There is a lie persistently propagated by politicians and businessmen suggesting the rich are unfairly taxed in this country. The truth is that the rest of us are unfairly taxed to make up for what the “well-to-do” do not pay.
Recently, we learned that Donald Trump likely used a nearly $1 billion business loss in 1995 to get out of paying federal taxes for 18 years. Mr. Trump notes that he is simply using existing regulations and laws to his greatest benefit and fulfilling his fiduciary responsibility to his company. It is true…he, along with countless businessmen, did nothing illegal, or even unethical, by taking these breaks.
Politicians, however, are purposefully misleading the American people when they continue to claim that the U.S. tax code is somehow unfair to the wealthy and corporations. They constantly site the official tax rate as the basis to reduce taxes; yet it is the effective tax rate (what is actually paid) that must be considered.
The United States has a regressive tax structure. A complicated system of federal deductions, loopholes, off shore tax shelters and government incentives that result in considerable tax breaks for the rich and leave a significant portion of the tax burden to the working class.
And it is not just individuals. According to the Government Accountability Office, 20% of large U.S. corporations pay no taxes. In 2015, 25 large corporations (listed on Standards & Poor’s 500) reported paying no income tax despite declaring a profit.
Big business contends that these incentives and breaks are fair considering the amount of investment corporations make in job creation. Yet, corporations receive tax deductions when they invest in automation, which clearly reduces the work force. Even more egregious is how corporations may claim deductions when outsourcing and moving operations overseas.
There is no evidence to suggest that these deductions have resulted in more jobs or higher wages. In fact, as corporate profits have increased over the decades, wages have remained stagnate or decreased and high-paying manufacturing jobs have continued to move overseas.
According to Americans for Fairness, the amount corporations contribute to our federal tax revenue has dropped 60% in the past 60 years. This while corporate profits have increased exponentially in the same time period. In recent years, corporate profits reached their highest percentage of the total economy since the government began recording such data in 1929.
So, yes, American corporations, and those who get wealthy off these corporations, are doing very well. Yet they are contributing minimally (if at all) to the federal government that provides necessary programs and services to ensure a functional society. That leaves the rest of us to pay for the military, veterans’ programs, regulatory agencies, road and infrastructure projects, etc. These services often benefit industry as much or more as individuals.
Many argue that while corporations may pay limited or zero federal taxes they do contribute at the state and local levels.
Here in Pennsylvania, corporations are expected to pay the Corporate Net Income tax and capital franchise tax, the latter of which is being phased out as of 2016.
As for the former, large corporations often take advantage of the “Delaware loophole”. The loophole allows subsidiaries of national companies to deduct from their state taxes the royalty payments that they pay to parent companies. Subsequently, these companies pay little or no business tax to the state.
Pennsylvania’s small businesses cannot take advantage of this loophole and therefore often shoulder a larger portion of the state’s tax burden.
In addition, Pennsylvania offers corporate subsidies, state and local tax abatements and special incentives intended to lure large companies to the state. These programs offer minimal oversight, no tangible obligations and zero guarantees that jobs will be created.
Is it fair for billionaires and prosperous corporations to pay zero dollars in taxes? Is it fair for workers and small businesses to bear the financial burden to maintain our society? I say enough is enough. Let’s demand fairness and honesty.
We must strive for a fair tax system that does not overburden the working class. This requires that politicians stop perpetuating the myth that the wealthy are overburdened so that we can have an honest discussion and seek real solutions.