White Paper – Blue

Eliminating Tax Loopholes That Benefit Corporations And Wealthy Individuals
This article goes into detail about the history found behind the race to pay less taxes between the extremely wealthy and the middle class. As it seems, the middle class is much less interested in taxes than the wealthy. Presumably because the wealthy have a lot more to gain from using tax loopholes and a lot more accessible methods,they take advantage much more. With wealth comes power and influence. The upper class is able to influence government policies and such for their gain, leading to everyone else footing the bill. A collective effort of the middle class to stop this would be necessary, but because of the complete lack of interest in the topic, it is extremely unlikely. Other factors have also skewed this “race” in the wealthy’s favor, such as the weakening of workers unions. The solution is to turn to the IRS, which could be the answer to stop the wealthy from using tax loopholes. If more revenue is in play from the rich, the pinch would be significantly less for the middle class. Unfortunately, the IRS is underfunded and neglected because the rich have a lot of say in how much the IRS is funded.

Tax Loopholes: A Procedural Proposal
What is a tax loophole? There are so many different methods that can be used to dodge taxes, whether they are taking advantage of returns, offshore accounts, and many more. This book provides a lot of significant data on what people define as a tax loophole and the amount of money that is lost because of it. (This section of this book is 70 pages long, and I have been chipping away at it in my free time. I still have a lot more to look into, but will improve this summary after I finish up the rest of it.)

Tax reforms to raise revenue efficiently and equitably
A solution to the issue of the taxation imbalance problem is necessary. Some of the most notable solutions are taxing inheritance as income, raising multinational corporations taxation rate, and funding the IRS. The first two are very notable ways that wealthy individuals have been getting out of taxes. All of these solutions would increase the government’s income and balance out the disproportionalities between wealthy and middle class. The most likely of these is to increase funding of the IRS. Because the IRS is not properly funded, billions of dollars in tax revenue is lost, which is a substantial amount that would shift the balance. While the first two are valid solutions, the outcry from opposing lawmakers would likely stop their implementation in their tracks. Increased funding of the IRS, in my eyes, is the most likely to succeed.


AU Advises IRS To Close Voucher Funding Loophole In Tax Code
In some states, there is a major loophole where you can donate to schools and receive the money back in tax returns. Let’s say you donate 1 million to private schools. Some people receive all of that money back from the government. In some states, however, that is seen as a charitable donation and not taxable. After receiving that money back, you will receive a (let’s say 30 percent) return because of your charitable contributions. You received your 1 million back, and took 300 thousand dollars off of your taxes as profit. The losers in this situation are public schools, because money that would be funding them is instead given away to reimburse the donors. The real issue here is that the IRS is completely aware of this situation, and has done nothing about it. They are completely underfunded and do not have the resources to respond to this situation.

Senators Press Yellen to Boost IRS Funding
The effects of the IRS underfunding are substantial. The budget has been reduced by 22 percent since 2010, causing the service to cut a lot of its resources. Staffing has fallen by 22 percent as a result, while tax filers have increased by 14 percent since then. Because of this, the IRS’s ability to properly enforce taxation on the wealthy has drastically decreased because of how little manpower they are able to employ. Joe Biden’s build back better act wants to fund the IRS, but so far has not seen any success. After decades of gutting the IRS budget, the agency had not been able to properly tax the wealthy and assist honest taxpayers. This is a substantial issue that takes money out of the pockets of the average American.

Hypothesis 1
Increased funding of the IRS would give the agency a basis to react to the abuse of tax loopholes, subsequently moving the wealthy’s one sided balance of who pays the most taxes back towards the middle.

Hypothesis 2
The IRS is currently unable to respond to the abuse in tax loopholes due to low funding and manpower. A change must be made in the agency’s budget in order to give it the ability correct the wrongs in taxation that occur every year.

Small paper topics:
Taxation of inheritance as income.
Raising multinational corporations’ taxation rate.
Charitable donations to private schools, and how donors receive a huge break in their taxes.

I enjoyed this doing research. As you could probably tell, this is a very rough summary of my topic and the research is far from complete. I have chosen to focus on the underfunding of the IRS, and how it’s funding is crucial to combating tax inequality. You can see the rabbit hole I fell down while researching this as you read from one article to the next. I have started looking into data on the IRS’s budget and looking into more relevant stories and statistics about the agency. I still have a lot to smooth out, so any feedback is much appreciated.

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3 Responses to White Paper – Blue

  1. davidbdale says:

    It all seems so pointless, Blue, don’t you think? No effort to make the rich (individuals or corporations) pay taxes on their income seems to work. Anyone powerful enough to influence Congress can write their own loophole and get it passed into law, circumventing “enforcement” efforts even if there were any.

    I’ve tinkered with the idea of scrapping the income tax completely for years because it seems so cumbersome. The time and energy wasted trying to calculate our liabilities is just so counterproductive. And what do we get out of it? The most inequitable society in hundreds of years.

    Suppose instead we taxed every value transaction. Just a tiny bit, but every transaction. We tax sales now at the consumer end, but all the transactions that go into making products and delivering services are conducted tax-free as part of the production chain. Homebuilders buy thousands of products to put into a new home and don’t pay taxes on them because they’re part of the making of a final product and therefore tax-exempt. At the end of the year, if they can creatively demonstrate that they didn’t have any profits, even though everybody got paid handsomely, no corporate taxes are collected. What if a small tax was part of each of those thousands of transactions? Every retail business reports sales and pays sales taxes. Why not every step in the economy? Just a little taste. It would simplify accounting and generate a lot of money for the government. Something to think about.

  2. blue2228 says:

    Thank you for the feedback. I do find the rich’s power over their own tax rate very irritating. At every turn, they can use their influence or financial assets to lobby over officials or pay someone off, or use some kind of loophole. I think that the middle class does need to band together in protest for something to actually change, but looking at it realistically… this would never happen. The rich are addicted to saving money on taxes, while most of the middle class couldn’t care less.

    I have actually already seen this YouTube video. I find that it does an excellent job of explaining the income distribution in America, and shows how much financial power the top 10 and even 1 percent of the population control. With those seemingly endless resources, they seem untouchable.

    I find your idea of implementing tiny taxes in all transactions intriguing. Those taxes would be difficult to get out of, and would likely be paid by bigger companies. The difficulty here is the effect that it will also have on the middle and lower class. I could see these fees adding up very quickly, amounting to a decent sum of money owed to the IRS. I wouldn’t say that this would strangle small businesses, but it would definitely add some more difficulty for startups. (As cash is king when starting a business, every expense counts. Money spent on taxes is money that cannot be spent elsewhere in the business.) 29 percent of small businesses fail because they run out of cash. Would this tax increase this number? Possibly. If it did, to offset this, maybe some form of deductible targeting lower income business owners, for example? Just a thought.

    I see the IRS as the most likely solution to closing some loopholes. They do know about most loopholes, but simply do not have the resources necessary to properly look into and have a chance at closing them. Congress is going to be pretty useless, as many congressmen and women can be easily swayed and lobbied by the rich. The IRS is seriously underfunded, as Congress controls the budget. I need to work out some kind of solution to get around the brick wall that is our American Legislative Branch. I will keep doing research and see what I come up with.

    • davidbdale says:

      I appreciate your zeal, Blue. There’s no other word for it. You’re a zealot for a cause that pits you against the strongest of foes: entrenched wealth and power.

      But take heart. You don’t need to propose a solution that IS LIKELY TO BE ADOPTED. It’s also not your job to carve a pathway to the acceptance of your solution. Thinking counterintuitively doesn’t require thinking PRACTICALLY. Very often a counterintuitive solution to a problem seems outlandish BECAUSE it appears dead on arrival. But it might still accomplish Step One in achieving any socially-desirable outcome: it imagines the world in which things worked right, in this case both effectively and justly. That’s more than enough to expect from 3000 words.

      Leave it to the next author to figure out how to topple the super-rich. Your job is to make it clear that SOMEBODY has to do SOMETHING to achieve a more equitable world. 1000 words to clearly identify the problem. 1000 words to identify how a better system would operate. 1000 words to point out the many arguments that would be raised against your plan. A final plea to your readers’ better judgment: If you say my solution can’t work, are you willing to suffer the inevitable consequences of the status quo?

      That’s an argument plan, right?

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