Nel's New Day

June 14, 2021

GOP Helps the Wealthy Become Wealthier

Earlier this month, ProPublica broke a story about how little the wealthiest people in the U.S. pay in taxes. All but the conservatives were outraged at the inequity; conservatives are angry only about the IRS leak. The report used tax filings from the nation’s 25 richest people, including Jeff Bezos, Mark Zuckerberg, Elon Musk, and Warren Buffett. The $13.6 billion the 25 people paid in five years for taxes was compared to the growth of their wealth during the same time, called their “true tax rate.” At 3.4 percent, the percentage of the wealth growth they paid in taxes was far under the 14 percent in federal taxes paid by the median household annually earning about $70,000.

According to the tax code, people pay taxes only on income and the sale of assets such as stocks. Growing wealth isn’t taxed until assets are sold. Instead of taking salaries or selling stock, the wealthy avoid taxes by taking out loans. A 1920 Supreme Court ruling explained how the wealthy can pass along assets to a person or nonprofit foundations where the leaders can benefit from the untaxed wealth.  

About $2.7 trillion owned by wealthy people in the U.S. isn’t being taxed. The $1.1 trillion owned by the 25 billionaires equals the annual pay of 14.3 million U.S. wage earners who annually pay $143 billion on these salaries, compared to the $1.9 billion the wealthy pay in taxes. These wealthy, like Deposed Donald Trump (DDT), sometimes pay zero taxes. A multibillionaire in 2007, Amazon CEO Bezos paid no taxes that year and again in 2011 when he also received a tax credit for his children. In 2018, Tesla founder Musk, the second richest person in the world, paid no federal income taxes. Other wealthy people who paid no income tax in recent years include Michael Bloomberg, Carl Icahn, and George Soros.

Conservatives want the poor to “pay their fair share” but say nothing about the wealthy. Buffett has long called for higher income tax rates for the wealthy: he paid $23.7 million tax on his $24.3 billion increase in wealth from 2014 and 2018—0.1 percent. During the same five years, the net worth of the media household averaged an increase in net worth of $65,000, mostly from the increase of their home values, but their tax bills averaged $62,000. In 2018, the 25 billionaires reported a combined $158 million to the IRS in wages, 1.1 percent of their total incomes for the year. 

Many of the wealthy use their money to oppose legislation for non-wealthy rights. Without knowing specifics about the infrastructure bill, Charles Koch’s Americans for Prosperity (AFP) founded a multi-million dollar grassroots campaign to fight the proposed law that would create thousands of jobs. The money targets 27 U.S. House Democrats in swing districts and use social media advertising, phone calls, direct mail, and rallies in over 100 cities to denounce the plan in 38 states. The same people who use the deficit to reject the plan paid $20 million lobbying for their 2017 tax giving them billions of additional wealth. The nonprofit claims that only one-third of the people support the infrastructure plan although 71 percent of respondents want to raise taxes on corporations and the wealthy.

Oil and gas companies on the government dole benefited from subsidies, tax cuts, and government COVID assistance. CEOs of Devon Energy, ExxonMobile, and EOG Resources refused to testify at a House hearing about the industry’s subsidies, as did the president and head of government affairs of industry trade group Western Energy Alliance. The 12.5 percent royalty fee, paid for onshore leases, hasn’t increased in 100 years although the government charges 18.75 percent to offshore drillers. Fees are used for public programs, such as education, by state, local, and tribal governments. The Interior Department’s Bureau of Ocean Energy Management (BOEM) has cost the government billions of dollars by reducing or waiving offshore fees. BOEM also retroactively lowered valuations of seafloor tracts to drop bids below fair market value.

States also lost money by giving subsidies, $1 billion in the case of ExxonMobil since 1983 with almost half that sum from Texas, the company’s headquarters. Devon got $89 million in state subsidies since 2009 and EOG Resources $8.8 since 2013. The oil and gas sector also received $774 million in forgivable Paycheck Protection Program loans because of COVID. As of December 31, the Federal Reserve loaned dozens of fossil fuel companies $2.2 billion, accounting for 13 percent of the Fed’s Main Street Lending Program. Renewable energy companies received only one percent of the program’s loans. The Fed also bought $400 million worth of corporate bonds in at least 36 companies. Because of the March 2020 COVID relief bill, at least 79 oil companies, service firms, and contractors claimed almost $8 billion in tax refunds. And that’s on top of DDT’s gift of $25 billion for 17 oil and gas companies in the 2017 tax bill, $5.9 billion going to ExxonMobil. 

Another loophole in the 2017 tax law gave the oil industry $84 billion over a decade by requiring taxes from 10.5 percent to no taxes on foreign profits, encouraging offshoring of factories and jobs. The extraction exemption also allows companies to bring profits back to the U.S. without paying taxes. In addition, Congress exempted securities transactions from requirements to preserve jobs and limit dividends, leaving no restrictions on the Fed’s bond purchases. Oil and gas companies fired workers, raised executives’ salaries, and paid huge dividends to stockholders. Devon, with a $220 million tax benefit from the COVID relief bill, laid off 400 workers, 22 percent of its workforce. Its dividends increased 40 percent over 2019. Another 85 percent of oil and gas companies receiving over $100 million from the tax loophole followed suit. Twelve of the companies pay CEOs over 100 times the median salary of workers while eliminating jobs.

The American Legislative Exchange Council (ALEC), a group of global corporations and state politicians secretly gathering to create state “model” bills increasing their profits, also pushes bills to enrich the wealthy. ALEC has ranked Utah, a state with one of the worst gender pay gaps, as having the best economic outlook for the year. “Best” means low income taxes, estate taxes, and minimum wages with anti-union policies. The other three top states—Florida, Oklahoma, and Wyoming—have some of the nation’s highest gender pay gaps, poverty rates, and/or percentage of residents without health insurance.

Stephen Moore, one of the report’s authors, identified the biggest economic problem in the U.S. is declining male earnings. Women in Utah make 30 percent less than men do. The poverty rate in Oklahoma is 15 percent, and the state ranks 47th in food insecurity. ALEC listed the state as having the third best economic outlook. DDT had nominated Moore to the Federal Reserve Board, but he removed his name because the public learned his history of disparaging women in sports and the workplace.

Unconcerned about the high inequity in paying taxes, Senate Finance Committee ranking member Michael D. Crapo (R-ID) focused on investigating the leak of the tax returns, concerned that Biden’s proposal reporting more taxpayer financial information to the IRS by banks would compromise privacy.

IRS Commissioner Charles Rettig confirmed an investigation into the possibility that the revealed investigation came from the IRS. He added that having financial account information readily available could reduce and shorten audits. The process “would lessen the burden on some taxpayers by having us not audit certain taxpayers,” Rettig said. He also pointed out that the IRS has been “very successful” in protecting taxpayer data with numerous oversight systems.

The committee’s chair, Ron Wyden (D-OR), called on the IRS to investigate the disclosure but addressed the need for legislative requiring the wealthiest billionaires to pay their “fair share.” He was not specific about the legislation, but his 32-page report almost two years ago proposed taxing wealth like income for those above certain income and asset levels. It also would require taxes to be annually paid on gains from tradable assets such as stocks.

Biden’s proposed changes for the IRS includes an $80 million increase in its budget, now smaller than a decade ago with 21,000 fewer employees—a loss of 35 percent. Audit rates for millionaires dropped over 70 percent in that decade, and audits of large corporations went from almost 100 percent to under 50 percent. The agency has fewer auditors than at any time since World War II while its responsibilities have expanded into administering the Affordable Care Act and distributing stimulus checks. Biden also proposes third-party reporting and information from financial services providers for greater accuracy, increasing compliance rates to above 95 percent instead of below 50 percent. Tax compliance initiatives could raise $700 billion in over a decade although experts think the amount could be twice as much, $1.4 trillion.

The IRS projected a tax gap of $441 billion a year but said it could be over $1 trillion. Treasury Secretary Janet Yellen put the amount at over $700 billion a year if everyone paid their assigned taxes. Researchers found that the top one percent of people fail to report about one-fourth of their income to the IRS and almost twice as high for the top 0.1 percent.

Biden’s proposed investment in the IRS could bring a huge profit. Republicans who worry about leaks really want only to increase assets for the wealthy.

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