When people are distracted by who is paying taxes and who isn’t, they miss the part where a crazy tax regime and new recruits aren’t necessary.
July 1, 2019
By: Bobby Casey, Managing Director GWP
I see these articles flying around incredibly angry about how the “uber rich” aren’t paying taxes from the left… I see the right complaining about how immigrants aren’t paying federal taxes… I see rich people actually asking to be taxed more.
Regardless of where you stand, there’s no denying that taxation has become one of the most divisive tools in the US.
It has people and businesses leaving the US entirely. Taxes have politicians building careers off that divide.
What I often tell those who are looking to get more people to pay more taxes is: misery loves company. Taxes are a miserable thing. While no one wants to pay taxes themselves, they don’t hate it enough to end taxation wholesale.
With a nearly $800 billion deficit in 2018 and a $4.7 trillion budget for 2019, I assure you, the problem with the US is absolutely NOT revenue. However, I don’t want to ignore these concerns; rather I want you to know why they aren’t actually anything to be concerned about!
“The Uber Rich Aren’t Paying Their Fair Share”
First of all, it cannot be overstated that the top 10% of earners pay 60% of the federal tax revenues. 44.4% will have paid no federal income taxes at all. Those two facts alone rule out any discussions about “fairness”.
Second, there has been some discord regarding the fact that companies like Amazon paid 0% in federal income taxes. While that’s true, Amazon has a heavy reinvestment initiative which deliberately has them operating at a loss every quarter.
That was always the stated purpose of higher taxes coupled with write-offs: that these companies would in fact reinvest in their businesses.
Not paying federal taxes really isn’t anything that affects the common man. Amazon paid quite a bit in state, local, and international taxes, which is far more significant.
While Amazon paid no federal income tax, it did pay over a half billion dollars in payroll taxes, and over a billion dollars in local, state and international taxes.
“Immigrants Don’t Pay Taxes”
Like Amazon, they absolutely pay local taxes. There’s no way to buy something without paying sales tax. And there’s no way to rent without the property taxes being built into the rent. So they are paying taxes.
If they are paying federally, they might be doing so under a stolen identity.
More importantly though, why are they looking to recruit more taxpayers? Each American looks for every deduction they can take to get away from taxes. They even uproot and move states to pay less in taxes. But they begrudge a group of people for not paying taxes?
This is like people complaining that churches don’t pay taxes. If taxes suck so much, why do they want to add to the roster? It won’t bring down their tax obligation to have more taxpayers.
“Millionaires Say ‘Tax Us More!'”
If you’re one of the multi billionaires in the US, and you’re asking to be taxed more, it’s because you know your money is actually quite safe from being taxed.
It’s kinda my job to know these things. The entire premise of the US tax and welfare systems is to LOOK poor on paper… not actually BE poor.
Rob Undersander is a millionaire who was shockingly eligible for food stamps and awarded $6,000 in benefits in 19 months, which he donated to charity. But because the means testing didn’t include any checks into his assets, and only looked at his income, he was indisputably eligible.
If these “uber rich” really wanted to pay more in taxes, there’s nothing stopping them from doing so. You can pay more
But as Bernie Sanders pointed out: he pays what he owes. His rhetoric suggests people like him should pay more; his actions suggest he needs to be compelled by law because his conscience is too weak.
Reality Check
I covered how the IRS is basically shrinking which has lead to a reduction in their bandwidth. On average US persons are paying 82% of what’s actually owed. That puts the IRS behind by several hundred billion dollars.
That’s not just immigrants and the uber rich. It’s businesses that never file as well. Wherever these people fall on the tax evasion or avoidance continuum, the fact remains that the IRS brings in about $3.5 trillion in revenues. That Congress can’t make that work means the US has a spending problem. Not a revenue problem.
In that same blog, I point out that more tax receipts came in 2018 which resulted in higher federal revenues despite the shrinking and inept IRS and despite the major drop in corporate revenues.
This speaks volumes.
First it highlights that people whining about who doesn’t pay taxes really aren’t concerned about revenue or spending. They only care that everyone suffer together.
Second, and more functionally, it indicates that you don’t need an elaborate tax scheme, extensive IRS, or high taxes to get higher revenues. Lower taxes lead to increased prosperity, even on the state level:
Overall, the 27 low-tax states saw private-sector job growth of 3.2% in the 18 months following the federal tax cut, with manufacturing payrolls growing 3.0%. The 23 high-tax states grew their private sector employment by 1.6%, half as fast as the least taxed states. Manufacturing jobs grew 1.3% over the 18-month period in the high-tax states.
The US has a small shadow economy that people estimate to be between $1 trillion to $2 trillion. The estimate was higher in the older article which might be a reflection of the economic conditions of that time. I imagine it has shrunk some now that people are finding employment.
But something to consider is: when you look at the chart below, the developed countries with larger shadow economies tend to have higher tax obligations on its people.
Regardless of what you think of Trump, the tax cuts were a good thing. Revenues went up despite the IRS’s shrinking bandwidth, and lower corporate intake. People are productive when the disincentive of taxes are even slightly alleviated.
If people aren’t paying taxes, that’s a good thing. If you’re interested in reducing your tax obligations, those same laws are available to you as they are to anyone else. Let’s set up a time to discuss your goals.
Click here to schedule a consultation or here to become a member of our Insider program where you are eligible for free consultations, deep discounts on corporate and trust services, plus a wealth of information on internationalizing your business, wealth and life.
