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Compouding loopholes

Rob Drilea
Rob Drilea
3 min read
Compouding loopholes

ProPublica published this morning a damning report on how the wealthy avoid income tax, revealing new data from a trove of "never-before-seen records." All to resounding silence.

We know. We don't give a damn.

Taken together, it demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.

The thing is - it doesn't demolish anything. Net-net, the richest Americans still pay a whole lot more in tax than you do, right? (Imagination loophole flag: right, Bezos did pay a billion dollars in taxes, even though his true tax rate is below 1%.)

When confronted, most of those who respond will say they pay what they owe. (Unless you're Elon Musk, who "responded to an initial query with a lone punctuation mark: “?”)

They're probably not lying - it may look like they've been nefariously avoiding responsibility, but they're doing it by the book. We can't expect the likes of Bezos, Bloomberg and Buffett to pay any more than they have to.

On the one hand, it's natural to look at the winners of this astronomically unequal system for the source of evil. We're throwing them under the rhetorical bus for "not paying their fair share."

But they are paying their legal share. And how can we expect them, or anyone, to give to the tax man any more than they really need to?

The fact that they pay much less than we expect them to have to isn't on them - it's on the system. So we're not taking about a moral failure of the rich, we're talking about a legislative failure. (It's a complicated point to make, because you can't avoid blaming the player for the game, when the player sets or swings the rules of the game.)

But if we agree that it's a legislative failure, we have to take part of the blame on ourselves.

Why do we, then, continue to vote against our best interests?

Because we've made the tax man the common enemy, the villain everybody hates. Nobody wants to give up anything they don't have to. When you're a teenager who gets their first paycheck, your napkin math makes you expect to earn this much. But you look at that paycheck and realize - wait, they take away THIS much?

Over the years, the disdain for the tax man compounds, even as we learn about ways to minimize our burden. So every time someone proposes raising taxes on the wealthy, we defend them, we protect them, because they say "the man won't only raise MY taxes, he'll raise YOURS too."

Which isn't (always) false, but it's (often) a loophole of the imagination. Wealth taxes wouldn't affect most of us in practice, but a tax sounds like a tax so we fearfully suspend rationality.

Here's what's true. The same tax system applies to everyone. So, if you don't know how, or are not taking advantage of the deductions in the book, it's on you - you're the sucker. (There's another imagination loophole: sure, the same rules apply to everyone. But do you have the time, or money, to understand all of the rules and learn whether they apply to you or not?)

Here's what's also true. The American tax code is filled with specific deductions that apply to some, but not others. The more you have, the more you qualify for deductions.

The ultra-wealthy not only have armies of tax wizards to master the code for them, they can also compound the benefits of deductions, in ways that you can't. They invest in tax avoidance mechanisms because they're legal, because they can, and ultimately, because you have to spend money to save money.

What compounds for you and I are the rhetorical curveballs and loopholes of the imagination that get us to internalize the fear of the tax man.

This, to me, is the only "reveal" from the ProPublica article.

Our analysis of tax data for the 25 richest Americans quantifies just how unfair the system has become. By the end of 2018, the 25 were worth $1.1 trillion.

For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth.

The personal federal tax bill for the top 25 in 2018: $1.9 billion.
The bill for the wage earners: $143 billion.

The ultra-wealthy also have armies of minions who design, perpetuate, and amplify the imagination loopholes that enable us to defend them.

And, in more than one way, we're footing the bill.

Rob Drilea

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