In June 2016, while researching an article for Vanity Fair, asked Donald Trump if you were using tax havens to evade taxes. “I know a lot about tax havens, but I don’t use them,” he told me. “There is a greater incentive in many ways to keep your money in the United States.”
Fellow billionaires can laugh, because they know it too, after decades of special interest attacks on the American tax system. Their goal, as Texas Republican Congressman Bill Archer once put it, has been to “uproot it and throw it away so it never grows again.”
Last week, the investigative journalism body ProPublica published shocking new evidence how easy it is for American billionaires to escape paying taxes. Using leaked tax records, he reported that Amazon’s Jeff Bezos, editor Michael Bloomberg, “corporate mugger” Carl Icahn, Tesla founder Elon Musk, and financial investor George Soros paid zero federal income taxes in some years. Between 2014 and 2018, the 25 richest Americans, many of them monopolists, saw their wealth increase by more than $ 400 billion, while paying taxes worth just 3.4% of that amount. Meanwhile, the average 40-year-old American wage earners saw their wealth increase by $ 65,000 and paid $ 62,000 in taxes.
How do billionaires get away with it?
Lagunas, is an answer. Trump’s tax advisers used plentiful loopholes in real estate tax laws and stunts like putting goats on a golf course in New Jersey to qualify for farmland tax breaks. Another trick is to take a carefully prepared asset that is currently worth next to nothing and place it in a tax-free retirement account just below the contribution limit on the bill, like putting it “through the eye of a needle,” in the words of South Dakota Trust Company owner Pierce McDowell, then flip a financial switch and watch your value skyrocket, tax-free, once you’re done. secure within the account.
There are many others. But the big loophole is this. Mortal minors pay taxes on wages. Billionaires avoid dirty wages or even income. Instead, they own assets that increase in value, and the increase, those “unrealized gains,” escape tax. Those 25 richest Americans owned $ 1.1 trillion in wealth in 2018, equivalent to the wealth of 14.3 million average Americans, but they paid only $ 1.9 billion in federal personal taxes. The 14.3 million “little people” paid 143 billion dollars, or 75 times more.
In Great Britain, the situation is similar. Billionaires own assets instead of earning income, and they typically don’t pay taxes when those assets increase in value.
We have many other loopholes. Here, UK billionaires may outperform their American counterparts in some way. The strangest is undoubtedly the archaic rule of “non-dom”, a legacy of empire, where wealthy UK residents who can claim that their “domicile” is elsewhere only pay taxes on their “arising” income. within or introduced into the UK. (So they carefully make sure that the income is kept abroad.)
The most important British specialty is, of course, tax havens. We protect and nurture some of the largest in the world, from the Cayman Islands to the British Virgin Islands and Jersey. Americans also use tax havens, but they are seen much more important in the tax escape strategies of British billionaires, often in a legal gray area. (My research found that Trump’s main strategy for tax havens was to park several corporations in Delaware, a US state with heavy secrecy and other offshore characteristics.)
What can be done? There is no magic formula, but some general lines, with the appropriate exemptions for “the little people”, would be wildly popular and financially successful.
First, abolish the rule of non-dom, as a sign that we are serious.
Next, tighten up corporate tax, most of which is ultimately paid by the wealthiest people. Rishi Sunak recently admitted that George Osborne’s cuts to the UK corporate tax rate from 28% to 19% had failed to attract investment. The cuts have also failed to generate growth, as Tom Bergin explains in his new book, Free Lunch Thinking.. Sunak is raising corporate tax rates to 25% now; raise this further. Meanwhile, G7 leaders have just agreed on measures that include a global minimum corporate tax rate of at least 15% to tackle tax havens. The G7 deal faces many obstacles and leave little for the poorest countries, but it is a good start. Supplement this by expanding the proven financial transaction tax. Now a new impetus is being given to this.
Estate taxes, used successfully for years around the world, are also essential. If someone owns £ 1 billion of assets (stocks, gold coins, castles or whatever), a simple 1.5% annual wealth tax (say) generates £ 15 million a year. The UK Wealth Tax Commission estimates that a 1% tax could raise more than £ 50bn a year – the size of last year’s additional healthcare funding for Covid. Add a land value tax, another type of estate tax, to the list.
Match tax rates. If we taxed income from wealth at the same rate as income from labor, we could increase up to £ 120 billion, about double what we get of corporation tax. As we get braver, we should also aim to tax all of those unrealized gains, so if a billionaire’s wealth increases, they pay taxes on that annually, whether they sell (or “make”) assets. Some powerful Democrats in the US now pushing just for this.
In the UK, as in the US, the tax authority has come under attack. HMRC staffing levels have fallen from 105,000 in 2005 to around 60,000 today. Estimates of the “tax gap” of uncollected taxes interval of £ 35 billion at a £ 90 billion a year. Tax collectors refund their wages many times over. Reinvest in HMRC and focus especially on taxing the rich and multinationals.
Finally, of course, let’s get serious about our crime infested tax havens scam. Not only would this prop up our tax system, our economy, and our democracy, it could be our greatest gift to the world right now as humanity struggles to overcome the pandemic.
George is Digismak’s reported cum editor with 13 years of experience in Journalism