Just last week, there was news that the FBI and the US tax agency were investigating the billionaire tax evasion case. This is not the first time because every few years a few tax lawsuits related to the tax of the super rich are leaked. The forms of tax evasion are increasingly diverse, and the government’s measures to combat tax evasion are also gradually tightening.
Who is dodging taxes?
Allegations like these are not new, and many names have gone out of the way of the press from year to month. Representing 2007 and 2011 were Amazon’s Jeff Bezos, 2016 George Soros on the press, 2018 featuring Tesla’s Elon Musk accused of failing to pay federal taxes.
According to the latest report of ProPublica, during the five years of 2014-2018, the 25 richest people in the United States, whose total assets increased by $401 billion, spent only $13.6 billion in federal income tax, equivalent to 3.4%. while the tax rate in the US is from 10% to 39.6%.
In most countries, the higher the income, the more tax you have to pay, but when you have a lot of money, things are different.
What is the most common way to avoid taxes?
The wealth of billionaires is largely in the name of businesses, but the government only taxes income in the name of individuals, including salaries, dividends, bond interest, and proceeds from the sale of financial assets.
So the super-rich bosses can pay themselves very low wages and only pay personal income tax corresponding to that salary. However, their huge assets are shares in the name of the business and no tax, only when sold will they be charged a capital gains tax of 20%.
Usually, billionaires don’t sell stocks but use them as bank loans to avoid capital gains taxes, much like Elon Musk has done with Tesla stock for years.
So what is the damage here?
According to TJN, countries are losing about 427 billion USD in taxes each year, of which 245 billion USD are due to businesses and 182 billion USD are due to tax evasion by individuals. In addition, according to IMF and WB calculations, there are about 21,000-32 trillion USD of “black money” buried in 100 “tax havens”, equivalent to half of global GDP.
Because taxes are only levied on personal income and not on assets in the name of organizations, ordinary people who live on income are paying taxes, while the super-rich who own assets in the name of organizations do not. are not. This has increased the wealth of the rich and poor more than ever
In 1960, 90% of America’s poorest people kept 30% of the economy’s wealth, today down to 25%. Meanwhile, America’s richest 0.1%, who accounted for 10% of the economy’s wealth in 1960, has doubled to 20%.
Government tightens tax laws
In the coming time, it is certain that dodging taxes will not be as easy as before, because the governments are trying to close the loopholes in the tax law. First, the G7 agreed on a global corporate tax rate of at least 15%. So businesses with branches in any country need to contribute more, limiting the benefit from the 0-10% tax rate in tax haven countries as before.
In addition, the Joe Biden administration’s proposals to tax the rich have really worried American oligarchs. He stated that whether or not to sell stocks, billionaires still have to pay capital gains tax after death. This will incentivize them to sell equity assets and increase government revenue.
Tax havens coming to an end?
As the government gradually tightens tax laws, “tax havens” have little chance to develop. Although they are areas with very low tax rates, they develop economically thanks to the types of complementary services for multinational companies, such as accountants, lawyers, banks, etc. In 2018, services Financial services and businesses account for more than 60% of the revenue of the Virgin Islands, one of the famous tax-havens.
What’s more, when the OECD allowed countries to freely exchange financial information for managing taxpayers’ overseas assets, the government collected $104.75 billion in additional taxes for member countries. At the same time, money deposited at banks in tax havens dropped sharply from 20-25%.
Controversy surrounding the tax increase for the rich
Some people disagree with raising taxes on the rich. Mr. Edward Yardeni, President of Yardeni Research Inc said that “1% is paying more than 40% of federal income tax. Isn’t that enough?”
In the same vein, economist Erica York said that the Biden administration “is implementing ineffective tax increases, which could undermine economic growth and reduce America’s competitiveness.”
However, Democratic Congresswoman Alexandria Ocasio-Cortez supports increasing taxes on the rich, proposing a progressive tax rate of up to 70% for income over $10 million.
This tax rate is still not the highest in US history. In 1944, President Roosevet proposed the highest progressive tax rate of 100% on incomes over $25,000. Finally, after much controversy with the National Assembly, the highest tax rate was 94%.