This report examines the growing wealth of billionaires and other ultra-high net worth individuals in Massachusetts — where voters will have the chance to levy a 4 percent surtax on those making more than $1 million a year this November.
This April 15 Tax Day, America’s billionaires are toasting you, the ordinary taxpayer.
That’s because you’re the one picking up the tab for our nation’s ailing infrastructure of roads, bridges, and rail transport. You’re also covering the costs of military defense, disaster relief, veterans’ health services, and national park protection.
The share of taxes paid by the 1 percent continues to decline, even as wealth flows upward to them at dizzying pace. But Congress is poised to pass even more tax cuts for the rich. The GOP-controlled Senate just voted to abolish the estate tax, our nation’s only levy on the inherited wealth of multi-millionaires and billionaires that exceeds $5.4 million. Watch for full Congressional action in the coming weeks.
It is no longer shocking news that the wealthy use our government to shift tax obligations off wealth holders and onto wage earners. But you may not know all their tricks. Here are five tax secrets billionaires deploy to keep you paying more than your fair share.
1. Tax Work More Than Wealth. Our tax rules give preferential treatment to income from investments rather than income from work. A teacher on $40,000 a year will pay a higher percentage of her income –25 percent – than a billionaire gaining $400 million a year from investments who will pay between 15 and 20 percent of their income.
2. Hide Money Off Shore. Senator Elizabeth Warren joked that Boston’s winter had been so harsh that Mitt Romney “left his money here and he went to the Cayman Islands.” Congressional researchers estimate that individual use of offshore global tax havens costs the rest of us as much as $70 billion a year. But this is just the tip of the tax dodging iceberg. Global Financial Integrity estimates that global corporations and wealthy individuals are hiding over $21 trillion in global secrecy jurisdictions.
3. Put Trust in Trusts. Billionaires deploy tax planners to design trusts and other mechanisms to reduce or eliminate their estate taxes. In 2013, casino mogul Sheldon Adelson used a complex trust mechanism to transfer $8 billion to his heirs, avoiding over $2.8 billion in federal estate and gift taxes. Congress could close these billionaire loopholes tomorrow, but they are too busy cutting college Pell Grants for working-class college students.
4. Inherited Wealth is Not Taxed. If I find $100 on the street, it is taxable income. But if my grandfather gives me $100 million, I don’t pay any income tax on it. Inheritances are 100 percent exempt from the income tax. While some wealthy families will pay taxes on estates before distributing funds, the beneficiaries have no tax obligations. Combine this with the previous secret, and life is looking up for the children of billionaires.
5. Subsidize Charity. When a billionaire donates money to a large hospital or university, we’re encouraged to feel a warm glow for their generosity. We seldom realize that we taxpayers are subsidizing that edifice with a billionaire’s name on it or wealthy peoples’ pet charities. When Leona Helmsley left $8 million to her true pet charity, a canine welfare agency, we taxpayers subsidized half that donation. Donations reduce taxes on a billionaire’s income and estate, so ordinary taxpayers chip in about 50 cents of every dollar donated. And we’re not even invited to the gala party!
[You might think: “but that’s their money.” Yes, but the important question is, why is their money so special and yours isn’t?] Why is the income and wealth of billionaires exempt from taxation while yours isn’t? Billionaires spend some of their money lobbying Congress, convincing you that they’re essential “job creators”. Your modest investments, work, spending and vote just don’t matter as much.
If our billionaires aren’t paying their fair share of federal taxes, who is? You are –either in increased taxes or higher fees, tuition payments, tolls, state and local taxes, or in declining public services. And that’s why America’s billionaires will be feeling extra special gratitude for you during tax week.
Chuck Collins directs the Institute for Policy Studies Program on Inequality and the Common Good.