April 11, 2022 | Reading Time: 6 minutes
Should billionaires exist?
Let’s answer that question before talking about “their fair share.”
Whenever progressive Democrats talk about billionaires, it’s in the soft tones of fairness. Men like Elon Musk, we’re told, should pay proportionally what normal non-billionaires pay. The debate is steeped in the inoffensive language of “their fair share.”
The debate is backwards.
Instead of starting with “their fair share,” we should start with a question fundamental to every democracy that’s existed, to wit:
Should billionaires exist?
Should their influence be legal?
Billionaires are not just very obscenely rich. With their wealth comes planetary power. Their decisions affect billions and billions of people, who in turn have no say on whether those decisions should be made.
“We do not have to accept a false message of scarcity. Billionaires and big corporations grew much more profitable even in a pandemic.
“We can pay for a better country.”
Why should a democratic republic such as America, which claims to hold power to account – which must hold power to account to survive as a democratic republic – tolerate the existence of billionaires.
We should ask.
We should also awaken to the truth.
We are accountable to them.
Billionaires tolerate the American people and their belief that they are the ultimate sovereigns. It serves their interests for the American people to believe they are more powerful than they actually are.
Are we accountable to them?
The American tax code has long been designed to ensure that unaccountable planetary power wins when it’s heads, wins when it’s tails. A democratic republic allowing the existence of such a powerful parasitic class is a democratic republic surviving rather than thriving.
That’s why the debate is backwards.
A debate among progressive Democrats over the question of whether the very obscenely rich should pay their fair share has been settled before it started. It’s a debate the very obscenely rich already win.
We should instead recognize the very real danger billionaires pose to our republic. We should assess how much risk we’re willing to tolerate. How much should be legal, how much illegal? Only then should “their fair share” come into play. It’s fairness as a hedge against systemic risk.
It’s fairness so the people may be free.
To learn more about our tax code, and how upside down, backwards and prolapsed it is, I talked to Amy Hanauer. She’s the director of the Institute on Taxation and Economic Policy. She said that, “We do not have to accept a false message of scarcity. Billionaires and big corporations grew much more profitable even in a pandemic.
“We can pay for a better country.”
What is it that normal people should understand about the United States tax code that most normal people do not?
Taxes are essential to providing us with things we need, as families, as communities and as a planet. We can use the tax code to make sure everyone has good schools, to make sure working-class kids can afford college, to have resources to construct affordable housing.
But we can also use the tax code to have the resources necessary for the transition to a clean energy economy, to address racial and economic inequity and to make sure public employees are well-paid.
There are ways to raise revenue that raise resources from rich people and corporations. But unfortunately, the US does far too little to make sure that wealthy people and corporations pay their fair share.
My colleagues at the Institute on Taxation and Economic Policy did a report last year. It found that 55 profitable Fortune 500 corporations paid absolutely nothing in federal corporate income tax in 2020.
A whole bunch of other big profitable corporations paid more than zero but less than half the corporate rate (21 percent).
The big economic legislation that passed the House last year, the Build Back Better Act, addressed this by putting in place a 15 percent minimum corporate tax for the very largest and most profitable corporations. Unfortunately, that bill is stalled in the Senate.
Letting corporations or the very wealthy pay less than their fair share is a choice. It’s not a choice that most people agree with. It’s also not a choice that most other wealthy democracies make.
In 2019, the most recent year for which data are available, the US collected revenue equal to 25 percent of its gross domestic product (25 percent of its total economic output). Most OECD countries collect more than 34 percent. Only a handful of OECD countries collect less revenue as a share of their economies than the United States. They are all small: Costa Rica, Turkey, Ireland, Chile, Columbia and Mexico.
What can the Treasury do about tax avoidance on its own?
First, to address the enormous problems with our tax code, we need legislation. Things the administration can do without Congress are not a substitute for passing tax reform, which Senator Manchin has said he wants to pass, which Senator Schumer wants to pass, which the House has passed, and which President Biden wants to pass. And not incidentally, which is incredibly popular with the American people.
That said, there are things that the Biden administration will have to do whether the Congress passes something or not.
The Trump administration expanded tax breaks for corporations far beyond what the 2017 law allowed. These regulatory excesses gave corporations and the rich even larger tax breaks than the law did.
Many corporations have admitted they used the expansive interpretation from the Trump Treasury to get bigger breaks.
A second big thing is that when corporations publish their financial disclosures, they are required to list tax breaks they think the IRS is likely to deny. But we found that big companies keep billions in breaks that they had admitted would not withstand scrutiny, simply since the clock runs out before the underfunded IRS has time to investigate.
The IRS should direct more resources to dealing with that.
Another important option is that we don’t always know exactly how corporations are avoiding taxes. The IRS could require companies to disclose that. This would help us identify how to make the law better able to address tax avoidance.
So much of the tax code burdens people who work. Shouldn’t the tax code burden the people who own and collect rents?
One of the big problems with our tax code is that we have a special, lower rate on income from capital gains (which you get when you sell an expensive asset, like stocks or a house, at a higher price than what you paid for it.)
It doesn’t make sense to tax earnings from wealth at a lower rate than earnings from work.
But even worse is that the wealthiest people can accumulate wealth without selling their assets, and then can pass that wealth onto their heirs at the new value without anyone ever paying taxes on it.
This is called “stepped-up basis.”
The Biden administration included a fix to that in the BBB plan. But after a heavy lobbying effort led by moneyed interests, the provision was removed before the House committee sent the bill to the floor.
The reforms that did pass the House would raise a lot of revenue and raise them from the wealthiest people and corporations. But long term, we should also go back and revisit these good ideas.
Can you talk about the alleged link between low tax and high growth? That was a very potent argument in the past. Now?
The United States had its strongest decades of economic growth at a time when our tax rates were much higher than today. And that’s not surprising. Things that led to high growth required public spending.
In the middle of the 20th century, we put a lot of national resources into helping people become much more educated.
Rates of high school and college completion rose in part because of more spending on K-12 schools, of Pell grants that help regular people pay for college and of state funding to public universities.
We also put resources into improving our national infrastructure, like the interstate. That helped companies get products out to market.
Both of these investments made us much more productive.
Today, we have different imperatives to make our economy more productive but we have nevertheless been underinvesting.
We need to put resources into greening our economy, which would reduce the pace of climate change but also make us more resilient in the face of climate disasters, which are going to be with us.
And we have let inequality – both economic and racial – skyrocket. The result is that many working-class people of all races are left behind.
Addressing both of those things will take public resources but will make us much more economically competitive in the long term.
Did all that growth cause inflation in the 1970s?
Inflation is complicated.
But a lot of rising costs as a result of current inflation could be managed by passing BBB, which would reduce the cost of childcare and health care, two of the biggest costs families face.
For most people, housing, childcare and healthcare are among their biggest costs. BBB has spending that would address all of those, making them more affordable. If we could hold down costs for those items, that would do a lot to keep inflation in check.
We are a very wealthy country.
We do not have to accept a false message of scarcity. Billionaires and big corporations grew much more profitable even in a pandemic.
We can pay for a better country. We have the resources.
We can afford to make college affordable. We can invest in our little kids so their parents can work. And we can and must invest to take on climate chaos. None of us will be protected from it if we don’t.
John Stoehr is the editor of the Editorial Board. He writes the daily edition. Find him @johnastoehr.