Three trillion dollars a year. That's how much the wealthiest Americans avoid through the system of subsidies and schemes and sweet deals that deprive middle-class workers of their earned benefits. That's three times more than the deficit. That's enough for a full-time job for every middle-class household in America. Here are the distressing details:
1. Tax Expenditures: $1.25 trillion
These subsidies from special deductions, exemptions, exclusions, credits, capital gains, and loopholes are estimated to be worth 7.4 percent of the GDP, or about $1.1 trillion. They largely benefit the richest taxpayers. Business subsidies bring the total to $1.25 trillion.
But there's so much more.
2. Tax Underpayments: $450 billion
According to the IRS, 17 percent of taxes owed were not paid in 2006, leaving an underpayment of $450 billion. The largest share of that came from underreporting of income.
3. Tax Havens: up to $250 billion
(a) It's estimated that between $21 and $32 trillion is hidden offshore, untaxed.
(b) 40 percent of the world's richest individuals are Americans. That's $8 to $12 trillion of the total.
(c) The historical annual stock market return is 6 percent. That's a return of $480 to $720 billion.
(d) The 20 percent to 35 percent tax loss amounts to a minimum of $96 billion, a maximum of $252 billion.
4. Corporate Taxes: $250 billion
For over 20 years, from 1987 to 2008, corporations paid an average of 22.5 percent in federal taxes. Since the recession, this has dropped to 10 percent -- even though their profits have doubled in less than ten years. The missing 12.5 percent on $2 trillion in profits amounts to $250 billion a year.
5. Financial Transaction Tax (FTT): $500 billion
The absence of an FTT constitutes tax avoidance. Not a penny of sales tax is paid on U.S. financial transactions, which have been estimated at about three quadrillion dollars annually, or three thousand times the deficit. No sales tax is paid despite the high-risk nature of "flash trading" that can lose entire pension funds in a few seconds.
Just a half penny from every dollar of total U.S. financial transactions would pay off the national debt -- not just the deficit, but the whole $15 trillion debt. More conservative estimates by the Center for Economic and Policy Research and the Chicago Political Economy Group suggest FTT revenues of a half-trillion dollars annually.
6. Payroll Tax: $300 billion
This extremely regressive tax costs the richest Americans only a small fraction of what everyone else pays. If the 12.4 percent tax (half employer, half employee) were assessed on the full $3.84 trillion claimed by the richest 10 percent in 2006 (instead of on $1.43 trillion: $110,000 times 13 million payees), an additional $300 billion in revenue would have been realized.
7. Estate Tax: $100 billion
A repeal of the estate tax, which is designed to impact only the tiny percentage of Americans with multi-million dollar estates that have never been taxed, would cost the nation about $100 billion per year.
The total surpasses $3 trillion. The figures may be on the high end, and there may be some overlap, and wealthy Americans may argue that much of it is legal. But the system of loopholes and deductions and exclusions is a statement by the rich that they don't have to pay for their lopsided share of benefits, and that middle-income Americans should give up their own earned benefits to pay the country's bills.
And if tax avoidance is legal it's because the people with money have redefined 'legal.'