Linda Dunn
Now that most of us have put away our Christmas decorations, the next major season begins: Tax season.
From now through possibly mid-April, many of us are going to be busy hunting for records we stored in a “safe place so we wouldn’t lose it” as well as trying to download the W-2s and 1099s that used to be mailed to us. We’ve traded the anxiety of worrying about when the forms will arrive to the frustration of logging into accounts we rarely access that have invariably “upgraded our security to protect you” and now require not just a login and password, but an authentication code that will be emailed or texted to us and is only valid for a few minutes.
Because, of course, every one of us has an email account that would never divert this message to a spam folder and a mobile phone that is fully charged and next to our computer.
Once we’ve finally got everything together either at home or somewhere else for online access, then we need to engage in the All-American patriotic game of “pay the lowest possible amount in taxes without triggering an audit.” This, however, means mastering the ability to decipher the instructions on tax forms that were seemingly written by the same people who write instruction manuals on how to assemble IKEA furniture.
It wasn’t always this way. We “Boomers” can remember a time when most of us filed our own taxes and there were far fewer forms and regulations and smaller and fewer tax loopholes that the rich could exploit for personal gain. In fact, back in that era, tax avoidance by the rich was viewed as “unpatriotic” rather than “smart.”
Today, uber-rich folks like Warren Buffett note that their tax rate is lower than their secretaries’.
This is the result of decades of our tax system being slowly and systematically tilted to favor high-income households at the expense of John Q. Public.
This is not how it was supposed to work.
The original promise our elected representatives made was that the income tax would not affect the poor as this burden would be carried by the rich, who could well afford to pay taxes.
The Revenue Act of 1913 imposed a one percent tax on incomes above $3,000, with a top tax rate of six percent on those earning more than $500,000 per year. Only three percent of us in that era were taxpayers.
WWI forced an increase and WWII introduced payroll withholding and quarterly tax payments. During that time, the top tax rates were high with an effective tax rate at 70% for the highest incomes (which affected very few) until 1964, when the top marginal tax rate was lowered to 70%.
Inflation pushed many of us average folks into a tax bracket that did not reflect our realities and this is one reason why so many of us enthusiastically embraced President Reagan’s effort to cut taxes across the board.
In 1982, that top rate was lowered to 50% and then 28% in 1988. It rose to 39.6% in 2000 then dropped to 35% 2003-2018. The rich got the biggest tax break but us average folks didn’t complain. We were just grateful that we finally got some tax relief for ourselves.
But its grown far worse since then.
In contrast to the 99% of us who earn our income from wages and salaries, the top 1% earn most of their income from investments and enjoy options that John Q. Public cannot realistically employ.
(1) They can establish Foundations. The richer you are, the greater “taxpayer subsidy” you can receive by establishing a foundation. Some of the wealthiest pay “shell games” with these, creating perpetual family foundations rather than active charities. These may look good, but they fail to do good.
(2) The 1% can acquire property that gives you depreciation benefits – something that Trump and his son-in-law, Jared Kushner have famously employed.
(3) The 1% can give tax-free gifts to family members to avoid taxes. Probably many of us have given cash gifts to family members but not at the level of the uber rich. The lifetime tax gift exclusion for 2023 was $12.92 MILLION.
(4) The uber rich often employ “family offices” (a full wealth and asset management firm) which can help get tax cuts, reduce administrative costs and streamline tax reporting.
(5) Although the average U.S. Chief Executive salary is less than $1 million, we hear about CEOs earning millions per year because most of their income derives from investments. They receive deferred compensation, stock or stock options, and other benefits not immediately taxable.
(6) Another option a few of the uber rich have chosen is simply to change their residency. If you move to Puerto Rico, you can keep your U.S. citizenship while avoiding federal taxes on capital gains as well as income tax on interest and dividends from Puerto Rican sources. An increasing number are renouncing their U.S. Citizenship. IRS data indicates 6,707 Americans renounced their citizenship in 2020 and this is a 237% increase. The wealthiest people have been leaving at elevated rates since 2016.
While some of us may envy the rich’s ability to utilize these options, and we might agree that doing this is “smart,” many of us view this as both unfair and unpatriotic.
Isn’t our country supposed to endorse equal opportunities for all? And if so, isn’t it about time we simplified our tax code and make the burden more equitable?
Why don’t we? We are the 99% and most of us are eligible to vote.
A lifelong resident of Hancock County, Linda Dunn is an author and retired Department of Defense employee.
