The article pointed out a flawed tax system that monitors workers through W-2 reports that prevents them from lying. However, there is no system that can verify income tax from businesses.
The NY Times said the Internal Revenue Service estimated that corporate America reports less than half of all income taxes. Every year, billions of dollars of business rent, royalty profits are hidden from the government.
A third-party verification system like the W-2 forms reports 95% of wage income taxes compared to businesses. According to the article, unreported income may amount to more than $600 billion in 2021 and more than $7.5 trillion over the next decade.
The op-ed pointed out an unfair system of obligations that fall on wage earners who are solely responsible for paying for public services.
Charles Rossotti, who led the Internal Revenue Service from 1997 to 2002, said Congress needs to create a third-party verification system for business income. Wealthier taxpayers should be audited and monitored in the same way as wage workers currently are.
According to US Tax Policy Centre, American corporations must pay 21% on the profits. According to the Organization for Economic Co-operation and Development (OECD), the average wage workers pay 25.9% tax which leaves them with 74.1% of their wage to take home.
Tax gaps have been an ongoing issue for Americans. In 2021, Washingtons state proposed a 1% wealth tax which would cost billionaires like Jeff Bezos about $2 billion a year.
The 1% wealth tax may sound like it would help minimize the tax gap issue. However, it comes with questionable loopholes that billionaires can use to avoid paying tax. For example, they can move to another state to avoid taxing, primarily when their businesses are not based in Washington State. All they have to do is live under 182 days a year in Washington, and they won’t be qualified to pay the 1% tax of their earnings.
There is another issue with monitoring business taxes, and it is due to American overseas established companies. Many American companies and brands have their businesses established in other countries to avoid paying taxes to the government. That is not to say that they don’t pay taxes, but it becomes tricky in monitoring the yearly profits a company makes. And the fact that there is no system designed to find out if a business is hiding profits.
In 2018, Apple announced it would pay $38 billion to the US Treasury in taxes, and pledged to invest $350 billion in the US until 2023. But in 2018, Apple held $252 billion in profits offshore avoiding paying US taxes. Fortune claimed that was over 90% of the company’s total cash on hand.
According to Forbes, today Apple is worth more than $2 Trillion.
The New York Times op-ed said that Charles Rossotti’s proposal would not increase the amount anyone owes but would increase the amount paid in taxes by those currently cheating the system.
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