Inequality and Taxes

Courtesy of Informed Comment

Written by Sanemi Nair

Ben Franklin said that two things are certain in life: death and taxes. But perhaps this isn’t so true for the rich and powerful in this country. The fact that the sitting president of the United States paid only $750 in taxes in 2017, and 0 in years prior is both shocking and troubling. 

Taxes are, simply put, very complicated. Understanding all the ins and outs of deductions requires one of two things – either an education or experience in a relevant field or the financial means to hire a team who has mastered the absurdly complicated tax laws. 

The key to President Trump’s tax evasion is the manner in which his legal team has structured his businesses. Reuven Avi-Yonah, a professor of Tax Law at the University of Michigan, notes that lawmakers have passed several tax-friendly laws for real-estate tycoons. Trump’s corporations are structured to receive the numerous benefits that come along with the real-estate title. One such benefit is the ability to claim losses from the depreciation of their properties. By structuring his business as a “pass-through” corporation, President Trump has thus been able to deduct interest on all of his loans, likewise artificially reducing taxable income. 

Trump is representative of the tendency among the wealthy to avoid paying taxes, but what about multinational corporations that pay significantly less than what’s expected?

A standard practice for tax-evading companies such as Amazon and GE is to send profits offshore. By setting up bank accounts in other countries, they escape the grasp of the IRS. Switzerland, the Cayman Islands and Singapore have all emerged as popular locations to store offshore accounts for this very reason. So, if you want to avoid paying your taxes, all you have to do is ship your profits into foreign accounts, and you’re good to go.

In all seriousness, the utilization of offshore accounts to evade taxes has reached absurd levels. Don’t take my word for it, take Bernie Sanders’, an avid supporter of tax reform. He says, “Offshore tax haven abuse has become so absurd that one five-story office building in the Cayman Islands is now the ‘home’ to more than 18,000 corporations.”

In addition to offshore accounts, companies like Facebook, Aetna, and ExxonMobil all save money in taxes by giving options to top executives to buy stock in the future at a discounted rate. The companies then deduct the payouts as a loss. For example, Facebook used tax benefits from stock options to decrease their liability by 5.8 billion dollars. 

The discrepancy between the wealthy and the poor isn’t just limited to taxes. It applies to all facets of life. If you have money, it’s likely that you also enjoy a myriad of other advantages. Such discrepancies have always existed, yet in the age of social media and widespread access to information, it is merely more apparent. It’s everywhere in the news. Scandals such as Varsity Blues are demonstrating how being rich is the greatest privilege in this country. 

It can be easy to defend these people. America is a country that prides itself on the ideals of “hard work” and “opportunity”- this isn’t debatable. Perhaps people who don’t pay taxes are simply smarter than the rest of the population. But the correlation between wealth and tax evasion cannot be ignored, raising the question: to get ahead in the American tax system, do you have to be smart enough to understand the tax laws, or simply rich enough to hire people who are?

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