17 April 2023   Leave a comment

US Speaker of the House of Representatives Kevin McCarthy gave a speech today to the New York Stock Exchange outlining his ideas for raising the debt ceiling limit on Federal Spending. Ed Kilgore, writing for New York Magazine, summarizes the gist of McCarthy’s proposal: “At the New York Stock Exchange on Monday, McCarthy said Republicans ‘want Congress to place limits on federal spending, claw back COVID-19 aid, and require Americans to work to receive federal benefits,’ as The Wall Street Journal put it.” This annual exercise is ridiculous since the money has already been spent–the idea that the Congress would refuse to honor those obligations is nonsensical. As well as catastrophic.

The problem is that the Republican Party is more than willing to cut taxes but not at all willing to raise taxes. The Republicans have successfully promulgated the idea that US citizens are overtaxed. Nothing could be further from the truth:

Moreover, there is about $4 trillion that the rich have been able to hide from the Internal Revenue Serice, primarily using offshore bank accounts. The National Bureau of Economic Research has just published a research paper which outlines the scope of the problem. The researchers found that:

“According to our estimates, around 1.5 million U.S. taxpayers held foreign financial accounts with aggregate assets of around $4 trillion in tax year 2018. By comparison, the total financial assets of U.S. households totaled roughly $80 trillion according to official financial accounts (Federal Reserve, 2022). Around half of the assets in foreign accounts, just below $2 trillion, were held in jurisdictions usually considered tax havens, such as Switzerland, Luxembourg and the Cayman Islands. Just 14% of accounts are located in tax havens compared to nearly half the total wealth, which reflects that accounts in havens were on average larger.”

Importantly, those who hold these funds offshore are overwhelmingly those with the highest incomes in the US:

“More than 60% of the individuals in the top 0.01% of the income distribution own foreign accounts, either directly or indirectly through a pass-through entity. By comparison, this fraction is less than 40% for the bottom half of the top 0.1%; less than 20% for the bottom half of the top 1%; and less than 5% for the bottom half of the top 10%.”

In other words, the bottom 95% do not enjoy this extraordinary tax benefit. But the IRS has apparently made little progress in assuring that those who enjoy the benefits of offshore banking comply with the purposes of the legislation designed to force compliance. The US Treasury Inspector General has issued several reports detailing the IRS failure, once in 2018 and again in 2022.

There is plenty of money to finance the US national debt. What is required is that the Congress simply require a very small number of US citizens to pay their fair share and to give the IRS the funds to more accurately assess the tax base. No new taxes are necessary. But the very, very rich will have to accept that their free ride is over.

Posted April 17, 2023 by vferraro1971 in World Politics

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