The tale of the Trump money is part of a bigger story. 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.
But this view always rested on shaky foundations. After all, tax evasion doesn’t show up in official statistics, and the superwealthy 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.
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.
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.
Writes for The New York Times.