It’s no secret that the rich and powerful are able to avoid paying their fair share in taxes, but it’s still occasionally stunning to see just how much tax avoidance they get away with. This week, we saw two bombshell reports released by tax justice organizations laying out how both major corporations and ultra-wealthy families are able to pay basically nothing in taxes.
On Tuesday, the Institute on Taxation and Economic Policy, reported that Netflix, despite making a record $5.3 billion in profits in 2021, only paid an effective corporate income tax rate of 1.1% on those earnings.
Americans for Tax Fairness followed that up yesterday with a groundbreaking report, “Dynasty Trusts: Giant Tax Loopholes that Supercharge Wealth Accumulation,” that outlines in stark detail just how much America’s richest families will avoid paying in taxes over the next 25 years as they pass down their fortunes. Related research from marketing research firm Cerulli also highlights that, over this same period, Americans will inherit trillions in new wealth, but most inheritors will already be in the upper class.
All of this news comes as West Virginia Senator Joe Manchin – one of two moderate antagonists in the Senate that are standing in the way of President Biden’s Build Back Better Act – said in an interview this week that he is committed to fixing the tax code. While Manchin’s refusal to pass the Build Back Better Act is a massive problem, it’s somewhat encouraging that even he recognizes that our tax code needs fixing. That being said, it remains to be seen whether his support will extend to actual legislation, not just encouraging words.
This week, we’re shining a spotlight on these developments coming out of Capitol Hill and the world of tax reform.
Netflix Posts a Record $5.3 Billion in Profits and a Federal Tax Rate of Just 1.1 percent by Matthew Gardner
Netflix reported record-level profits in 2021, raking in a whopping $5.3 billion despite adding fewer new subscribers than anticipated. It also managed to continue its tax-avoidance streak from years past, as it paid only $58 million in corporate income taxes on those earnings, which puts its effective tax rate at just 1.1%. This means Netflix was able to use tax breaks and loopholes to effectively avoid over $1 billion in taxes, making the case for a corporate minimum tax, as many Democrats supported in Build Back Better, even stronger.
Tax-Dodging Billionaire Dynasties Could Cost US $8.4 trillion: Report by Jessica Corbett
According to the “Dynasty Trusts” report released by Americans for Tax Fairness, over the next 25 years America’s richest families will pass on an estimated $21 trillion to their heirs. In the process, they will dodge $8.4 trillion in wealth-transfer taxes – including estate, gift, and generation-skipping taxes – because of loopholes, specifically in relation to trusts, riddled through the tax code. Unfortunately, the trust reforms that were initially included in Build Back Better were stripped from the bill after pushback from the wealthy and their lobbyists. This makes the potential rewrite of the bill somewhat of an opportunity – Democrats need to grow a spine and use it to end the loopholes for billionaire heirs.
Tax-Free Inheritances Fuel America’s New $73 Trillion Gilded Age by Ben Steverman
According to estimates from market research firm Cerulli, over the next 25 years, Americans stand to inherit roughly $73 trillion, more than twice what they inherited a decade ago. But almost half of this wealth will come from just the top 1.5% of households, further concentrating wealth in the hands of a few people who did nothing to earn it but win the genetic lottery. This puts us on course to return to Gilded Age levels of wealth concentration and inequality, where families like the Rockefellers and Vanderbilts passed on huge fortunes through multiple generations.
Manchin says Build Back Better is ‘dead.’ Here’s what he might resurrect. By Sahil Kapur and Benjy Sarlin
In an interview this week, Senator Joe Manchin said that the Build Back Better Act is “dead.” He also, however, said that his priority rests in fixing the tax code, even if it means doing so through the process of reconciliation. In light of these comments, it’s clear that Democrats need to reset and structure their reconciliation bill around raising taxes on the wealthy. Manchin has said that he supports, among other things: raising the corporate tax rate to 25%, a 15% corporate minimum tax, a 28% capital gains tax, and eliminating loopholes like carried interest. While it may be difficult to get Senator Kyrsten Sinema on board with these sorts of initiatives, separating her from Manchin on these issues he’s voiced support for may be a savvy strategic move for Democrats.