an effective tax rate have been manipulated to deceive working taxpayers.
Yet, the progressivity of the income tax is the issue of tax policy that you see most often discussed on television. Of course, the wealthy as a class are indeed most concerned about the progressivity of income taxation because that is the tax which they predominantly pay. Yet, that hyper focus on income taxation is an illustration of a type of trick or, in some cases, may represent even a bona fide mistake, such as where the television tax commentator may fail to realize that employment or property taxes, as examples, are onerous to persons that do not have high incomes by which to pay these sorts of taxes. In any case, the Social Security Trust Fund cash so accumulated by the toil and sweat of generations of past workers has now been depleted, which will lead eventually to a governmental cash flow crisis as current workers cannot realistically be expected to pay any more in taxes than they already do.
Partly as a result of tax policies designed not to tax capital very much, the fortunes of the wealthy today are so vast that it requires a stretching of the imagination to see how any one person could efficiently allocate so much capital into productive investments. The allocation of large amounts of capital—say, a billion dollars—into productive investments is a very difficult task, so difficult that many wealthy individuals do not even attempt to allocate capital efficiently. Rather, the wealthy often channel largely untaxed capital into huge mansions or palaces, yachts, private aircraft and so on. Jeff Bezos was recently reported to have built a mansion with 25 bathrooms, as a prime example.1 These sort of expenditures are not productive investments and are designed merely to maximize creature comforts; they do not generate any economic return to society besides the initial act of production, and this enhancement of comfort means very little in economic terms. Contrary to what you may have been led to believe, it is not economically “efficient” for society to simply produce and consume comfort items that do not yield any economic return.
If taxes on workers and small business were reduced to more manageable levels, some workers would be clever enough to allocate small amounts of capital into productive activities like farms, restaurants or other small businesses that would generate an ongoing economic return and make society better off. I used to think that the diffusion of small amounts of capital among lots of Americans was a key aspect of the American dream and that capital diffusion helped to explain why the United States was such a successful and prosperous nation. The politicians who have designed the tax system, though, clearly don’t share these ideas about capital diffusion and economic policy. Tax policy more and more is meant to force workers to pay most of the taxes in order to concentrate capital into a few hands and thereby facilitate the accumulation of vast fortunes by the wealthy. As they have always done throughout history, the modern-day wealthy then continue to deploy the capital into building pleasure palaces of various sorts that do not yield any economic return.
Tax proposals to reduce taxes for workers and small businesses, such as that developed later in this book, represent the opposite of current economic and moral theorizing on tax policy. Quite amazingly, however, nearly all the empirical evidence available on tax policy supports a reduction of taxes on work as a means of increasing economic growth. As will be explained further, it is fair to call this the scientific view on tax policy, as it is based on the available evidence. Economic theory is generally not based on evidence. It may surprise you that there is little or no data or other empirical evidence to support the various tax policies proposed by so-called economic experts who call for tax cuts for the wealthy and large corporations. But there isn’t. The deeper you dig into tax policy, the less substance you will find. The object of tax scholarship really is to keep the shovel out of your hands, and thus, to keep you quietly paying taxes through the direct withholding of funds out of your paycheck.
Meanwhile the wealthy and large corporations vociferously complain about taxes but pay almost nothing in relative terms. The corporate share of the tax base prior to the Tax Cuts and Jobs Act of 2017 was 9 percent but was trending sharply downward even before the tax cuts, and may now be as little as 1 percent or 2 percent.2 The downward trend in corporate taxes was due in part to the lack of enforcement of the corporate tax laws by the government. For example, the Internal Revenue Service has adopted a variety of programs designed not to comprehensively audit large corporations as they do other smaller business and individual taxpayers. With further sharp reductions to the corporate statutory tax rate, the corporate share of the tax base has likely been reduced from 9 percent to much less. For comparison, the corporate share of the tax base ranged between 20 percent and 30 percent in prior decades. As the corporate share of the tax base is further reduced, workers will be expected to pay more taxes into the system to make up the difference, either now or in the future; the timing of when that happens depends, of course, on how quickly the federal system becomes insolvent.3
The foremost object of tax policy is accordingly to convince working taxpayers that the tax system is smart, fair and efficient when it is obviously not. The goal of this book is to reveal many of the deceptions that currently exist within tax policy. The deceptions you will read about in these pages are not so different from magic tricks. However, in this case, instead of believing a rabbit came out of a hat, taxpayers are fooled into believing that the tax system is either fair or efficient—it is in reality neither, nor is it intended to be so. The many philosophers who wish to debate the relative fairness of the tax system have missed the important point, which is that only the powerful are interested in debating whether the current tax system may be considered “fair.” The working classes do not find this supposedly philosophical inquiry as to the “fairness” of wage and other types of taxation to be even a valid question and go about their lives under the assumption that the tax system is grossly and abjectly unfair. And, as will be explained, it turns out it is the workers and not the philosophers who are correct that relative fairness has little practical import or relevance to the design of tax policy.
Professional philosophers have largely failed to recognize that a method of accounting, consistently applied, is strictly necessary to reach moral conclusions about the fairness of the tax system. Insofar as many workers are only aware of a cash-basis means of accounting for tax payments, they have, by necessity, consistently applied that accounting method and reached the cogent conclusion that the tax system is not “fair” to them since workers plainly remit most of the taxes measured on a cash basis. Of course, various philosophers have encouraged the wealthy to believe that the tax system should be considered “fair” by creating special accounting methods to be creatively applied on a noncash basis within their own moral frameworks. These special accounting methods make it possible to say that the wealthy should be assumed to have paid a proportionate share of taxes to then allow for a supposed “redistribution” for basic needs in the “welfare state,” as example. In any case, the results are thereby twisted to such a degree that some background in accrual accounting (or even forensic accounting) is helpful in attempting to apply the many special accounting methods of moral philosophy to tax policy. This will be explained further below.
The broader purposes of the overall tax system are better revealed by what is referred to as “postmodern” philosophy and are actually twofold: The first purpose is to collect tax nearly exclusively from workers by withholding directly out of their paychecks. The second purpose is to allow the wealthy to feel powerful by not paying much of anything in tax. This is often achieved as a result of what the wealthy consider “prudent” tax avoidance planning—yet, such means of rational tax avoidance are only made available to relatively wealthy persons under the tax laws. Both of these elements are absolutely necessary to the functioning and design of the current tax system. The American billionaire Leona Helmsley stated it best: “We don’t pay taxes. Only the ‘little people’ pay taxes.”4 That is basically an accurate factual description of the tax system. Helmsley was a real estate heir and for long the richest person in the United States. Similar to Bezos’s 25 bathrooms, Helmsley famously left $11 million in a trust fund for her dog upon her death. She captured in these few words
