Government of tax cheats, by tax cheats, for tax cheats.
By PAUL KRUGMAN, The New York Times
It turns out that I may have done Donald Trump an injustice.
You see, I’ve always been skeptical of his claims to be a great dealmaker. But what we’ve just learned is that his negotiating prowess began early. Indeed, it was so amazing that he was already making $200,000 a year in today’s dollars at a very young age.
Specifically, that’s what he was making when he was 3 years old. He was a millionaire by the age of 8. Of course, the money came from his father — who spent decades evading the taxes he was legally required to pay on money given to his children.
The blockbuster New York Times report on the Trump family’s history of fraud is really about two distinct although linked kinds of fraudulence.
On one side, the family engaged in tax fraud on a huge scale, using a variety of money-laundering techniques to avoid paying what it owed. On the other, the story Donald Trump tells about his life — his depiction of himself as a self-made businessman who made billions starting from humble roots — has always been a lie: Not only did he inherit his wealth, receiving the equivalent of more than $400 million from his father, but Fred Trump bailed his son out after deals went bad.
One implication of these revelations is that Trump supporters who imagine that they’ve found a straight-talking champion who will drain the swamp while using his business acumen to make America great again have been suckered, bigly.
But the tale of the Trump money is part of a bigger story. Even among those unhappy at the extent to which we live in an era of soaring inequality and growing concentration of wealth at the top, there has been a tendency to believe that great wealth is, more often than not, earned more or less honestly. It’s only now that the amounts of sheer corruption and lawbreaking that underlie our march toward oligarchy have started to come into focus.
Until recently, my guess is that most economists, even tax experts, would have agreed that tax avoidance by corporations and the wealthy — which is legal — was a big issue, but tax evasion — hiding money from the tax man — was a lesser one. It was obvious that some rich people were exploiting legal if morally dubious loopholes in the tax code, but the prevailing view was that simply defrauding the tax authorities and hence the public wasn’t that widespread in advanced countries.
But this view always rested on shaky foundations. After all, tax evasion, almost by definition, doesn’t show up in official statistics, and the super-wealthy aren’t in the habit of mouthing off about what great tax cheats they are. To get a real picture of how much fraud is going on, you either have to do what The Times did — exhaustively investigate the finances of a particular family — or rely on lucky breaks that reveal what was previously hidden.
Two years ago, a huge lucky break came in the form of the Panama Papers, a trove of data leaked from a Panamanian law firm that specialized in helping people hide their wealth in offshore havens, and a smaller leak from HSBC. While the unsavory details revealed by these leaks made headlines right away, their true significance has only become clear with work done by Berkeley’s Gabriel Zucman and associates in cooperation with Scandinavian tax authorities.
Matching information from the Panama Papers and other leaks with national tax data, these researchers found that outright tax evasion actually is a big deal at the top. The truly wealthy end up paying a much lower effective tax rate than the merely rich, not because of loopholes in tax law, but because they break the law. The wealthiest taxpayers, the researchers found, pay on average 25 percent less than they owe — and, of course, many individuals pay even less.
This is a big number. If America’s wealthy evade taxes on the same scale (which they almost surely do), they’re probably costing the government around as much as the food stamp program does. And they’re also using tax evasion to entrench their privilege and pass it on to their heirs, which is the real Trump story.
The obvious question is, what are our elected representatives doing about this epidemic of cheating? Well, Republicans in Congress have been on the case for years: They’ve been systematically defunding the Internal Revenue Service, crippling its ability to investigate tax fraud. We don’t just have government by tax cheats; we have government of tax cheats, for tax cheats.
What we’re learning, then, is that the story of what’s happening to our society is even worse than we thought. It’s not just that the president of the United States is, as veteran tax reporter David Cay Johnston put it, a “financial vampire,” cheating taxpayers the way he has cheated just about everyone else who deals with him.
Beyond that, our trend toward oligarchy — rule by the few — is also looking more and more like kakistocracy — rule by the worst, or at least the most unscrupulous. The corruption isn’t subtle; on the contrary, it’s cruder than almost anyone imagined. It also runs deep, and it has infected our politics, quite literally up to its highest levels.
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