 April 18 was tax day in the United States, the last day for the filing of income tax returns to the federal government. While this is indeed a taxing process, the day also serves to highlight the vast structural issues with the tax system in the country. Repeated reports by media organizations have highlighted how, when it comes to taxes, the ordinary working-class U.S. citizen is at a disadvantage, as opposed to the richest people in the country. The entire structure seems to have been designed to benefit the rich at the expense of the poor. This is aided by a number of loopholes and bypass mechanisms. How has the tax system of the United States been structured and why? What kind of loopholes exist? Eugene Purir of Breakthrough News explains. You know, it's an amazing situation when you look at the U.S. tax code because technically it's progressive, so technically the burden should be falling disproportionately on the richest individuals. But there are so many loopholes and exceptions built into the U.S. tax code, the opposite ends up being the case. And there's a range of different taxes that play into this, but the biggest factor is the relationship between income taxes and also then payroll taxes that pay for various different elements, social security, other government programs like that. And really what ends up happening is the income tax in and of itself ends up being relatively proportional, you know, up to people making about $25 million. But then when you start to get into people making hundreds of millions and billions, the proportionality then starts to drop way down again. But even for those making, let's say $2 million, $5 million, who in a normal income tax sense are, you know, there's a steady progressive step up. When you include the various payroll taxes that all of us have to pay, everyone who's employed, it's just taken out of your paycheck, you never see the money in order to fund various government programs, long-term entitlements, like for instance, social security, pensions, things like that, elder health care and other things of that nature, you see the progressivity just is completely wiped out in terms of what's actually happening. So in just the most basic sense, when you look at the average American, more or less, however you define that, but you know, anywhere between single people making $45,000 a year and couples making $200,000 a year, people are paying like roughly 21% to 26% of their income in taxes all told, including income taxes and payroll taxes. That's actually excluding things like sales taxes and other things that also disproportionately hurt those in the lower end of the income scale. So it's even more pronounced than that 21 to 26%. But then when you look at the individuals who are the top 25 individuals in the country by wealth, so the wealthiest people in the country, and also include their payroll taxes in terms of as well as their income taxes, they end up paying about 14% in terms of the, excuse me, 17% in terms of the cumulative tax rate. And so you can see very well that percentage of income really matters quite a bit here, that a billionaire can still be making, you know, essentially 900 some odd million on a billion dollars worth of income, but someone who's making $45,000 is then only making about $35,000. So the impact on people's living standards is huge in terms of the impact of the proportional tax burden. And so even though numerically, billionaires are paying significantly larger amounts of money than the average American, in terms of percentage of income, which is what really matters in terms of the money that's left in your pocket at the end of the day and what you can buy. It really, it's very clear that people making hundreds of millions of dollars and billions of dollars in the United States are getting off basically scot-free because of one, the just overall proportionality issue, but two, the fact that they can reduce their income so substantially by the various loopholes in the tax code, which I can talk more about because that's really the biggest issue when you look at how billionaires and others are getting off scot-free in terms of taxes in the United States. The biggest difference when you look at taxes in the United States and also in many other countries is how those of us who are normal think about income. We get paid, the money comes into our bank account or we get paid in cash or a check or whatever it may be. And then we use that money, but that's sort of a salary essentially is how we think of income. But the wealthiest individuals in the world, especially because of the tax code as I'll get into, don't actually take the majority of their real income in terms of salary. The way they take the majority of their income is in terms of assets, like owning stocks potentially. And so the value of the stocks continues to go up year on year on year. And then they're able to use that money to fund their lifestyles. What they normally do, rich people, is they borrow against the value of their assets to have cash to fund their private jets and their yachts. Now, the reason they do that is because assets are not taxed. So it in fact is actually a lot cheaper to just say I have $10 billion worth of assets. I'm going to go to a bank and say, look, I have $10 billion worth of assets loan me $3 billion. I liquidate a small amount of money to pay you the interest over X number of years. And I use that $3 billion to do all the things we know that rich people do. And on top of that, even the money they liquidate to pay the interest on the loan, that's something called capital gains. And capital gains is actually taxed at less than your average income that you get in a salary. So in addition to being able to avoid taxes almost entirely on their assets by borrowing against them, even the money they do have to liquidate to pay the banks for the loans, they're actually taxed at a lower rate. And then you also see that dividends, which is essentially a premium you get for holding a stock, are also taxed at a lower rate. So most of the people with the largest amounts of money on earth, certainly in the United States, are not taxed on the vast majority of the money, the wealth that they actually have access to. And they're really only taxed at lower rates on the money that they liquidate from the stock market to fund their lives. Now, there are other forms of income that come in that mean that it's higher. So what you see is you have a variable rate. People in the tech world tend to, on average, the billionaires in the tech world pay the least amount of money, about a 17% average rate of taxes, because pretty much all they do is liquidate the value of their stocks to fund their lifestyle. And they also use transferring stock to charitable purposes, which you can do without paying any taxes, to then also mitigate how much money they have to pay on the money that they liquidate. The highest overall sort of category of ultra-rich people in terms of percentage of income to taxes is people who own manufacturing businesses, where there's a lot less income, or a lot less loopholes, as opposed to say those who are primarily getting their income off of asset inflation. And so they pay about a 30% average tax rate. But that's an interesting note, because the highest tax bracket in America is supposed to be 37%. So even the richest people who are quote-unquote doing the worst as it concerns taxes are actually still paying below what the law allows them. So you have a combination of the forms of income either not being taxed or being taxed at a lower rate than the average person's salary. Then you have various other types of loopholes that exist based on your business that can affect your personal taxes as well. And you also have the ability to use charitable write-offs to then essentially use against any form of taxes you know you're going to have to pay. So even when you see people like Bill Gates, you know Michael Bloomberg and others who, according to documents that have been released or have really been leaked, are having one, two billion dollars a year on average in income, which is a ton of income, that's actually a very small percentage of the actual amount of money they made in any given year. But the majority of it which is being held in stock is actually not taxed. So there are even more than that. I mean it's unbelievable. It's like Swiss cheese the way the US tax code works, but that's the basic gist of how people are able to drastically reduce their tax liability and pay far below percentage-wise what they owe. The systemic laws are not just a feature of the federal income tax system. They exist at the state level too. How are state-level income tax regimes structured and what benefits do they offer the rich? You know the state taxes is an important issue and really may be a smaller issue than most people think about, but in the United States of course you're paying and in some cases also locally you're paying up income tax in many states as well as other forms of similar taxes, property taxes and so on and so forth to the state, to your locality and then of course you also have federal taxes. So what we've seen majorly since really the early 1990s is a huge, some say almost as much as two-thirds reduction in what states are charging in terms of income tax and that's basically happening on two different ways, but ultimately it's cost states over the past few decades between 43 billion or close to 60 billion dollars in income, but more or less what's happening is two things. One states are just cutting their taxes quite significantly and we've seen that in many many states the states and many many many states basically compete with one another to see who can have the lowest taxes in order to try to lure more high net worth individuals into the state which ultimately means nothing because they reduce the taxes and then you know you look at the state like Florida which goes way out of its way to try to get billionaires to move from New York, the state of New York to Florida which a number of people have done. Florida has no income tax so yes Florida will gain some taxes from property taxes and so on and so forth in terms of these giant mansions but since those are a local tax that basically means that the neighborhoods and the cities that are filled with really rich people get a ton of money and have a ton of great resources but the state writ large and working class people don't really benefit at all by billionaires moving to Florida, but this is a big thing Texas does the same thing Arizona does the same thing with California and states are constantly trying to draw people in based on having the easiest possible tax rates but the other factor of this is many rich people have restructured their income to avoid state and federal income taxes through something called S corporations. Now S corporations were basically designed for mom and pop businesses you know so you don't get taxed twice so if you and your wife own a store and you do pretty much all the work in the store that you're not taxed for the business and then taxed on your personal income it's basically like you're being taxed twice because you're doing all the work even though you're the business owner so S corporations have expanded the Bush administration made a big expansion in 2004 so they can have as many as 100 shareholders and if you have an S corporation and it's also known as a pass-through corporation what you have is instead of being taxed twice like I just mentioned your tax just once right like you're not taxed on the business but whatever profits you made on the business are part of your personal taxes. So what happens is is ultra-rich people and some corporations they restructure their operations so that they can be an S corporation and that they can lower their tax liability and that means that the government at the state and the federal level lose out on a huge amount of tax revenue and I think it's about 35% of tax returns at the corporate level now are S corporations they lose out because S corporations are not subject to income tax at the federal and the state level to some degree they are at the state level but to very little tax at best so we've also seen the tax code changed and rejiggered in such a way in order to make it easier to avoid taxes really on the state level is where the S corporation comes in and that's what rich people are trying to do is avoid getting hit too much on their state taxes by their income knowing that they'll have a lot of loopholes in the federal taxes where there's probably more loopholes than the state tax code all all things considered although there are many there's two but you can see how at every single level what's really happening is that ultra wealthy people who control the political system are building into the process a number of different little things that will allow them to drastically reduce their tax liability below what's stated which then means they can say more easily oh we're taxed so high when in fact in the effective tax rate they're paying almost nothing I mean Michael Bloomberg one of the richest people in the country between 2013 and 2019 was paying on average about four percent in taxes so you can see the ridiculousness of it