When I worked for Governor Mike Leavitt many years ago, we worked with senior tax experts to review Utah’s tax system and compile a long list of tax incentives, tax credits, tax deductions, etc. that apparently outlived their original purpose and in some cases, specific companies or industries Created a competitive advantage.
We advocated the general principle that the best tax system is broad based with low rates. Loopholes narrow the tax base and put the tax burden on others.
Governor Leavitt worked incredibly hard for several months, trying to convince stakeholders and advocates, holding many meetings with numerous lawmakers, and participating in a communications campaign to close these tax loopholes.
It was a tough legislature. For every tax loophole there is an army of lobbyists and interest groups to protect it. Closing a tax loophole is a tax increase for those affected. Still, the Leavitt government managed to push through significant tax reform, removing several tax credits and incentives.
We thought it was a big win and it was. However, something funny happened. Over the next five or six years, almost all of these tax loopholes have crept back in, perhaps in a slightly different form – most in the name of tax cuts. Despite an immense amount of work, it was almost impossible to eliminate these tax loopholes.
So I’m very skeptical that Congress can reform the national tax system to force wealthy people to pay higher taxes, even though I absolutely believe that wealthy people, especially multimillionaires and billionaires, should pay their fair share of taxes.
Recently, ProPublica released the (illegally stolen) tax returns of a number of wealthy people showing that many of these billionaires paid very little income tax. That sparked much outrage and fueled Pres’s crusade. Biden, along with Democrats and Liberal pressure groups, to tax the rich at higher rates, along with higher taxes on corporations. Biden claims he can fund much of his enormous spending priorities through such taxes.
The problem is, all of the tax breaks for the ultra-rich, all of these tax avoidance methods have at some point been approved by Congress and will be incredibly difficult to change. Simply increasing interest rates will not remove the loopholes.
For every loan and loophole, there is an army of lobbyists, industries, and beneficiaries who will fight for it. This is especially true of nonprofits, many of which are heavily supported by Democrats and who get much of their revenue from wealthy people trying to avoid taxes.
Buy a Tesla and get tax breaks. If you install solar panels, you will get a tax break. If you donate to a charity, you will receive a tax break. If you make certain purchases of equipment, you will receive a tax break. It’s all legal.
Many environmental groups and other really excellent nonprofits that do a great job employ tax specialists who only work with wealthy people and their foundations, showing them how to avoid taxes while serving a good cause.
In fact, a Wall Street Journal article pointed out that while ProPublica stated that billionaire George Soros “did not pay federal income taxes for three consecutive years,” one of the reasons he did not pay income taxes was because he did so much for liberal groups like ProPublica.
Under current tax law, wealthy individuals can donate their company shares to qualified charitable organizations and then pay very little income tax. There are dozens, maybe hundreds, of tax credits, incentives, and deductions that wealthy people use to avoid taxes.
I am not against eliminating many of these tax loopholes. But I worry that the bottom line of federal tax reform will hit hard on the moderately wealthy, those who cannot take advantage of all the tax loopholes, and will not touch the ultra-rich.
It is much more difficult to implement sensible tax reform at the federal level than at the state level. The federal tax code is extensive, confused, and Byzantine. Fixing one thing causes problems elsewhere. Wealthy people are finding ways to avoid tax increases. The entire non-profit sector doing vital work across the country relies entirely on wealthy people to avoid taxes.
Good luck trying to raise taxes to generate the hundreds of billions of dollars it will take to pay for Biden’s programs.