Sophisticated Theft

The recent indictment of the CFO of Trump’s business empire has offered us a window into the differences in dishonest behavior between members of different social classes–and the extent to which anti-social behavior by “others” is viewed more negatively.

As a law professor who was a former U.S. Attorney opined, in the wake of the indictment of Allen Weisselberg,

As I learned during my career as a federal prosecutor, this is the way rich people steal money. The means are more sophisticated than sticking up someone with a gun on a street corner, but purpose is the same, which is why one of the charges is grand larceny— stealing property that doesn’t belong to you.

The charges leveled thus far–the investigation is ongoing, and more are likely–are serious. No one brandished a weapon, but according to the indictment, the company under Weisselberg’s and Trump’s direction engaged in 15 types of fraud over a period of years. Those included a number of schemes to evade income taxes, mostly by finding ways to compensate employees “off the books.”  The organization provided employees with cars, apartments, private school tuition, home improvements and bonuses– without , however, reporting these perks as the taxable income they legally were. That allowed the organization to avoid payroll taxes and allowed the employees thus compensated to significantly reduce both their taxable income and  the amount of taxes they paid.

This wasn’t penny-ante stuff; the indictment accuses Weisselberg alone of concealing approximately $1.7 million of his own compensation from tax authorities.

If this indictment was merely more evidence of Donald Trump’s disdain for the law, it would be worth at most a shake of the head and a comment to the effect that it didn’t come as a surprise. Unfortunately, however, fraud of this sort is apparently widespread among wealthy and near-wealthy individuals who share Trump’s stated belief that “smart” people don’t pay a lot in taxes.

The reactions to the indictments by Trump’s defenders have been telling. Defense lawyers characterized the criminal charges as “inappropriate,” and a number of rank-and-file, “law and order” Republicans shrugged them off as business as usual. Evidently, they consider the theft of millions of dollars accomplished without weaponry less serious than a holdup at gunpoint on the street (netting, perhaps, a couple of hundred dollars and a watch).

Of course, we “little people” have to make up the amounts lost by reason of this tax cheating through our own taxes–but what I find even more troubling is the lack of indignation and condemnation of this clearly fraudulent and criminal behavior. That indulgence undermines both the legitimacy of government and the rule of law.

We sometimes forget the extent to which our legal and economic systems require the voluntary compliance of the vast majority of Americans. To use an obvious example, most of us who drive stop at red lights and obey (most) other rules of the road. We couldn’t hire enough police officers to ensure safe roads if we couldn’t rely on the willingness of large majorities to obey traffic rules.

For that matter, America’s entire system of commerce relies upon the willingness of most sellers to deliver goods as promised, and the willingness of most buyers to pay for those goods in a timely manner without the need to send for the sheriff.

Our tax system similarly depends upon the voluntary compliance of millions of Americans who dutifully file the required paperwork and remit the appropriate payments. When that culture of obedience is allowed to erode–when the well-to-do can publicly wink at each others’ fraudulent evasions–that erosion inevitably breeds resentment among the law-abiding, and excuses additional noncompliance, not just with the tax laws, but within daily commerce.

The so-called “Captains of Industry” who consider themselves too smart to pay their taxes are also the scofflaws most likely to stiff the people with whom they do business. The Trump Organization is a prime example, but certainly not the only one.

Just because a certain type of theft is more sophisticated doesn’t make it less reprehensible. Stealing from the government is no less dishonest than stealing from individuals–and in fact, it is stealing from the individuals who must make up the difference.

It’s evidence of moral bankruptcy, not “smarts.”

Comments

Laws Are For The ‘Little People’

I don’t know about all of you, but I’m getting tired of daily news items that leave me both mystified and angry. One of the most recent causes of that combination was news that, during the Republicans’ “negotiation” (note quotes) on the infrastructure bill, they insisted on removing the measure’s additional funding for the IRS.

Please note, this wasn’t a provision allowing the government to raise taxes. This money would have provided the agency with more resources to go after tax evasion. In a sane world (which we clearly don’t inhabit), the party of “law and order” might be expected to support the notion that government should crack down on the crime of tax evasion.

Plus, we are talking about a lot of money. The Treasury Department has estimated that what they call the “tax gap,”–that is, taxes owed under current rates but not paid– amounts to more than $500 billion every year. According to Paul Krugman, some estimates put the number much higher. The Biden administration has simply proposed additional resources that the I.R.S. needs to reduce that gap.

I also want to emphasize that we aren’t talking about the obscene amounts of money sheltered by obscenely rich people in various tax havens, or monies not payable thanks to  the operation of various tax loopholes. We are talking about money people owe after their tax advisors have helped them take advantage of these handy  little mechanisms.

When people who owe taxes don’t pay them, the rest of us have to make up the difference. Given the economics of what constitutes today’s GOP base, why wouldn’t Republican officeholders want to spread the burden–in this case, the costs of repairing America’s crumbling infrastructure–to the citizenry as a whole?

In his column, Krugman shares my mystification–although he’s a bit more cynical.

Just to be clear, I’m not surprised to learn that a significant number of senators are sympathetic to the interests of wealthy tax cheats, that they are objectively pro-tax evasion. I am, however, surprised that they are willing to be so open about their sympathies.

There is, after all, a big difference between arguing for low taxes on the rich and arguing, in effect, that rich people who don’t pay what they legally owe should be allowed to get away with it.

Just to be equally clear, I was surprised that  even these Senators would be “objectively pro-tax evasion.”

For one thing, I don’t think even right-wingers would dare make the usual arguments for low tax rates, dubious as those arguments are, on behalf of tax evasion. Who would seriously claim that the only thing keeping “job creators” going is their belief that they can dodge the taxes the law says they should pay?

 Krugman asks the question that I also ponder: who are the constituents for this startling position? Granted, a bigger budget deficit might cut into the social spending Republicans detest, but–as he points out– it also leaves less room for legal tax cuts.

Tax evasion certainly isn’t limited to the rich–Krugman reminds us that when plumbers or handymen ask for payment in cash, we can pretty much figure out why–but it is definitely concentrated among the well-do-do.

Opportunities to hide income are concentrated at the top; one recent estimate is that more than 20 percent of the income of the top 1 percent goes unreported.

It’s certainly possible that big political donors are among the biggest tax cheats. Krugman thinks that their clout within the G.O.P. “has actually increased as the party has gotten crazier.”

There have always been wealthy Americans who dislike the right’s embrace of racial hostility and culture wars but have been willing to swallow their distaste as long as Republicans keep their taxes low. But as the G.O.P. has become more extreme — as it has become the party of election lies and violent insurrection — who among the wealthy is still willing to make that trade-off?

Some rich Americans have always been right-wing radicals. But as for the rest, the party’s base within the donor class presumably consists increasingly of those among the wealthy with the fewest scruples and the least concern for their reputations — who are precisely the kind of people most likely to engage in blatant tax evasion.

This seems like a stretch. On the other hand, I have no better explanation.

Comments

About That “City On A Hill”

Back when Republicans were (mostly) sane–when they cared about good government at least as much as raw power, I worked in the Indianapolis mayoral administration of Bill Hudnut. Bill had his faults, as we all do, but he passionately loved the city and tried to do what was best for all of its inhabitants.

He was also a former Presbyterian minister who often compared America–and to a lesser extent Indianapolis– to “The Shining City on the Hill.” We were to be a beacon, an ideal to which others aspired.

In the absence of a real newspaper, I can’t offer an educated evaluation of today’s Indianapolis, but no one in their right mind thinks today’s United States is a beacon to be emulated. It isn’t simply our massive and embarrassing policy failures (think health care, the environment, criminal justice, race relations, women’s rights and economic justice, for starters…)

It’s the corruption.

As the New York Times has recently–amply, overwhelmingly– documented, our President is a crook. Not that most of us are surprised, given the indictments of his associates, the scandals of his cabinet , and his whole sordid history.

Paul Krugman has responded analytically to the evidence:  

The blockbuster New York Times report on the Trump family’s history of fraud is really about two distinct although linked kinds of fraudulence.

On one side, the family engaged in tax fraud on a huge scale, using a variety of money-laundering techniques to avoid paying what it owed. On the other, the story Donald Trump tells about his life — his depiction of himself as a self-made businessman who made billions starting from humble roots — has always been a lie: Not only did he inherit his wealth, receiving the equivalent of more than $400 million from his father, but Fred Trump bailed his son out after deals went bad.

So, Krugman says, voters who bought Trump’s highly inaccurate version of Donald Trump bought snake-oil. But the bigger, and much more damaging fraud is the story we tell ourselves about America the Meritocracy.

The tale of the Trump money is part of a bigger story. Even among those unhappy at the extent to which we live in an era of soaring inequality and growing concentration of wealth at the top, 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. It was obvious that some rich people were exploiting legal if morally dubious loopholes in the tax code, but the prevailing view was that simply defrauding the tax authorities and hence the public wasn’t that widespread in advanced countries.

But this view always rested on shaky foundations. After all, tax evasion, almost by definition, doesn’t show up in official statistics, and the super-wealthy 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.

We’ve had some of those “lucky breaks,” as Krugman points out. Thanks to the Panama Papers and other leaks, we now know that outright tax evasion by the very wealthy is pervasive. Researchers estimate that the rich pay on average 25 percent less than they owe–enough to pay for the entire food stamp program. And of course, that tax evasion serves to entrench privilege and allows it to be passed on to the heirs of that privilege.

Just like Trump’s daddy did.

Meanwhile, Republicans in Congress have been “systematically defunding the Internal Revenue Service, crippling its ability to investigate tax fraud. We don’t just have government by tax cheats; we have government of tax cheats, for tax cheats.”

It’s not just that the president of the United States is, as veteran tax reporter David Cay Johnston put it, a “financial vampire,” cheating taxpayers the way he has cheated just about everyone else who deals with him.

Beyond that, 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.

So much for “the Shining City on the Hill.” America is more like an inner-city neighborhood where kids look up to the rich drug dealer.

Comments