The Tax Scandal
The theory underlying the U.S. progressive tax system is that the more dollars people take in, the more they ought to pay out as their fair share of support for government programs and services. Between the theory and the reality of taxpaying, however, yawns a very considerable gap, with many of the nation’s more prosperous citizens paying much less in taxes than the law originally envisaged. Just how many have been getting away with tax avoidance by taking advantage of loopholes has now been defined in a new Treasury Department study.
When Treasury took a look at 1983 tax returns it found that 260,275 persons had incomes above $250,000. Of these, 121,850 paid at least 20% in taxes. That’s not bad. The average family that earned $30,000 to $75,000 in 1983, by contrast, paid about 13% of its income in federal taxes. But the 47% of the well-off who paid approximately their fair share of taxes turn out to be the exception, not the rule. Thanks mainly to limited-partnership tax shelters, a lot of the rich were able to show paper losses that offset their gross incomes to the point where they paid little or no taxes at all.
Consider the 28,000 persons whose 1983 incomes were $1 million or more. More than 300 of them paid not a dime in taxes. More than 3,000 got away with paying less than 5% in taxes. The tax liability of 2,225 more came to less than 10% of what they earned. The breaks didn’t go only to millionaires. About 1,900 taxpayers with incomes of at least $250,000 paid no taxes, 30,000 others paid taxes of less than 5%, while 25,000 more were able to pay at a rate no higher than 10%. In all, almost 17,000 taxpayers whose income exceeded a quarter-million dollars, including 1,500 millionaires, paid taxes of no more than $6,272 apiece on their earnings. That happens to be the average tax paid by a family of four with an income of just $45,000.
More than half the losses claimed by tax avoiders or underpayers came from oil and gas and real-estate tax shelters. These are legal under the existing tax code. There are a lot of ideas around for changing that code that may or may not be enacted by Congress someday, but those changes would not necessarily end all the abuses that now go on. Whatever may be done, Congress and the public should insist on providing for a minimum tax based on what the Treasury calls “total positive income”--the sum of wages, salaries, interest, dividends and income from profitable businesses and investments--without regard to tax-shelter losses. The tax avoidance that the Treasury study shows is available to the rich is not simply an abuse of the system. It is a scandal.
