The latest research and reports by the US Federal Internal Revenue Service (IRS) and the country’s economists show that: The top 1% of households with the highest income in the US do not report about 21% of their income. their assets (with assets of hundreds of billions of dollars). What is happening to the United States – which is considered the most complete tax legal system in the world, when the tax loss is too large?
The suspicion of US billionaires tax evasion caused a stir
An exclusive ProPublica report just found that the 25 richest Americans paid little or no federal income tax between 2014 and 2018.
According to a report collected by the press organization ProPublica based on Internal Revenue Service (IRS) records, the 25 richest Americans, including Jeff Bezos, Michael Bloomberg, and Elon Musk, pay just $13.6 billion in income taxes. federal while their total net worth increased to $401 billion between 2014 and 2018.
For example, the report says billionaire Warren Buffett paid just $23.7 million in taxes between 2014 and 2018 when his fortune grew by $24.3 billion. George Soros, investor, and philanthropist did not pay any taxes for 3 years from 2016 to 2018.
Or as billionaire Michael Bloomberg paid $ 70.7 million in taxes on an income of $ 1.9 billion in 2018. Even the billionaire Jeff Bezos did not have to pay federal income tax in 2007 and 2011. Billionaire Elon Musk was also shown not to pay any federal income taxes in 2018.
Billionaires reacted differently when their tax returns were released by ProPublica. Mr. Buffett said he will transfer 99.5% of his wealth to taxes and charity after his death. George Soros’s representative said he suffered an investment loss, while Elon Musk commented with a question mark.
Meanwhile, a spokesman for the billionaire Bloomberg said it would “use all legal means” to determine which individual or government entity leaked this information and “ensure that they must be responsible.”
The US Treasury Department also said that the federal government is investigating how the tax records of billionaires were leaked. “The unauthorized disclosure of confidential government information is illegal,” said Lily Adams, a spokeswoman for the Treasury Department, who referred the case to relevant agencies, including the FBI, which are authorized to independently investigate.
At a Senate Finance Committee hearing on June 8, Commissioner Charles Rettig of the IRS said he could not comment on the case but that the agency was investigating.
“I can confirm that there is an investigation regarding allegations that the source of information in that report came from the Internal Revenue Service,” he said.
Senator Ron Wyden of Oregon, Chairman of the Senate Finance Committee expressed concern about the security of taxpayer data. However, he also stressed that it is necessary to rebuild the tax payment policy.
“What this data reveals is that the country’s wealthiest people, who benefited greatly during the pandemic, have unfairly repaid taxes,” he commented.
The leak of tax records of the richest billionaires comes as the administration of President Joe Biden wants to increase the maximum personal income tax rate from the current 37% to 39.6%.
Some lawmakers like Senator Elizabeth Warren, a Democrat of Massachusetts, have even supported the idea of a 2% tax on the net worth of individuals with assets over $50 million – including the value of stocks, houses, boats, and anything else a person owns, after deducting debts.
Commenting on June 8, Senator Elizabeth Warren said the report’s revelations were “deeply shocking” and reinforced the fact that lawmakers should be thinking about taxing wealth rather than income. import.
“Raising the personal income tax rate to 2% or 10% isn’t going to make a huge difference to these billionaires,” Warren said. “I’d love to see the Biden administration step up wealth taxes more.”
Biden and his advisers often consider the idea of a wealth tax to be unviable but have not officially abandoned the idea. In February, Finance Minister Janet Yellen said the wealth tax was “a very difficult matter to do”. In March, however, she said she remained open-minded about property taxes.
Tax evasion: shocking numbers
According to the latest study by the US Internal Revenue Service (IRS) and economists, the top 1% of households in the US have not reported about 21% of their income. Research by economic experts in this country shows that, out of 21% of unreported income, about 6 percentage points are related to sophisticated tax evasion, difficult to detect in random audits.
The researchers found that these high-income households often have several ways of evading taxes. One of them is using tax havens. Accordingly, the super-rich often deposits money in accounts abroad. This way of tax evasion is increasing the income of the top 1% of the richest people in America.
This unreported income is largely due to tax evasion through offshore bank accounts or through businesses with which they enter into joint ventures or partnerships. The study also found that offshore accounts accounted for about $15 billion in tax evasion, with most of it in the top 0.1%.
According to data from the American Economic Policy Institute in 2018, to be in the top 1% of America’s highest earners, families must have a minimum annual income of $421,926.
But in fact, the median annual income of this group is $1,316,985. Meanwhile, IRS statistics also show that 0.1% of the richest people in the country could have avoided more than twice as much money as conventional fraud.
Random checks of the wealthy can detect some tax evasion. However, the study’s authors found that it was easy for the Internal Revenue Service to miss subtly concealed earnings, including those hidden in private businesses or offshore structures.
Collecting all taxes from the richest 1% of Americans would add to the Treasury Department’s $175 billion a year. This figure is equal to the gross national income (GDP) of many countries in the world.
The question is, how did the super-rich in the US bypass the tax authorities and the tax legal system that is considered the most complete in the world?
“Skip” the law and the color-changing gecko trick
In the US, there is a type of business that prevents the owner from being taxed twice. These businesses will not have to pay corporate income tax, but the pre-tax profits will be allocated to the accounts of the business owners and taxed only on personal income. Therefore, “dodging” the law is the first “trick” of the super-rich.
According to research by some experts at the University of Chicago business school, 84% of the super-rich in the US have income through such companies. Among the richest 0.1% of Americans, the number of business owners who do not pay double taxes is much larger than the number of leaders of large businesses. For example, forming corporations to pay taxes for themselves and then their employees and shareholders will pay taxes on their salaries and dividends. Another way is to form corporations that are taxed only once.
In 2014, 139,000 business owners who were not double-taxed had a combined income of $264 billion. This is more than eight times the income of 10,700 leaders of the 500 largest companies by market capitalization in the United States. These business owners are also free to determine their salaries. By paying themselves less to increase the company’s profits, they can save some of their taxes. This is how the super-rich have been doing since 2001.
This behavior is increasingly common and sophisticated, which is difficult to detect when audited. The returns go directly to the owners’ portfolios, which are enormous when they’re among the 1% or 0.1% of America’s richest people.
Besides, the business world also knows how to take advantage of the loophole in the audit to reduce the amount of tax payable. For example, using past losses to offset current income, deferred, or missing profits. Notably, real estate developers also have the right to depreciate the value of a building in the financial statements, even though its real value is constantly increasing.
Former US President Donald Trump is an example. Last October, the New York Times revealed Mr. Trump’s annual income report and said he had not paid a penny of federal income tax in 10 years. In the election year alone (2016) and the first year of his term, the New York billionaire only has to pay $750 in taxes per year.
Another “trick” of the super-rich in the US is like a color-changing gecko when using the way of dispersing assets using shopping… According to statistics, 40% of the $ 190 billion in tax losses from 2008 to 2010 was the result of businesses that did not have to pay taxes twice deliberately recording lower profits to avoid taxes.
Even if these business owners comply with all US laws, they have many simple ways to reduce their taxes, such as buying more cars or private planes in the name of the company’s budget.
In late 2017, President Donald Trump signed into law the tax reform bill proposed by Republicans. According to the Independent Tax Policy Center in Washington, 95% of Americans get a tax break thanks to this bill, but the average tax amount saved by the super-rich 1% is several dozen times more than the tax cut. decreased for families with average income.
More laws, widening the legal corridor
In the context of being affected by the Covid-19 pandemic, legislative officials in the US are promoting measures to collect taxes from the rich, instead of cutting government spending. Recently, Democrat Representative Noel Frame of the Washington State House of Representatives (USA) has proposed a bill to levy a 1% tax on assets over 1 billion USD of residents.
Accordingly, the tax rate only applies to assets such as cash, stocks, bonds, etc., instead of income. Many people believe that this tax rate is not an action aimed at the rich, but only to bring about fairer tax regulations for low-income people, especially in the context of the Covid-19 pandemic.
Data from the Washington State Internal Revenue Service shows that about 100 taxpayers in the state have assets of more than $1 billion. Among the rich living in Washington are the world’s richest billionaires Jeff Bezos, billionaire Bill Gates or the billionaire family of Phil Knight, founder of Nike.
According to Noel Frame, the new tax could contribute to the state treasury $ 2.5 billion per year. The proceeds can be used to give credit to low-income people or invest in public services. The Washington State House Finance Committee had its first hearing on the bill on February 2. Frame and 25 Democrats supported the bill, while state House leaders said it was too early to predict the future of the bill.
In New York state, lawmakers last year proposed a bill to levy a tax on capital gains from residents with assets above $1 billion. Capital gains tax is assessed based on the positive difference between the sale price of the property and the original purchase price. The tax only applies when the property is sold, but under the bill, residents would have to pay the tax if the property increases in value in a year, regardless of whether they sell the property or not.
And yet, California lawmakers last year also proposed a 0.4 percent tax on people with a net worth of more than $30 million. Officials estimate the new tax will apply to about 30,400 Californians and bring in the state’s treasury $7.5 billion annually. However, similar to the New York bill, the problem is that the valuation of the assets of the rich and the introduction of tax rates could trigger an exodus of the super-rich.
At the federal level, President Joe Biden is planning to raise taxes on businesses from 21% to 28% and clamp down on tax evasion. The US president said he was not against US millionaires and billionaires, but said it was unfair for large companies to pay no taxes to the government. He cited a survey that found that 91 of the world’s 500 largest companies, “the world’s biggest companies, including Amazon… pay no federal income tax.”
However, American financial experts say that instead of raising taxes, the US government can still collect $ 1 trillion a year by tightening regulations on income reporting and spending more on audits. Whether the legal system is old or new, tightening or expanding the legal corridor still needs transparency and honesty from the richest people to be able to contribute to the country.