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How Trump’s Tax Plan Would Create An Old-World Aristocracy

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How Trump’s Tax Plan Would Create An Old-World Aristocracy

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Reprinted with permission from DCReport.org

 

Bias for the super-rich, at the expense of everyone else, lies at the heart of the tax bill that Republicans hope to rush into law without public hearings. The most outrageous example of this is a plan to make sure that the richest of the rich never have to pay taxes on their investment gains.

The tax bill would not just eliminate the estate tax. It would do something far more outrageous.

The GOP/Trump tax plan would exempt all capital gains taxes from taxation at death.

That means Bill Gates, who started Microsoft with a $50,000 loan from his parents, would never be taxed on the increased value of stocks and other appreciated property he owns when his time runs out. Nor would his children, nor his children’s children. Ditto Warren Buffett, Jeff Bezos and Donald Trump.

This is how Old World-style, inherited aristocracies are created.

There is no policy justification for forgiving all capital gains at death. People should be demanding that this not come to pass unless they think the rich need more and are overly burdened by taxes—taxes they currently can defer until after they die. (For married couples the taxes can be deferred until after the second spouse dies.)

The George W. Bush-era estate tax changes allowed an exemption for capital gains owed at death. But it was only for the taxes on $1.3 million of gains ($2.6 million for a married couple). That was bad policy, but at least it is limited to the modestly successful who saved and invested, not to people with fortunes in the billions and even tens of billions of dollars.

The reason the richest of the rich benefit is that only a minority of Americans own investments.

Most people who own stocks, real estate and other property that increases in value over time cash in their investments at various points in their lives. They pay capital gains taxes and on the after-tax balance they then pay for college for their children or pay off their mortgage or cover medical bills or to cover living expenses in old age.

But if you own tens of millions or more in stocks—and a few Americans own tens of billions—you never need to sell these shares.

Indeed, during your lifetime you can borrow against them to cover your living expenses and never pay income taxes. Under the GOP and Trump tax plan, the super-rich can live tax-free and then pass their gains on to their heirs tax-free while you keep paying taxes.

This planned favor to the super-rich shifts the burden of supporting government off those who got the greatest economic benefit and adds it to the burdens of Americans who did less well in financial terms. It reminds us of what the late Leona Helmsley, a billionaire hotelier, said, according to a former housekeeper who testified at Helmsley’s 1989 income-tax evasion trial: “We don’t pay taxes; only the little people pay taxes.”

One of the most prominent tax advisers to the super rich is appalled by the bill. Jonathan Blattmachr is an estate tax lawyer so well known in his field that just mentioning his first name triggers recognition among the other 16,000 or so trusts and estate lawyers. I featured Blattmachr in the opening of my book Perfectly Legal, still in print 14 years later.

Blattmachr, a card-carrying Republican, says the bill is rife with “bad, bad aspects” that amount to “a super giveaway to the rich and super-rich.”

The tax plan would add to the federal debt, which Trump ran against and which House Republicans have complained for years is a terrible economic monster that must be slain. But instead of a tax bill that would reduce the annual federal budget deficit or at least not add more than currently projected, the GOP plan will add an extra $1.5 trillion to the federal debt over a decade. The federal debt now stands at more than $20 trillion.

The increased debt will almost surely be used as justification by Republicans to cut spending. Their past plans have focused on reducing services for children, the disabled, the elderly, the hungry and the poor. In other words, the most vulnerable and least likely to fight back.

And if you own stocks through your retirement account, like an IRA or a 401(k), you not only get taxed on the gains when you sell, you pay at the higher rates for labor income than the lower rates applied to capital.

So, in simple terms, the plan is no taxes on the wealth of the richest of the rich, while you take on the added burden of supporting the government through more taxes, fewer services or more federal debt. Keep in mind these wise words from Blattmachr, an adviser to many of the super-rich:

“There is no such thing as tax reduction, only tax burden shifting.  When you reduce taxes on the richest Americans, those less rich will pay the difference.”

Featured Image:  “A Mishap At Tea Time” by Cleto Luzzi.

 

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David Cay Johnston

David Cay Johnston won a 2001 Pulitzer Prize for his coverage of taxes in The New York Times. The Washington Monthly calls him “one of America’s most important journalists” and the Portland Oregonian says is work is the equal of the great muckrakers Ida Tarbell, Lincoln Steffens and Upton Sinclair.

At 19 he became a staff writer at the San Jose Mercury and then reported for the Detroit Free Press, Los Angeles Times, The Philadelphia Inquirer and from 1995 to 2008 The New York Times.

Johnston is in his eighth year teaching the tax, property and regulatory law at Syracuse University College of Law and Whitman School of Management.

He also writes for USA Today, Newsweek and Tax Analysts.

Johnston is the immediate past president of the 5,700-member Investigative Reporters & Editors (IRE) and is board president of the nonprofit Investigative Post in Buffalo.

His latest book Divided: The Perils of Our Growing Inequality an anthology he edited. He also wrote a trilogy on hidden aspects of the American economy -- Perfectly Legal, Free Lunch, and The Fine Print – and a casino industry exposé, Temples of Chance.

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10 Comments

  1. Dominick Vila November 9, 2017

    Thank God anti-acids are relatively inexpensive, because even a cursory examination of the welfare for the rich and powerful Bill is enough to cause irreparable damage to our digestive system. From elimination of the estate tax, which only benefits the super rich, to lowering the tax rate to people who already enjoy lavish and irresponsible tax deductions that allow him to either pay no taxes at all, or somewhere between 12% and 18% if they don’t have a good tax accountant, and often get subsidies even after posting huge profits, what is being proposed is disgusting and guarantees dependence on deficit spending, out of control accumulation of debt, borrowing to offset the effects of lavish tax breaks, and compromising the future of the United States. That this is being proposed by the same people tax accused President Obama of increasing the national debt, which was done of prevent the collapse of the U.S. economy as a result of the 2007-2010 Great Recession, is the epitome of hypocrisy. The portrait of the French aristocracy is most appropriate to depict the greedy kleptocracy we have become.

    Reply
    1. dbtheonly November 9, 2017

      Dom, the problem is that there is not one tax bill. There are several. The House Bill is still being amended, so re really don’t know where that’s going to end up. The Senate Bill, which Trump says “You’re gonna like more.” is still in development.

      I firmly believe that the Republicans are going to keep the balls in the air, juggling this and deleting that, until they cram the final bill through with little or no examination of what’s really there.

      Also, please be careful, during tax reform talk, the RWMO is more prone than usual to re-define terms, use skewed statistics, and slogan over items.

      1. Dominick Vila November 9, 2017

        I agree 100%

      2. dpaano November 9, 2017

        The RWMO can do what they may, but in the end, people will definitely notice that they were fed a pack of lies when it comes to paying their taxes next year (or whenever the new plan goes into effect)!

        1. dbtheonly November 9, 2017

          d, I’m not sure about that. In my experience, most people feel that taxes are too complex for them to understand and refuse to think about them. All they care about is the size of their refund, little realizing that the refund is a function of how much they’ve had withheld over the year. I’ve had people refuse to deal with a W-9 form. All it asks is “who are you?” and “how many deductions do you want to withhold for?” There’s no wrong answer. But some people are so freaked out they pay me to fill out the form.

          Think of the lies the RWMO has people believing. We underestimate them at our peril.

          1. A_Real_Einstein November 9, 2017

            They will understand when they get a voucher to pay for their healthcare instead of Medicare. They will understand when they get kicked out of their nursing homes because The Republicans will take 1 trillion dollars from Medicaid to pay for these tax cuts.

    2. dpaano November 9, 2017

      Most of the largest corporations in this country pay absolutely NO taxes whatsoever…..so why is it important to give them a tax cut? What’s to cut??? Whatever they have to pay will just be offset by other loopholes….why do you think companies like GE hire ex-IRS people for their tax departments?

  2. dpaano November 9, 2017

    Typical….the rich get richer and the poor get screwed! Seems that’s always the way when the Republicans are in power! Doesn’t seem to change much. Here in California, we’re going to be hit hard if they take away our Federal and State tax deductions as well as our property tax deduction….I already pay a large tax bill each year (I have to pay it off in installments of $1000/month, which is tough when you’re on a budget)….I can’t afford to pay more. Just as I get last year’s paid off, I’ll probably be hit with another big bill and have to spend all of 2018 paying that off. I can’t even pay anything on my student loan because I’m using all my money to pay my taxes…..and my student loan chalks up over $900/month in just interest alone. I’ll be dead before I get anything paid off on my student loan….it started out at $45,000, and it’s gone up since 1987 to over $140,000! How does a person pay that when the payments are just a couple dollars more than the interest each month…..let’s face it, the poor and middle class in this country are getting screwed!! We need to do something about it, and the recent elections in Virginia and New Jersey really give me an optimistic view of the future if we can just keep the voters motivated!!

    Reply
  3. Eleanore Whitaker November 9, 2017

    The reality Dem states as donor to the Republican “receiver” states is that this Tax Reform will flush more Dem state tax dollars to Republican states, leaving Dem states no choice but to raise state taxes.

    Fact: Every Republican state gets back more than they pay for their federal tax $1. Dem states get an average of 55 cents. This has been going on since the Gingrichian ideal of “a permanent Republican majority.” That majority is bogus as is now becoming more evident in states like VA where redistricting maps mean even when Dems win by 10 or more points, Republicans still claim victory due to redistricting. Just how far did the GOP think they could go with that?

    But, I digress. When Republicans blame Dem states having the highest taxes on our states, they lie. In order for Dem states to fill in gaps caused by the lack of equal federal funding Republican states “receive” via Dem state taxes, we have no choice but to increase state taxes to pay for things federal taxes are supposed to pay for.

    So what’s coming shouldn’t shock anyone. Dem states will not end up being double taxed so our federal tax dollars always end up in Republican states. We can simply use our states’ rights and KEEP ALL of those federal tax dollars in our Dem states and let the Republicans raise state taxes to pay for the federal programs only they get to enjoy.

    There really is no reason Dem states like CA, NJ, NY, CT, NH, VT, IL, OR and WI cannot hold onto federal taxes and pay Medicare, Medicaid, SS and other federal tax bills out of state taxes. Some of these states already have state Medicare, Medicaid and state income taxes. Most GOP states don’t.

    Instead of submitting those federal tax payroll deductions to the fed, keep it all in state treasuries for dispersal as needed to state residents and let the GOP states sink or swim on their own state taxes like we have to do.

    Reply
  4. Aaron_of_Portsmouth November 9, 2017

    Given a special sort of trait which all humans have inherited since our inception, there’s no reason the be surprised that we’ve been immersed in an ocean of greed and desire to accumulate wealth. This is a challenge to our tendencies as humans to form hierarchies, including autocratic, aristocratic, plutocratic, caste, race, etc.The purpose, as alluded to in that Hidden Word of Baha’u’llah’s I’ve posted several times, and in summary, is that the possibility of attaining wealth is a means to test our resolve to restrain this innate tendency to want to dominate and whether we will submit to the obsession to acquire wealth to the exclusion of emphasis on being moderate in our quest for material well-being..

    The GOP is especially keen on letting America and the world know that it has no qualms about being excessively greedy. For them in particular, it’s as though greed and the acquisition of wealth are “virtues” and the primary point of human existence.

    I and my colleagues across the globe hope that Russian autocrats, the Chinese leadership, and American leadership will eventually come to terms with the Message of Baha’u’llah, in order to start seriously stemming the tide of greed sweeping the globe.

    Reply

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