The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay. Emmanuel Saez and Gabriel Zucman.
From 1980 to 2019, US inequality has grown rapidly from capture of government by free market ideologues serving ultra-rich donors. During this time, the share of US wealth has doubled for the top 1% from 20% to 40%, but has fallen for the bottom 90% from 40% to 25%. Simultaneously, the share of US national income has doubled for the top 1% from 10% to 20%, but has fallen for the bottom 50% from 20% to 12%.
In Western Europe, these shifts of income shares were much smaller—from 10% to 12% for the top 1% and from 24% to 22% for the bottom 50%. Hence, the US shifts are not inevitable change from globalization and automation as claimed, but rather, mostly from political choice.
The book divides average adult annual incomes into four groups: 1) $18,500 for the working class (bottom 50%), 2) $75,000 for the middle class (next 40%), 3) $220,000 for the upper middle class (next 9%), and 4) $1.5 million for the rich (top 1%). Remember, the average for the top 1% is markedly increased by inclusion of many billion dollar and hundreds of million dollar incomes at the very top.
Taxes, which are the focus of the book, are divided into four groups: 1) individual income taxes, 2) payroll taxes, 3) capital taxes, and 4) consumption taxes. Despite Romney’s 2012 claim about the bottom 47%, everybody pays taxes. Collectively, these taxes add up to about 28% of national income: 11.5% from income, 8% from payroll for Social Security and Medicare, 4.7% from consumption, and 4% from capital (which represents 30% of national income).
The US tax system is a giant flat tax, except at the top, where it’s regressive. The bottom 50% pay around 25% (payroll and consumption); the next 40% pay around 28% (payroll and income), the next 9% pay around 28% (income); and the top 1% pay around 28%, except for the very top who pay 23% (income, corporate, etc.).
Since 1950, minimum wage worker’s incomes have fallen compared to the national average from more than half to just one fifth, while their payroll taxes have increased form 3% to 15%. Also, consumption taxes reach larger portions of these lower incomes by application to necessities, while sparing application for higher incomes on items like country club membership, opera attendance, and lawyer’s fees.
Meanwhile, the rich have gotten richer while paying lower taxes for many reasons. Progressive marginal income tax rates have fallen from over 90% in the 1950s to less than 40% today. Corporate taxes have fallen from 50% to 21%, and actual revenue has fallen even further from shifting of corporate profits to tax havens. Since the 1950s, tax rates actually paid have fallen for the top 0.1% of income earners from 55% to less than 30% (mostly from falling corporate tax rates), while for the bottom 90% they have risen to nearly 30%.
Furthermore, tax avoidance by outright evasion is more common at higher incomes—20 to 25% for the rich compared to 10 to 12% for the middle and working classes. This situation has been greatly facilitated by sabotage of IRS enforcement by political allies of the ultra-rich. As a consequence of deliberate slashing of IRS funding, audits of the largest estates have declined from 65% in 1975 to 8.6% today. In addition, revenues from estate taxes have fallen by a factor of five, mostly from reduced enforcement.
A great deal of additional tax avoidance by large fortunes occurs because taxation can be restricted to only the tiny portion from which shares are sold rather than applied to the much larger total income from all shares. The income from remaining shares is then allowed to grow exponentially without income or capital gains taxes as long as it is retained. Finally, for many large fortunes, those delayed taxes are never paid because they are forgiven as readjusted capital gain at the time of death or transfer to a foundation.
Thus, Warren Buffett, the “good billionaire” with a fortune of $65.3 billion in 2015, declared only $11.6 million as income (from shares sold) rather than at least $3.2 billion of actual wealth income (est. at 5%). Thus his taxation of only $1.8 million represented 16% of his declared income but only 0.055% of his actual wealth income. The scandal here is not, as he states, the low tax rate paid for his declared income compared to that for his secretary, but rather the ridiculously low portion of income he is allowed actually to declare for taxation.
The authors propose many steps to address the growing tax imbalance in the US. These include international coordination to stop the race to the bottom for corporate tax rates, an optimal maximal tax rate of 60% from all sources, a public protection bureau against tax scams, rehabilitation and refunding of the IRS, universal health insurance, and a wealth tax for the super-rich (2% above $50 million, 3.5% above $1 billion). The important role of corporate tax and wealth tax as means to combat the enormous tax avoidance industry for the rich is discussed.
Complexities, difficulties, justifications, and steps to achievement of these proposals are discussed. The usual arguments in favor of the status quo are addressed. A table is provided of a sample reform proposal that provides universal health care, education for all, elimination of sales tax, extra taxes for the rich, and a funding package.
Finally, the authors refer the reader to their interactive website taxjusticenow.org. This website lets you enter whatever values you like for the components of national taxation to see them all graphed together. This is easy and satisfying to do. Examples are included from below for various values entered into the interactive graph system:
