Paul Krugman | Biden, Yellen and the War on Leprechauns – The New York Times

Opinion Columnist

Credit…Illustration by The New York Times; photograph by Thinkstock, via Getty Images

“In the summer of 2016, Ireland’s Central Statistical Office reported something astonishing: The small nation’s gross domestic product had risen 26 percent in the previous year (a number that would later be revised upward). It would have been an amazing achievement if the growth had actually happened.

But it hadn’t, as government officials acknowledged from the beginning. It was, instead, an illusion created by corporate tax games. At the time, I dubbed it “leprechaun economics,” a coinage that has stuck; luckily, the Irish have a sense of humor about themselves.

What really happened? Ireland is a tax haven, with a very low tax rate on corporate profits. This gives multinational corporations an incentive to create Irish subsidiaries, then use creative accounting to ensure that a large share of their reported global profits accrue to those subsidiaries.

In 2015 a few big companies appear to have gotten even more aggressive about their profit-shifting, which led to a surge in the value of production they reported doing in Ireland — a surge that didn’t correspond to anything real.

To understand the big corporate tax reform proposed by the Biden administration, what you need to know is that it’s all about the leprechauns.

One way to think about the huge corporate tax cut Republicans rammed through in 2017 is that its underlying premise was that the leprechauns were real. That is, the tax cut’s architects insisted that corporations had been moving operations abroad to avoid U.S. taxes, and that slashing those taxes would bring millions of jobs back home.

It didn’t happen. In fact, the tax cut had no visible effect on business investment, probably because it was addressing a fake problem. U.S. corporations hadn’t been moving jobs overseas to avoid taxes; they had just been avoiding taxes.

The true impact — or actually lack of impact — of profit taxes on business decisions becomes obvious if you look at where corporations report big overseas earnings.

If they were truly responding to taxes by making large foreign investments that eliminated American jobs, we’d expect to see a lot of their profits coming from major production centers like Germany or China. Instead, more than half of the profits U.S. corporations report from overseas investments come from tiny tax havens, including places like Bermuda and the Cayman Islands where they have no real business at all.

By the way, this isn’t just an American problem. The International Monetary Fund estimates that about 40 percent of the world’s foreign direct investment — basically corporate cross-border investment, as opposed to “portfolio” purchases of stocks and bonds — is “phantom” investment, accounting fictions set up to avoid taxes. That’s why on paper Luxembourg, with just 600,000 people, hosts more foreign investment than the United States does.

So the real problem with U.S. corporate tax policy isn’t loss of jobs, it’s loss of revenue — and the Trump tax cut made that problem worse.

For the most part the Biden administration’s Made in America Tax Plan is an effort to reclaim the revenue lost both as a result of profit-shifting and as a result of the Trump tax cut, in order to help pay for large-scale public investment.”   . . .

Opinion | Who’s the Tax Cheat: The Lady in Jdonaldail or the Man in the White House? – By Nicholas Kristof – The New York Times

By 

Opinion Columnist

Credit…Douglas Healey for The New York Times

“While reading that President Trump had claimed $70,000 in highly dubious tax deductions for hair styling for his television show, I kept thinking about a homeless African-American woman named Tanya McDowell who was imprisoned for misleading officials to get her young son into a better school district.

McDowell was sentenced to five years in prison in 2012, in part for drug offenses and in part for “larceny” because she had claimed her babysitter’s address so her son could attend a better school in Connecticut.

In some sense both Trump and McDowell appear to have cheated on their taxes. McDowell sent her son to a school district without paying taxes there. And according to The Times’s extraordinary reporting, Trump may have illegitimately claimed a $72.9 million refund that the I.R.S. is now trying to recover.

In addition, my ace Times colleague James B. Stewart reported that hair styling is not a deductible expense and that, in any case, Trump’s hair expenses for his “Apprentice” TV shows should have been reimbursed by NBC — in which case Trump may have committed criminal tax fraud.

Credit…Rose M. Prouser/CNN, via Reuters

The bottom line: We imprisoned the homeless tax cheat for trying to get her son a decent education, and we elevated the self-entitled rich guy with an army of lawyers and accountants so that he could monetize the White House as well. (Sure enough, Trump properties then charged the Secret Service enormous sums for hotel rooms and other fees while agents were protecting Trump.)

The larger point is not that Trump is a con artist, although he is, but that the entire tax system is a con. The proper reaction to the revelations about Trump’s taxes is not to fume at the president — although that’s merited — but to demand far-reaching changes in the tax code.

We interrupt this column for a quiz question: What county in the United States has the highest rate of tax audits?

The answer is Humphreys County in rural Mississippi, where three-quarters of the population is Black and more than one-third lives below the poverty line, according to ProPublica and Tax Notes. Tax collectors go after Humphreys County, where the median annual household income is $28,500, because the government targets audits on poor families using the earned-income tax credit, an antipoverty program, rather than on real estate tycoons who pay their daughters (that’s you, Ivanka!) questionable consulting fees to reduce taxes.

The five counties with the highest audit rates in the United States, according to Tax Notes, are all predominately African-American counties in the South.

Meanwhile, zillionaires claim enormous tax deductions for donating expensive art to their own private “museums” located on their own property. That’s the kind of scam that works if you’re a billionaire, but not so well if you’re my old friend Mike, who is homeless and once gave his food stamp card to a friend to buy groceries for him. The government responded by suspending Mike’s food stamps.

Tax cheats thrive because Congress has slashed the I.R.S. budget, so that the risk of audits for people earning more than $1 million per year plunged by 81 percent from 2011 to 2019. The I.R.S. has opened audits on only 0.03 percent of returns reporting income of more than $10 million in 2018 (that percentage probably will rise), according to the Center for American Progress.

Need more evidence of systemic unfairness? Trump is still holding on to the almost $73 million that he appears to have bilked out of the I.R.S. a decade ago, even though the I.R.S. is contesting his maneuvers. For wealthy people like Trump, taxes become something like a long negotiation.

An undocumented immigrant housekeeper who had worked for the Trump Organization posted tax statements on Twitter showing that she had paid more federal income taxes than Trump himself had in many years. And by one estimate, the failure of wealthy Americans to pay their fair share forces everyone else to pay an extra 15 percent in taxes.

At the same time, almost one-fifth of American families with children report that they can’t afford to give their kids enough food.

A starting point for a fairer system would be auditing the wealthy as aggressively as impoverished Black workers in rural Mississippi. The economists Natasha Sarin and Lawrence Summers estimate that 70 percent of tax underpayment is by the top 1 percent and conclude that tougher enforcement by the I.R.S. could raise $1 trillion over a decade.

Investing in the I.R.S. to go after rich tax cheats not only promotes fairness but also pays for itself: Each additional dollar spent on enforcement brings in about $24.

Remember Leona Helmsley, the wealthy hotel owner who was prosecuted for cheating on her taxes? She sadly had a point when she reportedly scoffed: “We don’t pay taxes. Only the little people pay taxes.”

On the bright side, Helmsley ended up in prison. I generally believe that in America we over-incarcerate, but I’m appalled that we treat a man with a gilded life and $70,000 in hair styling deductions more gently than a mom who cheats to try to give her son a better future.”   -30-

Opinion | The I.R.S. Is Outgunned – By Natasha Sarin – The New York Times

By 

Dr. Sarin is an assistant professor at Penn Law and the Wharton School of Business.

Credit…Al Drago for The New York Times

“The president of the United States paid less in federal taxes than all but the poorest Americans the year he was elected. This is in large part because he lost more money than nearly anybody else in this country for years, a troubling fact given his promise to “run America like his business.”

But the responsibility for his meager $750 tax bill does not lie with President Trump alone, nor with his tax advisers. Instead, the newest revelations put a very famous face on a problem that has long existed: The wealthy aren’t paying what they owe, and our tax system allows it.

This is not a new problem, but it is one that has gotten worse in the last decade, the result of a partisan attack on the I.R.S. that has deprived it of the resources it needs to police evasion aggressively. In the last decade, the I.R.S.’s budget has fallen (in real terms) by nearly 15 percent. Its enforcement budget has fallen 25 percent over this period, and its work force has been slashed by 20 percent.

These grim numbers do not even take into account the growth in the economy and the increasing complexity of tax returns. In fact, as a share of gross tax collections, the I.R.S. budget is down nearly 50 percent from its peak in 1993.

As my work with the former Treasury Secretary Lawrence Summers shows, the result of this underinvestment is that the I.R.S. today cannot administer tax laws effectively. Based on current trends, in the next decade the I.R.S. will fail to collect an estimated $7.5 trillion in owed tax. That “tax gap” corresponds to nearly 3 percent of G.D.P. annually.

The beneficiaries of a gutted I.R.S. are the elite. Even if all taxpayers were equally likely to evade their liabilities, the benefits to the top 1 percent from underpaying would still be significant: 1 percent of this $7.5 trillion, or $75 billion. But the top 1 percent share of the tax gap is at least 30 times this amount, more than $2 trillion in the coming decade.

To understand this magnitude, consider this: If the I.R.S. were able to collect the unpaid taxes that the top 1 percent owe — absent any increases in top tax rates or new system of wealth taxation — enough revenue would be generated to wipe out student debt for most people in this country.

Why are the wealthy skirting the tax laws most aggressively? It’s a feature of our tax collection system. Compliance rates for ordinary wage and salary workers are 99 percent because their taxes are automatically withheld. In contrast, richer Americans are more likely to have items like capital gains, rental income and proprietorship income — and the I.R.S. estimates that up to 55 percent of the income from such sources can be unreported, and thus untaxed.”

Part 2: Tax Records Reveal How Fame Gave Trump a $427 Million Lifeline – By Mike McIntire, Russ Buettner and Susanne Craig – The New York Times

Tax records show that “The Apprentice” rescued Donald J. Trump, bringing him new sources of cash and a myth that would propel him to the White House.

“From the back seat of a stretch limousine heading to meet the first contestants for his new TV show “The Apprentice,” Donald J. Trump bragged that he was a billionaire who had overcome financial hardship.

“I used my brain, I used my negotiating skills and I worked it all out,” he told viewers. “Now, my company is bigger than it ever was and stronger than it ever was.”

It was all a hoax.

Months after that inaugural episode in January 2004, Mr. Trump filed his individual tax return reporting $89.9 million in net losses from his core businesses for the prior year. The red ink spilled from everywhere, even as American television audiences saw him as a savvy business mogul with the Midas touch.

Twelve years later, that image of the self-made, self-saved mogul, beamed into the national consciousness, would help fuel Mr. Trump’s improbable election to the White House.

But while the story of “The Apprentice” is by now well known, the president’s tax returns reveal another grand twist that has never been truly told — how the popularity of that fictional alter ego rescued him, providing a financial lifeline to reinvent himself yet again. And then how, in an echo of the boom-and-bust cycle that has defined his business career, he led himself toward the financial shoals he must navigate today.

Mr. Trump’s genius, it turned out, wasn’t running a company. It was making himself famous — Trump-scale famous — and monetizing that fame.

By analyzing the tax records, The New York Times was able to place a value on Mr. Trump’s celebrity. While the returns show that he earned some $197 million directly from “The Apprentice” over 16 years — roughly in line with what he has claimed — they also reveal that an additional $230 million flowed from the fame associated with it.”

18 Revelations From a Trove of Trump Tax Records – By David Leonhardt – The New York Times

“The New York Times has obtained tax-return data for President Trump and his companies that covers more than two decades. Mr. Trump has long refused to release this information, making him the first president in decades to hide basic details about his finances. His refusal has made his tax returns among the most sought-after documents in recent memory.

Among the key findings of The Times’s investigation:

  • Mr. Trump paid no federal income taxes in 11 of 18 years that The Times examined. In 2017, after he became president, his tax bill was only $750.

  • He has reduced his tax bill with questionable measures, including a $72.9 million tax refund that is the subject of an audit by the Internal Revenue Service.

  • Many of his signature businesses, including his golf courses, report losing large amounts of money — losses that have helped him to lower his taxes.

  • The financial pressure on him is increasing as hundreds of millions of dollars in loans he personally guaranteed are soon coming due.

  • Even while declaring losses, he has managed to enjoy a lavish lifestyle by taking tax deductions on what most people would consider personal expenses, including residences, aircraft and $70,000 in hairstyling for television.

  • Ivanka Trump, while working as an employee of the Trump Organization, appears to have received “consulting fees” that also helped reduce the family’s tax bill.

  • As president, he has received more money from foreign sources and U.S. interest groups than previously known. The records do not reveal any previously unreported connections to Russia.

It is important to remember that the returns are not an unvarnished look at Mr. Trump’s business activity. They are instead his own portrayal of his companies, compiled for the I.R.S. But they do offer the most detailed picture yet available.

Below is a deeper look at the takeaways. The main article based on the investigation contains much more information, as does a timeline of the president’s finances. Dean Baquet, the executive editor, has written a note explaining why The Times is publishing these findings.”

(then there is more)

Trump’s Taxes Show Chronic Losses and Years of Income Tax Avoidance – By Russ Buettner, Susanne Craig and Mike McIntire – The New York Times

The Times obtained Donald Trump’s tax information extending over more than two decades, revealing struggling properties, vast write-offs, an audit battle and hundreds of millions in debt coming due.

“Donald J. Trump paid $750 in federal income taxes the year he won the presidency. In his first year in the White House, he paid another $750.

He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made.

As the president wages a re-election campaign that polls say he is in danger of losing, his finances are under stress, beset by losses and hundreds of millions of dollars in debt coming due that he has personally guaranteed. Also hanging over him is a decade-long audit battle with the Internal Revenue Service over the legitimacy of a $72.9 million tax refund that he claimed, and received, after declaring huge losses. An adverse ruling could cost him more than $100 million.

The tax returns that Mr. Trump has long fought to keep private tell a story fundamentally different from the one he has sold to the American public. His reports to the I.R.S. portray a businessman who takes in hundreds of millions of dollars a year yet racks up chronic losses that he aggressively employs to avoid paying taxes. Now, with his financial challenges mounting, the records show that he depends more and more on making money from businesses that put him in potential and often direct conflict of interest with his job as president.”

Opinion | When a Traffic Ticket Costs $13,000 – The New York Times

By Emily Reina Dindial and Ronald J. Lampard

Ms. Dindial is lawyer for the A.C.L.U. Mr. Lampard is a lawyer for the American Legislative Exchange Council.

A motorist waiting as a police officer writes a citation.CreditStan Lim/Digital First Media — The Press-Enterprise, via Getty Images

For most people living in America, transportation is central to daily life. About 83 percent of Americans report that they regularly drive a car multiple times a week. Yet millions of drivers across the country have had their licenses suspended — taking away their ability to drive to work, school, the grocery store or the doctor — essentially because they are poor.

In 2014, Leah Jackson was ticketed for obstructing traffic in Ostego, Minn., after turning left at a red light. That kind of thing happens to many people. But, as Ms. Jackson explained to state lawmakers in 2018 testimony, she had just started a new job and hadn’t yet received a paycheck, so she couldn’t pay the $135 fine right away.

A few months later, she was pulled over, told her driver’s license was suspended for an unpaid ticket and cited for driving with a suspended license — a new $200 ticket. Her job responsibilities as a retail store manager required her to make bank runs and other deliveries, so she kept driving in order to keep her job. In less than a month, she received two more tickets for driving with a suspended license. After accounting for the additional tickets and the resulting increase in her monthly insurance premiums, her debt from the initial infraction spiraled into more than $13,000 over four and a half years.

The criminal justice system too often produces a self-perpetuating cycle, particularly for the poorest people, who can’t pay fines or hire lawyers to make charges go away. In 39 states, you can lose your driving privileges if you’re unable to pay a court fine or fee, for things as minor as a traffic violation. But a bipartisan effort is growing to end the fundamentally unjust practice of wealth-based suspensions.

Apple, Congress and the Missing Taxes – The New York Times

This is one of the best NY Times editorials I have read in several years.

“Apple and the United States are crying foul over the ruling in Europe that Apple received illegal tax breaks from Ireland and must hand over 13 billion euros ($14.5 billion), a record tax penalty in Europe.

But Apple and the United States have only themselves to blame for the situation.Apple has engaged in increasingly aggressive tax avoidance for at least a decade, including stashing some $100 billion in Ireland without paying taxes on much of it anywhere in the world, according to a Senate investigation in 2013. In a display of arrogance, the company seemed to believe that its arrangements in a known tax haven like Ireland would never be deemed illegal — even as European regulators cracked down in similar cases against such multinational corporations as Starbucks, Amazon, Fiat and the German chemical giant BASF.

Congress, for its part, has sat idly by as American corporations have indulged in increasingly intricate forms of tax avoidance made possible by the interplay of an outmoded corporate tax code and modern globalized finance. The biggest tax dodge in need of reform involves deferral, in which American companies can defer paying taxes on foreign-held profits until those sums are repatriated.”

Source: Apple, Congress and the Missing Taxes – The New York Times

The Panama Papers’ Sprawling Web of Corruption – The New York Times

“The first reaction to the leaked documents dubbed the Panama Papers is simply awe at the scope of the trove and the ingenuity of the anonymous source who provided the press with 11.5 million documents — 2.6 terabytes of data — revealing in extraordinary detail how offshore bank accounts and tax havens are used by the world’s rich and powerful to conceal their wealth or avoid taxes.Then comes the disgust. With more than 14,000 clients around the world and more than 214,000 offshore entities involved, Mossack Fonseca, the Panama-based law firm whose internal documents were exposed, piously insists it violated no laws or ethics. But the questions remain: How did all these politicians, dictators, criminals, billionaires and celebrities amass vast wealth and then benefit from elaborate webs of shell companies to disguise their identities and their assets? Would there have been no reckoning had the leak not occurred?”

Source: The Panama Papers’ Sprawling Web of Corruption – The New York Times