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How America's Tax Laws Encourage Inequality

Talk of tax reform always seems to be in the air.

Last fall, Republicans in Congress hastily pushed through the Tax Cuts and Jobs Act, hailing it as "historic legislation" and "once-in-a-generation tax reform."

But that legislation has proved unpopular because it is widely and accurately viewed as tax cuts for the wealthy and corporations, with any effort at reform being merely coincidental.

Despite the unpopularity of last fall's effort, this fall House Republicans pushed through what they are calling "Tax Reform 2.0."

They seem to hope to win over voters prior to the midterm elections with the mere promise of further tax cuts - the legislation was dead on arrival in the Senate.

That didn't deter President Donald Trump from recently touting a vague plan for a "major" middle-class tax cut before the midterm elections, even though Congress is out of session and not coming back until January.

But reducing tax reform to little more than a series of tax cuts designed to appease campaign donors and secure votes ignores the expressive role that a tax system plays in society.

What and how a country chooses to tax says a lot about its values, a subject I explore in my new book, Our Selfish Tax Laws: Toward Tax Reform That Mirrors Our Better Selves.

Imagining Equality

A core value built into the DNA of America, for example, is equality.

And in practice, Americans imagine their country to be more equal than it is and strive to treat every member of society that way.

But America's tax laws paint a different picture. Instead of reflecting a society constantly striving to better itself, U.S. tax laws are mired in the past as they reinforce the social and economic marginalization of women, racial and ethnic minorities, the poor, members of the LGBTQ community, immigrants and people with disabilities.

Tax And Marriage

For instance, U.S. tax law has chosen marriage as the defining characteristic of all individuals when deciding how income tax returns should be filed. That is, most Americans file their 1040s either as "single" individuals or as "married filing jointly." But even when taxpayers in these two groups have equal incomes, they aren't necessarily treated equally.

Among married couples, our tax laws give preferential treatment to those whose marriages comport with "tradition" - that is, with one spouse working in the labor market and the other in the home. These couples are rewarded with marriage "bonuses" because they pay less tax than if they earned the same amount but hadn't married.

In contrast, those in "modern" marriages, where both spouses work outside the home, often suffer marriage penalties. These couples pay more tax than if they earned the same amount but hadn't married.

And "single" taxpayers never receive a bonus but instead often pay more tax than a married couple with the same income.

While the Tax Cuts and Jobs Act temporarily mitigates the marriage penalties for some two-earner married couples, it fails to address other aspects of the tax laws that contribute to the marriage penalty. Low-income married couples, for example, are still hit with significant marriage penalties under the Earned Income Tax Credit.

At the same time, the new act increased bonuses paid to single-earner married couples that provide financial encouragement for one spouse - traditionally the wife - to stay at home. To take a simple example, an individual making $100,000 with no dependents who takes the standard deduction would see a 43 percent reduction in taxes in 2018 by marrying a stay-at-home spouse, but would have seen a reduction of only about 38 percent in 2017.

The penalty for not marrying increased correspondingly.

Rewarding Discrimination

The tax treatment of employment discrimination awards is another example.

Traditionally, personal injury awards have been excluded from taxable income. Courts differed on whether employment discrimination awards were covered by this exclusion, with some courts allowing these awards to be recovered tax-free and others requiring them to be taxed. In 1996, Congress stepped in to end litigation over this issue and decided to take away the exclusion, thus requiring workers to report an employment discrimination award on their federal taxes.

Disadvantaged groups are the ones most likely to suffer from employment discrimination. The top categories of discrimination reported by the EEOC include race, disability, sex, age and national origin. Members of the LGBTQ community also suffer discrimination, but legal protection is not available for them in every state.

All of these groups bear significant monetary and psychological costs as a result of employment discrimination. The awards they are given are intended to help mitigate those costs - to make them whole. Such awards should not be taxed any more than the awards that make victims of car accidents whole for their injuries, which are still covered by the exclusion.

On the other side of the ledger, Congress continues to let employers required to pay these discrimination awards deduct them from their tax bills as business expenses.

If the goal is to prevent employment discrimination, it's counterproductive to penalize victimized workers with a tax while rewarding employers who allegedly or actually discriminated with a benefit.

Again, the Tax Cuts and Jobs Act made a nod at reform - and the #MeToo movement - by taking away that employer deduction for settlements in certain sexual harassment cases. But that misses the bigger picture and deeper problem with the tax code.

Meaningful Tax Reform

These are but two examples among many of how the tax laws present a distorted picture of what Americans value and the type of society that America aspires to be.

Much more is at stake in tax reform than retaining political power or doling out tax cuts. True tax reform takes time and should entail discussions among the electorate and with politicians regarding the role that the tax laws play in exacerbating social and economic inequality.

Instead of empty tax talk aimed at buying votes, we would be better off if those who wish to serve in Congress spent the time before - and after - Election Day talking with their constituents about the ways in which our tax system can help to create a more just society rather than a society that just rewards privilege.

Anthony C. Infanti is a law professor at the University of Pittsburgh. This article is republished from The Conversation under a Creative Commons license.


Previously in tax scammage:

* McDonald's Breaks Promise To Raise Wages.

* Last Year, Amazon Paid No Federal Income Taxes. Now, It's Trying To Kill A Local Tax That Aims To Help the Homeless.

* Trump Vowed To Punish Companies That Moved Jobs Overseas. Is Congress Rewarding Them?

* After Long Career Bailing Out Big Banks, Obama Treasury Secretary Tim Geithner Now Runs Predatory Firm That Exploits The Poor For Profit.

* Jeff Bezos Just Became The Richest Person Ever. Amazon Workers Just Marked #PrimeDay With Strikes Against Low Pay And Brutal Conditions.

* A Sweet New Century For America's Most Privileged.

* With Nation Transfixed By Kavanaugh Monstrosity, House GOP Votes To Give Rich Another $3 Trillion In Tax Cuts.

* Deepwater Horizon Settlement Comes With $5.35 Billion Tax Windfall.

* Offshoring By 29 Companies Costs Illinois $1.2 Billion Annually.

* Government Agencies Allow Corporations To Write Off Billions In Federal Settlements.

* The Gang Of 62 Vs. The World.

* How The Maker Of TurboTax Fought Free, Simple Tax Filing.

* $1.4 Trillion: Oxfam Exposes The Great Offshore Tax Scam Of U.S. Companies.

* How Barclay's Turned A $10 Billion Profit Into A Tax Loss.

* Wall Street Stock Loans Drain $1 Billion A Year From German Taxpayers.

* German Finance Minister Cries Foul Over Tax Avoidance Deals.

* Prosecutor Targets Commerzbank For Deals That Dodge German Taxes.

* A Schlupfloch Here, A Schlupfloch There. Now It's Real Money.

* How Milwaukee Landlords Avoid Taxes.

* Study: 32 Illinois Fortune 500 Companies Holding At Least $147 Billion Offshore.

* Watch Out For The Coming Tax Break Trickery.

* When A 'Tax Bonanza' Is Actually A Huge Corporate Tax Break.

* The Hypocrisy Of Corporate Welfare: It's Bigger Than Trump.

* Oxfam Names World's Worst Tax Havens Fueling 'Global Race To Bottom.'

* Offshore Tax Havens Cost Average Illinois Small Business $5,789 A Year.

* State Tax Incentives To Corporations Don't Work.

* GOP Tax Plan Would Give 15 Of America's Largest Corporations A $236 Billion Tax Cut.

* Triumph Of The Oligarchs.

* Amazon Short-List Proves Something "Deeply Wrong" With America's Race-To-The-Bottom Economy.

* Apple's $38 Billion Tax Payment Less Than Half Of $79 Billion They Owe.

* U.S. Surpasses Cayman Islands To Become Second-Largest Tax Haven On Earth.

* Less Than Year After GOP Tax Scam, Six Biggest Banks Already Raked In $9 Billion In Extra Profits.

* After Budget Cuts, The IRS's Work Against Tax Cheats Is Facing "Collapse."


Previously in The Paradise Papers:

* 'Paradise Papers' Reveal Tax Avoidance, Shady Dealings Of World's Rich And Powerful.

* Just How Much Money Is Held Offshore? Hint: A SHIT-TON.

* Development Dreams Lost In The Offshore World.

* Keeping Offshore 'Hush Hush,' But Why?

* Tax Havens Are Alive With The Sound Of Music.

* Today In Tax Avoidance Of The Ultra-Wealthy.

* Go To Town With This Offshore Leaks Database.

* The Paradise Papers: The View From Africa And Asia.

* The Paradise Papers: The End Of Elusion For PokerStars.

* The Paradise Papers: An Odd Call From The Bermuda Government.

* The Paradise Papers: Nevis Is An Offshore Haven Of Opportunity

* The Paradise Papers: The Long Twilight Struggle Against Offshore Secrecy.

* The Paradise Papers: A Fair Tax System Will Be Lost Without Public Pressure.

* Item: Today In The Paradise Papers: Through Death Threats And Scare Tactics, Honduran Reporter 'Perseveres.'

* The Paradise Papers: Journalists Flee Venezuela To Publish Investigation.

* Last Stop: Chicago.

* The Paradise Papers: 'Africa's Satellite' Avoided Millions Using A Very African Tax Scheme.


Previously in The Panama Papers:

* The Panama Papers: Remarkable Global Media Collaboration Cracks Walls Of Offshore Tax Haven Secrecy.

* The Panama Papers: Prosecutors Open Probes.

* The [Monday] Papers.

* Adventures In Tax Avoidance.

* Mossack Fonseca's Oligarchs, Dictators And Corrupt White-Collar Businessmen.

* Jonathan Pie, TV Reporter! They're All In It Together.

* Meet The Panama Papers Editor Who Handled 376 Reporters In 80 Countries.


Previously in carried interest, aka The Billionaire's Loophole:

* Patriotic Millionaires Vs. Carried Interest.

* The Somewhat Surreal Politics Of A Private Equity Tax Loophole Costing Us Billions (That Obama Refused To Close Despite Pledging To Do So).

* Fact-Checking Trump & Clinton On The Billionaire's Tax Break.

* Despite Trump Campaign Promise, Billionaires' Tax Loophole Survives Again.

* Carried Interest Reform Is a Sham.


Comments welcome.


Posted on October 26, 2018

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