Trump exposed the corruption in the U.S. tax code–How will Hillary Clinton deal with this ?

October 9, 2016

Trump exposed the corruption in the U.S. tax code–How will Hillary Clinton deal with this ?

by Fareed Zakaria

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Donald Trump has done America a great public service. No, really. By taking advantage of the country’s tax laws in such spectacular fashion, he has shone a spotlight on the corruption that is at the heart of American politics — the tax code.

When most people discuss taxes, they tend to talk about them in left-right terms. The right says that taxes are too high for everyone. The left worries that the rich don’t pay their fair share. But the facts don’t support either position. The simplest comprehensive way to judge a country’s tax burden is to look at its tax revenue from all levels of government as a percentage of gross domestic product. The United States has the fourth-lowest burden in the industrialized world, ranking 31st out of 34 countries in the Organization for Economic Cooperation and Development. The United States’ percentage is actually lower today than it was in 2000, while the OECD average is about the same.

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Nor is it true that the rich don’t pay much in America. Obviously some people manage to arrange their affairs so that they don’t pay many — or, possibly in Trump’s case, any — taxes. But the federal government derives most of its revenue from the income tax, and 70 percent of the federal income tax is paid by the top 10 percent of Americans. Most other countries rely on value-added taxes — a sales tax, often as high as 25 percent — that hit everyone equally. Summarizing the academic research for The Post, Dylan Matthews noted: “The United States has by far the most progressive income, payroll, wealth and property taxes of any developed country.”

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The problem with American taxes is something different: their complexity. The United States has the world’s longest tax code. The scholar Sean Ehrlich tabulated its word count at 3,866,392. Germany and France have codes that are less than 10 percent as long. And size makes for burdens. In most international comparisons, the United States scores very poorly on this measure. The World Bank’s Ease of Doing Business index ranks the United States 53rd for its tax system. The World Economic Forum’s Global Competitiveness Report polls executives on the five biggest burdens of doing business in a country. For the United States, Nos. 1 and 2 are tax rates and tax regulations.

Even though America is generally more competitive than other rich countries, its taxation is much more complicated and inefficient. Why this anomaly? The answer is that it is intentional — a feature, not a bug, in the system. The complexity of the tax code exists by design, because it allows for the distinctive feature of the American political system: fundraising.

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America is unique among democracies in requiring, at all levels of politics, that vast amounts of cash be raised from the private sector. In order to get this money, senators and members of Congress need something to offer in return, and what they sell are amendments to the tax code. When you pay $5,000 to have a stale breakfast with a congressman, you are not paying for his insights or personality. You and others like you are buying a line of the code, which is why it is thousands of pages long. This is the world’s ultimate “pay for play” setup.
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All these small additions and exemptions to the tax code are terrible economics. They divert business activity into areas that might not make economic sense but provide tax benefits. They are expensive and reward people and businesses for activities that they might have done anyway. And most damaging of all, they are hidden and often eternal, not requiring reauthorization. If Congress wants to fund something, it could do so openly by giving a grant. By providing a complicated tax credit, it ensures that no one realizes that it is giving cash to a company or industry.

There are only two ways to fix this problem. One would be to stop people from paying politicians. But the Supreme Court ruled in Buckley v. Valeo in 1976 that money is speech and thus constitutionally protected. (As far as I know, this is a view shared by no other Western democracy.) That leaves another path — take away what Congress sells.

If the tax code were to be made short and simple, with a handful of deductions, politicians would have little to offer people as a quid pro quo. You could still pay them, for their ideas and personality, but I suspect that the flow of money would slow to a trickle. It is the simple, single solution to the cancer in American politics. And we could thank Donald Trump for highlighting it.


6 thoughts on “Trump exposed the corruption in the U.S. tax code–How will Hillary Clinton deal with this ?

  1. I wouldn’t label it as corruption but rather manipulation of Congress by special interest groups to benefit their clients in this case the Rich. The US Tax Code is so complicated that you have to hire a Professional Tax Preparer to prepare your taxes to take advantage of the various tax credits that one is eligible. These Tax Preparers are most often CPAs and yet they have to go through special courses each year just to keep up with the latest. Tax Preparation have become an industry unto itself spawning companies such as H&R Block. Unless you want to leave ‘money on the table” you do not prepare your own tax return. Use a Tax Preparer. It’s worth the fee.

  2. Mr. Fareed Zakaria make you to believe what Trump did with tax is immoral, and he sarcastically wants you thank Donald Trump for highlighting “it”. Everyone in US with a basic knowledge of the tax code knows that deduction for losses is what is intended by the Congress to encourage entrepreneurship, not loop hole as “highlighted” by Mr. Fareed Zakaria for pleasing his boss, CNN.

    By the way, I have to admit Mr. Fareed Zakaria is knowledgeable, in his own way.

  3. Just to share this – Why thousands of millionaires don’t pay federal income taxes –

    Oct 3 2016 – “Tax documents obtained by the New York Times show that Donald Trump declared a massive net operating loss of $916 million in 1995, enough to allow him to avoid paying federal income taxes for up to 18 years.

    The documents shed light on provisions in the U.S. tax code that allow wealthy individuals to avoid income tax payments even in years when they make millions.

    In 1995, Trump declared $3.4 million in business income, $7.4 million in interest income, and close to $100,000 in income from other sources such as dividends, taxable refunds and wages.

    But this income was more than offset by hundreds of millions of dollars in reported losses from real estate and “the financial wreckage he left behind in the early 1990s through mismanagement of three Atlantic City casinos, his ill-fated foray into the airline business and his ill-timed purchase of the Plaza Hotel in Manhattan,” according to the Times.

    About 46 percent of all tax filers (individuals or households) pay no federal income taxes each year because of various exclusions.

    High-income tax filers make up a tiny portion of that number, but they are by far the biggest beneficiaries.

    More than half of the tax revenue lost to the most common tax exclusions stays in the pockets of the richest one-fifth of Americans, according to an analysis by the Congressional Budget Office.

    While it’s rare for high-earners to pay no federal income tax, it’s not unheard of.

    In 2011, for instance, about 433,000 tax filers with incomes over $100,000 paid no federal income tax, according to estimates based on limited IRS data by the Tax Policy Center, a nonprofit think tank.

    That number includes approximately 4,000 filers with an income of $1 million or more…! –

  4. This is not to say that Trump might not become more corrupted, because he has said ” I am going to be Nastier when I get into the Presidency ( Nastier ? ? ) –

    That precisely is the reason why H. Clinton has said in retort ” …..Wait till I become …..I will have to dig out upside down to check Trump’s Account/s in respect to his true tax situation , when he had made his pile as a ‘ Actor & Clown ‘ in the film industry , which made him ‘ world renown ‘ ? And phew….! the fortune he had amassed , mostly under the table ……without due or proper ‘ Accounting or Financial procedures ‘ , AND the lady in waiting will have the last laugh , if and when she takes up office…..? – ( don’t know , its just play of words ? )

    See how aspiring Politicians play the game ……’ shoot from the hip….’ , merely to get into the pinnacle of power ? How ingenious, because they do not understand the word ‘ Credibility ‘ ! ! Incredible …….

  5. “But the Supreme Court ruled in Buckley v. Valeo in 1976 that money is speech and thus constitutionally protected.” – That’s in the USA.

    Here, “Cash is King” and what can the Constitution or anyone do about it?

  6. In Malaysia our tax code is simpler. It gets even more simple by just stuffing all your “income” in cupboards, under the bed, under the kitchen sink, etc, if you happen to run out of Milo tins and stepsons, or alternatively if caught just declare it’s all donations.

    The sophisticated Americans have a lot to learn from us simple Malaysians in tax planning. A Tax Preparer will not find any work here.

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