High-income tax avoidance far larger than thought, new paper estimates

https://www.wsj.com/articles/high-income-tax-avoidance-far-larger-than-thought-new-paper-estimates-11616364001

by tysone • 5 years ago

84 130 5 years ago

maxrev17• 5 years ago

Sadly this is unsurprising. Those who could help the most, doing the least.

smabie2• 5 years ago

But they're not paying the least, they are paying the most (of course, not as much as they are legally obligated to pay).

Moreover correctly paying your taxes starts to get really difficult the more and more money you make: income starts to come from many different sources and figuring it all out is super difficult.

If we drastically simplified the tax code, I think the IRS would collect more taxes, people would pay more taxes, and high earners could easily calculate their tax burden without hiring very expensive professionals. This would unequivocally be a net win, though entrenched interests would never allow it to happen.

patmorgan232• 5 years ago

People in the top 1% don't have an issue paying a CPA to make sure their taxes are correct. That being said the tax code and filling process is made purposely obtuse due to lobbying for tax prep companies.

NoSorryCannot2• 5 years ago

A simpler tax code would likely make for fewer unintended loopholes so revenue may very well go up but I don't find "oopsie" to be a remotely plausible explanation for this state of affairs.

The wealthy have wealth managers who know exactly what they are doing.

teclordphrack2• 5 years ago

So you are really trying to portray that top earners don't pay their fair share because "figuring it all out is super difficult"?

You are being disingenuous and a distraction from the actual conversation.

donovanian• 5 years ago

those who could help the most

Wouldn't complete confiscation of the wealth of billionaires finance something like Medicare for All for around 3 years?

I don't think people understand how utopian and ultimately ill-conceived their plans are.

missedthecue4• 5 years ago

The total wealth of all American billionaires is $4 trillion, the same amount Bernie Sanders estimates M4A would cost on an annual basis.

So if you took all those assets, somehow found $4 trillion of buyers (lots of Chinese, Russians, and Saudis would line up, I'm sure) we'd get 1 year, not 3.

jl27182• 5 years ago

How much extra did you pay?

eucryphia• 5 years ago

High marginal tax rates redistributes people, not money.

barbazoo• 5 years ago

Do you have a source for that?

jmpman• 5 years ago

A 99% estate tax on money over $10M, and revocation of any visas on any heirs who attempt to avoid them.

missedthecue4• 5 years ago

Easy. Put your estate into a terminally settled, non-transferable, future-callable, sale-leaseback with a partial-repo feature, with a European or Japanese bank.

Impossible to tax (aside from the income stream), no downside except for some additional tax headaches. But I assume a few tax headaches are worth it in order to keep billions of dollars in your family.

goddess33• 5 years ago

Easy. Put your estate into a terminally settled, non-transferable, future-callable, sale-leaseback with a partial-repo feature, with a European or Japanese bank.

is this word salad or legit? If so, any resources to learn this?

emptysongglass• 5 years ago

Where can one learn this black magic?

commandlinefan2• 5 years ago

That was my thought - if America won't let you keep your money, Luxembourg surely will.

cheph4• 5 years ago

Why should you be punished if you do something entirely legal? Can't we rather just close the legal avenues that allow people to avoid them? Why keep it legal? What do you gain by having these loopholes?

viggity• 5 years ago

Implementing an exit visa process. That sounds like a completely healthy thing for a free society to enact. Not.

DC13504• 5 years ago

Good. High income people get almost nothing for the amount that they have to pay. Some day we’ll have flat fee city states for remote workers who will only have to pay for what they use. How can you justify taking so much when a person’s customers, education, employer, etc. are all located outside of the region that they live in? What is so special about the people living nearby that makes them deserving of another guy’s money even if their lives are entirely independent? It makes no sense...

patmorgan232• 5 years ago

Because their lives aren't independent. They're all connected through the economy and social interactions. Would Jeff bezos be worth as much if millions of people didn't throw money at his company and he didn't squeeze as much productivity out of his employees whole paying most of them as little as possible? Probably not.

neolog3• 5 years ago

High income people get almost nothing ...

They get high incomes.

ageek123• 5 years ago

I think they meant get from the government (unless you believe in an extreme collectivist view of the economy and think all wealth fundamentally belongs to the government, not the person who received it through voluntary transactions with other people).

ramphastidae• 5 years ago

They get a functioning, stable society which continues to build them wealth in return.

DC13504• 5 years ago

commandlinefan2• 5 years ago

But by definition, they've been getting that for what they're paying already, so the avoidance isn't hurting anything.

coldtea2• 5 years ago

High income people get almost nothing for the amount that they have to pay.

The whole environment that made it possible for them to have a high income and keep, from instracture to law, and from defense to consumer markets, has been paid almost entirely by others.

eyelidlessness5• 5 years ago

Here's a thought: paying to live in a functioning society where people less privileged than us don't die destitute serving us... might mean they don't have to guillotine us to survive when it comes to that. Just, you know, keep it in perspective if you don't have a moral compass about what you "get" living in a society where other people besides you are safe and healthy.

DC13504• 5 years ago

Almost everyone in the world who provides anything for us already lives in terrible conditions and makes a few dollars a day. The people nearby are even less deserving since they’re so much less cost efficient to help.

jl27182• 5 years ago

I don’t need nor want servants.

EdwardDiego2• 5 years ago

Social security by and large is intended to keep society secure against desperately poor people.

nybble415• 5 years ago

That is a half-decent practical argument for those with means to donate to charity, though it presumes that the "less privileged" are inherently irrational. Guillotining the rich (or just taking their money and turning them out on the street) isn't likely to do much at all to aid their survival. Barring some regrettable but ultimately trivial examples of conspicuous consumption, the mostly-paper wealth of the rich is tied up in capital investments aided at producing goods desired by the masses. Liquidate that and you have a bunch of useless cash and no goods to purchase with it.

It isn't in any sense a moral justification for taxes.

TrackerFF• 5 years ago

For one, they get to live in safe and civilized countries. That's a price MANY wealthy people are willing pay.

But truth be told, there are many wealthy people that have grown up rich, in those safe countries, or have grown complacent.

csomar3• 5 years ago

You are getting downvoted, but I feel you (tax bill is approaching here...). The reality is, you need to strike a balance somewhere: Taxes are a matter of supply/demand. If you increase the taxes, at some point people are going to move somewhere else. If you reduce the services, you have to reduce the tax bill otherwise people and business will feel ripped off.

Most people here are either 1. employees who can't evade taxes because of how the system is setup, or 2. Entrepreneurs who are virtue signalling because of the magic internet Karma or 3. Simply have no money and think somebody else should pay for stuff. In reality, pretty much everyone will try to avoid taxes if he gets the chance (isn't that what the article is about?).

explodingman• 5 years ago

The URL isn’t supported on outline.com and there’s no citation of the source article in the first few paragraphs. How do I read about it?

phyalow• 5 years ago

This extension is a godsend https://github.com/iamadamdev/bypass-paywalls-chrome

reilly3000• 5 years ago

This is more of a problem with legalized obstruction of justice by financial arbitrage. There is no easy solution to that problem, and it plagues all areas of modern life.

Dracophoenix• 5 years ago

>legalized obstruction of justice That's a contradiction in terms. No person owes a red cent more than what their legal required to pay. There is no obstruction of justice unless you're of the persuasion that sovereignty & property rights mean nothing while any government should have a right to pilfer bank accounts as they see fit.

salawat• 5 years ago

You're missing their point.

They're talking about shell games. Basically, you can play audit chicken with legal fictions.

In order for the IRS to enforce accurate tax collection, they rely on you and everyone else you work/interact with to provide an accurate picture of your fiscal status quo. That requires footwork once you start making any amount of money sufficient enough where it becomes doable for you to establish multiple independent legal entities worth of books that then have to be combed through in order to ensure compliance.

The IRS continually has their funding restricted to the point they can't muster the kinds of effective enforcement actions that span multiple taxable entities, possibly distributed across international boundaries.

They can, however, root out Susie Q. Small-Business-Owner taking out deductions she shouldn't be.

That's what they mean by legalized obstruction of justice, even if they are abusing the term a bit. Those that make their affairs difficult or time conbsuming enough to work through, but also avoid "low-level gotchas" are effectively shielded from the risks of enforcement actions. You'd really need some pretty significant whistles to be blown to even get enough auditors mustered to a case to make it worthwhile to invest the effort, and if you're making enough to be worth it, you probably make enough to hire a few tax attorneys capable of getting you off the hook, miring the tax authority in jurisdictional squabbles or doing the requisite financial engineering to exploit the loophole of the year. That's the issue.

Nevermind the IRS makes more money for the government for every dollar invested. Never mind that the tax code is a nightmare because of Congress more so than the IRS. It's a multi-faceted perennial political problem that shows no hint of going away until 99% of tge country accept that in order to get the government funded to do their job better, you've got to equip it enough to make everybody's life miserable, and at that point you're kind of at best back to square one, where operationally, you'll have 1% screaming their unfairly burdened and everyone else isn't pulling their weight, and it's unfair, yada, yada, yada. Of course, this is all exacerbated by all kinds of deficit spending doubled down on every couple of years, which if we're ever going to dial that back as a country and stop playing games with MMT... Eh. Let me stop. The horse is dead, no use beating it further.

frozencell2• 5 years ago

HN readers: tax avoiders should go to jail

Also HN readers: avoid paywalls

eyelidlessness5• 5 years ago

This common Twitter content format is great, but doesn't really represent the situation well. Let me help:

Companies that paywall: I shouldn't be expected to participate in the economy by any rules shared by society.

Anyone that isn't cheerleading them: I'm not paying you

nwah12• 5 years ago

Advertising has perverse incentives, which encourage business models that require invading privacy and optimizing "engagement" at the expense of civil discourse and mental health.

When you don't pay for something, you are the product.

We should come up with some sort of alternate system which enables wide participation in non-predatory media platforms.

BuyMyBitcoins2• 5 years ago

Wait a minute, there is a distinction between Tax Avoidance and Tax Evasion.

Tax Avoidance is perfectly legal and encouraged by the IRS. There are many exemptions and credits for anyone who is eligible to take advantage of. If you’ve ever seen “whichever is lower” on a tax preparation form, that’s an example of avoidance. Why pay more when the law says you don’t have to?

Tax Evasion is the illegal activity of not paying taxes you were supposed to pay. This is where fraud comes into play. People should absolutely be prosecuted for evasion, but they should not shamed for avoidance.

brundolf4• 5 years ago

They should not be prosecuted for avoidance. I think at a certain point it's fair to shame people for seeking out loopholes, even if they're technically legal. Not that they probably care.

bawolff4• 5 years ago

Governments should just close the loopholes.

In some cases, the loopholes people talk about are less loopholes and more the intentional way the law works. Those in particular are the govs fault.

cheph4• 5 years ago

I think at a certain point it's fair to shame people for seeking out loopholes, even if they're technically legal.

How do you define a loophole?

LatteLazy2• 5 years ago

That really depends on what is a loophole. Should people be publicly shamed for making pension contributions or buying an electric car? I sympathise with where you are coming from. Someone employing themselves via a company in Ireland that owns one in Barbados and calling the money a loan is likely shameful. But there is no hard line between these two...

CryptoPunk• 5 years ago

I don't think people should be shamed for trying to minimize how much they pay for something they didn't consent to, that ends up mostly enriching government sector insiders in powerful unions.

znpy• 5 years ago

I think at a certain point it's fair to shame people for seeking out loopholes

if it's shameful to take advantage of a loophole, shouldn't we close that loophole?

cheph4• 5 years ago

Why pay more when the law says you don’t have to?

Yeah, it makes no sense. I would not do that, not sure why I should expect others to do that. I think this whole thing is BS.

I can very well agree that some people can afford to pay more tax, but tax is not some trust based charity system. I would say simplify tax laws so people can avoid tax easier without having to hire an army of tax professionals, and then increase the effective tax rate on the people who can afford to hire an army of tax professional.

If you are not for this approach but you whine about tax avoidance I think you are just looking for a way to score political and ideological points.

matt-attack• 5 years ago

I personally detest the phrase Tax Avoidance. If an exemption exists and allows me to pay a tax lower than I would have otherwise, what tax was avoided? Why are exceptions viewed differently than the tax tables? They all collectively constitute the “tax code”.

Tax avoidance means “following the tax code and being an honest citizen”. Why would you apply such an Orwellian term to something so banal?”

jjeaff5• 5 years ago

Well, tax avoidance implies that you are taking actions or modifying your behavior for the express purpose of avoiding taxes. If you increase your ira contribution amount at the end of year to more than you normally would have in order to decrease your taxable income, then that is an example of tax avoidance. If you schedule a corporate team building retreat in the Bahamas instead of taking a personal vacation there, that is tax avoidance. Moving from California to Texas right before you sign a $100m contract is another example of tax avoidance. Denouncing your US citizenship before cashing in billions in stock is another example of tax avoidance.

neonate• 5 years ago

https://archive.is/EFMuR

technick• 5 years ago

Taxes are whack, the more you make the more you get to keep. But you wanna know whats really whack? My mom died and I'm going thru the process of transferring her property to me. I've got to pay a MF'ing inheritance / property transfer tax on it. She owned it 100%, the house and property have been in the family for 60+ years. My grandparents paid tax on it when they bought it. Nothing like America to come back and double dip at every turn.

mckirk4• 5 years ago

On the one hand, it's really frustrating to be in that situation, because the property is clearly already yours.

On the other hand, an inheritance tax is one of the few mechanisms I can think of to keep a wealth distribution at least somewhat under control. There's a constant accumulation of wealth at the top already anyway; re-distributing some of that back down the ladder when rich people die seems like a good idea.

It of course would make more sense if the (elusive) middle class was hardly taxed at all in this scenario, and the 1% a ton, but... that would of course upset a lot of people with a lot of power.

csomar3• 5 years ago

We don't really know anything about the OP. It's possible he is not rich, the house is not worth that much and that's all he has/inherited, he doesn't have money to pax the tax, and thus will need to sell the home at (probably) a discount to cover the tax bill.

He could be actually slipping from middle-class as we speak.

someguydave2• 5 years ago

America is supposed to mean freedom for individuals, not free riches for the masses.

bluefirebrand3• 5 years ago

re-distributing some of that back down the ladder when rich people die seems like a good idea.

Money going into government hands isn't exactly the same as redistributing it down the ladder, though.

LatteLazy2• 5 years ago

I don't mean to be personal but...

The company employing you likely paid tax on the money it got, now it passes it to you as wages and you pay "another" tax. The same for investments. Why shouldn't you pay on inheritance? You haven't paid tax on that property before right?

And with an inheritance, the inheritors haven't done anything to deserve not to be taxed. Workers have worked, investors invested, inheritors are basically lottery winners.

People don't like how inheritance tax feels but its actually one of the most logical, fairest, least economically expensive taxes.

techstrategist• 5 years ago

While there may have been some top-line VAT or sales tax, companies deduct wages and pay taxes on the net profit.

milliondollar• 5 years ago

I'm sorry, but unless you are in the US the estate is over $10m, you owe no federal taxes. https://smartasset.com/taxes/all-about-the-estate-tax#:~:tex....

I don't know what your local / state is shafting you for, but the estate tax rhetoric is totally a put on by rich people.

nly• 5 years ago

$10M is insanely generous. Here in the UK inheritance tax is 40% on everything over £325K ($450K USD), unless you leave it to your spouse (unlimited) or a charity.

Even if you leave your estate to your kids or grand kids, it's only £500K ($700K) and that is only if you're leaving the family home (another example the UK being obsessed with property ownership).

It's also payable by the recipient, not the executor of the will.

didibus6• 5 years ago

Sorry for your loss, and apology to bring up what I'm about too.

Since you didn't contribute anything for this house, why should it go to you? Why shouldn't it go back to society at large?

I understand that we've all grown with this cultural idea of legacy and inheritance, but I find it more and more problematic and morally unjustifiable as I get older. It just seems like as much as we try to create equal opportunities for all children, we keep around this massive inequality where children whose parents have more wealth pass it along and create privilege classes, giving some unfair advantages over others.

Already we see that the wealthier the parents the more successful the child, due to better education and care. To also have them inherit wealth they didn't amass themselves seems a tad too much in my opinion.

I can see some reasonable scenarios, like when the child is still a dependent, or leaving behind a certain amount of sentimental goods, but beyond that it seems unfair to me.

I tend to be very much aligned with the idea of equal opportunities, unequal outcomes. Each one of us should be able to compete on an even playing field with the rest for a bigger slice of the pie, and so if you contribute more to making the pie bigger you deserve a bigger slice and can enjoy it for yourself. Your kids though didn't, and shouldn't have unfair advantages of opportunities. Similarly, I think everyone deserves a minimum, which allows you to again have the necessary safety net to be able to equally compete with others. Traditionally this safety net has been provided through these inheritance schemes and the parents you have determined if you get a safety net or not.

throwawaytaxes1• 5 years ago

I hope this is satire.

nybble415• 5 years ago

Since you didn't contribute anything for this house, why should it go to you?

That's the wrong way to look at it. The former (deceased) owner of the house did contribute to it. It belonged to her and she had every right to dispose of it as she wished. That includes giving it away to someone else of her choosing upon her death. It's not the recipient's property rights that are being infringed upon here, but rather the donor's. The only thing "unfair" about this situation is that the effort of earning and deferring consumption and investing which the deceased put into acquiring the property is being stolen by uninvolved parties who contributed nothing toward it for their own enrichment contrary to the explicit wishes of the owner, and not left to the beneficiary the owner intended.

ras2019183• 5 years ago

Criminal behavior. Where is the “war on white collar crime”?? Much easier to scapegoat minorities and poor on why the country lags behind in most major indexes that measure education, healthcare, safety, equality and happiness.

watertom• 5 years ago

Eliminate capital gains all income is taxed as earned income.

Eliminate all deduction except primary residence and dependents.

Since all deductions are eliminated lower tax rate to the effective tax rate for that tax bracket.

We've just closed all the loopholes, and given most people a tax break.

Add two new tax brackets: >$5M with a tax of 45% >$10M with a tax of 69% (back to the good old days).

This simplifies tax for everyone, gives all but the 1% a tax cut, eliminates all the loopholes, makes auditing a breeze, because it simplifies everything the size of the IRS can be reduced and their effectiveness can be increased.

There are about 16,000 people in the U.S. negatively impacted by these changes. For the other 353 Million people it's a huge plus.

fatnoah• 5 years ago

Honestly, just set up marginal brackets with zero deductions, exemptions, etc.

malandrew2• 5 years ago

Even simpler solution: Switch entirely to sales tax to fund everything. Whittle things down to three sales taxes: federal, state and local and the federal also gets the benefit of import taxes.

If you consume more, you pay more.

Everyone has skin in the game (everyone pays proportional to their consumption) and thus everyone now has a vested interest in advocating for a leaner, smarter and more efficient government that is less wasteful.

A progressive income tax is actively counter-productive to getting a greater return on investment for governance.

Furthermore, a progressive income tax also massively distorts the price of labor so no one paying for labor is paying the true cost of labor which should be the sum of (1) the disposable income paid to a laborer and the (2) taxes that laborer pays to the government. You're not actually making people better off with a progressive income tax because the market will just lower the amount paid to be equal to the disposable income portion.

AnimalMuppet• 5 years ago

So if I don't spend but save, there's no limits on the growth of my wealth? That's not going to be a popular option. People are concerned about wealth growing without bounds (and the growth of power that comes with it). Taxing that less is concerning in terms of the effect on social dynamics.

hnburnsy• 5 years ago

Somewhat agreed but the issue is that taxing away tax breaks or implementing a flat reduces Congress's power to choose winner and losers.

colineartheta• 5 years ago

OP never advocated nor mentioned a flat tax. He advocated adding two tax brackets to the progressive tax scheme we currently have.

cheph4• 5 years ago

Eliminate capital gains all income is taxed as earned income.

I don't own property, I rent, trying to save for an apartment. I am currently paying CGT on savings (I think at income tax rate). People who do own property where I live get tax rebate because they have mortgage, and they don't pay CGT on residential property. How is that fair? I am poorer than most people who own property but paying higher effective tax rate than them, and it makes it more difficult for me to buy.

How is that fair?

High-income tax avoidance far larger than thought, new paper estimates

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