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Wealth defense industry-oligarchy and their means

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Wealth defense industry-oligarchy and their means

Postby Daniel Flack » Thu Nov 03, 2011 10:44 am

The debate over ending the Bush tax cuts for the rich sidesteps a serious problem. The issue is not just whether the wealthiest Americans should be taxed, but can they be taxed?

The ultra rich have extraordinary means to engage in tax avoidance and evasion that ordinary citizens do not. In the first decades after World War II, the richest Americans began paying large fees to armies of professionals whose sole task was to help them avoid taxes.

By the 1960s, an entire Income Defense Industry had arisen to satisfy this demand. It has grown more sophisticated and effective with each passing decade.

The industry lobbies key committees in Congress, quietly inserts provisions in a tax code only top attorneys in the industry comprehend, structures complex partnerships and tax shelters few auditors at the IRS can disentangle, and often uses these instruments to move wealth and income offshore.

All of this is done off the political radar screen and there is no countervailing lobby or parallel income defense industry for the average Joe. The few public interest organizations arguing for "tax justice" on behalf of average citizens are vastly out-staffed and out-funded.

The Senate estimates that the industry helps the wealthiest Americans avoid paying nearly $70 billion in taxes a year through "abusive offshore tax avoidance schemes" alone. The number is much higher if corporations are included.

There are basically two universes when it comes to taxes. The vast majority of us are what might be called "turbotaxpayers." We buy software or visit tax service outlets in strip malls to help navigate through confusing forms every April. We also don't want to miss obvious deductions.

The other much smaller universe is populated by the richest 1/10th of one percent of income earners. A group not much larger than a spillover crowd at Michigan Stadium, these are America's oligarchs. They are empowered by their enormous wealth.

Toward the bottom they earn an average of about $4 million, while the top 400 each earns about $350 million per year.

Instead of tax software, the richest Americans buy tax opinion letters. These arcane documents are drafted by tax attorneys at "magic circle" wealth management firms that cater only to the super rich.

A tax letter can cost a few hundred thousand dollars up to a few million. But it is money well spent because a single letter can save tens, even hundreds, of millions in taxes in a given year.

Tax letters are expensive because they push the limits of legality by mining the 71,000+ pages of the U.S. tax code for loopholes and interpretations that support the non-payment of large tax bills.

The ultra rich who avoid and evade taxes in this way face almost zero legal risk and reap huge savings. No matter how massive the tax fraud perpetrated, the wealthy taxpayer is shielded behind a phalanx of Income Defense Industry professionals paid to devise the schemes.

In the notorious KPMG case settled in 2007, it was the firm that was fined for the fraudulent "tax products" it provided to ultra rich clients, many of whom had the chutzpah to turn around and sue KPMG for selling them inferior tax shelters after they had to pay hundreds of millions in back taxes and penalties.

Average taxpayers are far more likely to be held criminally liable for tax evasion than ultra rich citizens who have the resources to litigate for years.

They hire lawyers in the same Income Defense Industry to intimidate IRS auditors and legal teams.

The IRS manual instructs staff to weigh the "necessary expense" as well as the "expected hazards of litigating the case" when considering cutting quiet deals out of court with big tax cheats.

Re-imposing the Bush tax cuts on the top 2 percent of income earners creates the mistaken impression that the richest of the rich will finally have to shoulder a fairer share of the tax burden. But those at the very top will not.

The vast majority of Americans in that top 2 percent are what the wealth management industry calls the "mass affluent," a segment of the market they do not serve because households earning a few hundred thousand a year up to a couple million cannot afford tax letters, shelters, or the costs of restructuring assets and moving income flows offshore.

These are the doctors, lawyers, and other professionals who are not only in the top tax bracket, but actually have to pay the rate of their bracket -- something the ultra rich never do.

In 1992, the top 400 income earners paid 85 percent of the published bracket income tax rate. By 2007 their effective tax rate had dropped below 50 percent.

Ironically, many of the mass affluent professionals in the top 2 percent earn their comfortable incomes through fees they get helping the richest 150,000 Americans above them keep tens of billions in unpaid taxes each year.

Those most able to pay use their wealth to avoid paying, which shifts greater burdens onto everyone else.

Thanks to the Income Defense Industry, the U.S. tax system is a boondoggle for a tiny group at the top. And that's even before factoring in the regressive impact of sales taxes, state incomes taxes, and especially social security and Medicare.

In 2009 President Obama proposed stronger measures to counter "tax cheats," arguing that "for years, we've talked about shutting down overseas tax havens."

But Obama's bark is worse than his bite. His proposal, and similar legislation introduced in Congress, would prevent the loss of about $8.7 billion over 10 years. That's barely one percent of the $700 billion in abusive tax avoidance the Senate estimates will accrue over the same period.

Forcing the ultra rich to pay these taxes would provide enough revenue to give a $1,200 tax refund to the bottom half of all U.S. households every year.

The only purpose of offshore havens is for the wealthy to hide money and shirk tax obligations.

The world has roughly 10 million high net-worth individuals with combined financial assets of about $41 trillion -- $18 trillion of which is held offshore.

Congress could declare all personal assets hidden in tax havens as de facto tax evasion. Forcing this money into the open and back onshore would generate tens of billions in tax revenues that would fall exclusively on the richest fraction of Americans. Meanwhile, Republicans would look foolish trying to argue that taxing funds already held offshore would hurt U.S. job creation.

Dr. Jeffrey Winters, associate professor of political science, teaches political economy at Northwestern University in Evanston, Ill., and is the author of the forthcoming book Oligarchy (Cambridge University Press, February 2011)
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Re: Wealth defense industry-oligarchy and their means

Postby LisaS » Sat Jan 26, 2013 4:24 am

Let us also make clear that oligarchs are sociopaths, that is, they do not care what effect their behavior has on other human beings, further, they do not care what effect their behavior has on the capacity of planet earth to support human life. Oligarchs are selfishness personified, they are NOT great titans of insight or intellectual giants, the are small beings motivated by two very small things; unreasoning fear and insatiable greed. Contrary to what some commenters might say, oligarchs do not “earn” their “gains”, their vast “concentrations” of money-power, they extract “wealth”, which comes, simply, from resources and what people do with those resources, a process known as “work”. Oligarchs extract wealth by clever and calculated manipulation of other human beings, whi libe from one salary to another and sometimes apply for no fax payday loans online and the “systems” which human beings fashion to serve the greater interest, be they economic systems.
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