Why do Millionaires Pay Less Tax than You?

Why do Millionaires Pay Less Tax than You? www.businessmanagement.news

In these divided times, with noise and spin coming from every corner of Washington and the media, it’s hard to know whom to trust. Taxes are even worse than most other issues, because not only does everyone have a point they’re trying to sell to you, they present it in what seems like the most dense, complicated way possible. It’s almost like they want you to be confused.

So what we want to do is give Americans of every political stripe and no political stripe a clear explanation of who actually benefits from our country’s tax code and the most recent GOP tax bill.

Labor vs Bosses

Our elected officials may speak eloquently about the nobility of labor and the value of a hard day’s work, but money talks louder, and our tax code is deliberately designed to reward money over work.

Here’s how: our tax code has two different rates for two distinct types of earnings: “ordinary” income and “capital gains” income.

Most of the ultra–rich make the vast majority of their money through capital gains, not income. They don’t work in the way most Americans work, because they live off of their investments. And it’s a lucrative path, because the top capital gains rate is barely over half of that paid for ordinary income.

That means a billionaire whose investments earn him millions of dollars while he sits around at the beach and goes to fancy cocktail parties pays a lower tax rate on his earnings than almost any working American.

Investing is not inherently more valuable than labor, and it’s simply not true that investing in the stock market creates jobs.

Investors do not create jobs. The only thing that does create jobs is consumer demand for products and services that people can make and provide.

If we want to create jobs, we should be implementing policies that grow the middle class and help bring people up out of poverty so they can participate in the economy.

Unfortunately, the “Tax Cuts and Jobs Act” will do just the opposite.

In the past few years corporate profits have reached record highs, and two–thirds of Americans agree that corporations pay too little in taxes. The Republican-controlled Congress disagreed.

Instead of closing loopholes and putting in place rules to ensure that corporations pay more, they passed a massive corporate tax cut that financially rewards companies for moving money and jobs overseas.

Now, corporations actually pay lower taxes rate (about half) on income earned overseas. Imagine that you have a business selling computer systems, and you have an 800 number that people call to get help using the systems. That support is a key part of the value of these system, and about half of your company’s costs involve running the telephone support center.

With the new tax system, you can:

  1. Open an affiliate in India to provide call center services.
  2. Send half of your money to the India affiliate.
  3. Pay the workers in India (where middle wages range from the equivalent of about $3,500 to about $13,000).
  4. Pay a tax rate of only 10.5% on half of company profits.

The new system put in place by the Republican tax bill is what economists call a modified territorial tax system.

In it, not only is the corporate tax rate on overseas profits just half the normal rate (10.5% versus 21%), companies still receive credits for the foreign taxes they pay. So if a corporation earns its profits in a country where the corporate tax rate is above 13.1% (nearly every other country), then it ends up paying nothing in US taxes.

Not only does the tax bill encourage corporations to move their money and their corporate headquarters overseas, it actually incentivizes them to move plants and manufacturing facilities to other countries as well.

That’s right – rather than help bring back American manufacturing, this bill actually gives companies a tax break for moving their factories to other countries.

Tax jargon aside, this means that the more equipment and factories a company has in other countries, the more tax–free income it can earn.

 If that isn’t a strong incentive to shut down American factories and move them overseas then we don’t know what is.

So if corporate tax cuts don’t bring back manufacturing, or lead to job or wage growth, who benefits?

The answer is clear: CEOs and stockholders.

This is unsurprising to anyone who’s tracked corporate responses to last year’s bill. While some corporations have given raises or bonuses, the amount given to workers is dwarfed by the hundreds of billions of dollars that have been spent on stock buybacks. It took less than two months in 2018 for companies to announce over $200 billion in share buybacks, more than double the amount from the same period in 2017.

Many millionaires and billionaires want special treatment. They honestly believe that they deserve special treatment. They puff up their chests, call themselves “job creators” and insist the economy will collapse if they are asked to pay a single penny more in taxes.

Nonsense. Millionaires put their pants on one leg at a time, just like everyone else. Consumer demand is the only real “job creator.” And nothing is going to collapse if millionaires pay their fair share.

Today, the USA is held hostage by the ultra rich, and they have conspired to use every available mechanism to enrich themselves. It is indeed a case of the fox guarding the hen house. The pillaging of the treasury through massive tax cuts, giveaways of public lands to corporations, relaxing environmental regulations, and reducing banking oversights, are designed to do one thing: Make the rich richer.

History will show this period to be one of the most corrupt and audacious times in America.