From Common Dreams
The GOP tax cut enacted in December and the just-passed federal budget give would-be affluent tax cheats both motive and plenty of opportunity.
Every nation levies taxes. Some nations levy well. In these admirable nations, tax systems spread the tax burden fairly. Those who can readily afford to pay more in taxes do pay more.
Other nations tax poorly. They set low tax rates on high incomes. Officials in these nations let their wealthiest carve generous loopholes in their tax codes. They wink at outright tax evasion.
Nations that go down this sorry second path don't just lose out on revenue they ought to be raising. They turbocharge their inequality. They invite corruption. They poison their civic culture -- and eventually, once enough poison takes hold, crash their economies.
This crashing played out earlier this century most notably in Greece. That nation's economic life essentially collapsed, the Economist business magazine noted six years ago, amid a tax evasion that had evolved into "less an under-the-radar activity, more a social norm."
The Greek wealthy, the Economist observed, established that norm. Greece's most "egregious" tax cheating, researchers had found, "happens higher up the wealth ladder."
The United States hasn't hit -- yet -- the levels of tax evasion that leveled Greece. But we're moving in that direction, ever more deliberately. This past winter saw lawmakers shove us further down this perilous path in two major pieces of legislation.
The first shove came this past December when Congress passed and the President signed into law the GOP "Tax Cuts and Jobs Act." The legislation created no jobs. It did cut tax rates, and munificently so for America's rich and the corporations they own and manage.
But this tax-cut legislation, largely under the radar, also made changes that openly welcome tax evasion.
How so? We know from IRS research that tax evasion flourishes outside the world of W-2s. Only 1 percent of income subject to paycheck withholding, the agency calculates, goes unreported at tax time. By contrast, the share of income that goes unreported from taxpayers who basically self-report their earnings ranges from 16 percent for partnerships to 63 percent for nonfarm proprietors.
That shouldn't surprise anyone. Self-reporting entities, as the Boston Globe's Evan Horowitz points out, have no third party around -- no employer or investment manager -- with a responsibility to pass on income details to the IRS "in a non-self-interested way."
The new GOP tax legislation creates a complex new tax break for these sole proprietorships and other "pass-through" businesses. Pass-throughs -- outfits where profits go directly to owners and get added, at least in theory, to their personal income -- can now deduct 20 percent of their business income before calculating how much they owe Uncle Sam.
This sweet deduction will, naturally, encourage many more taxpayers to reorganize themselves as pass-through operations. By claiming "pass-through" status, they'll get that 20 percent discount. Some will get more. They'll get all sorts of opportunities for underreporting their overall income.