcast host: “There’s already a jaded take emerging around the ProPublica IRS reporting, along the lines of ‘what’s the scandal, this is all stuff that any rich person or financial journalist already knew about.’ But, like, that’s the point!”

Megan McArdle, The Washington Post: “I thought the ProPublica analysis of billionaire taxes was going to be exciting. Instead, it told me things I already knew. … The most exciting thing is wondering who gave them the information, and how long that person will spend in jail when they’re caught, as I suspect they will be.” (Federal authorities are investigating the leak.)

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