In the wake of Lori Loughlin, Felicity Huffman, and other parents allegedly using the foul means of their considerable means to gain admittance for their children to elite schools, Senator Ron Wyden (D-OR) wants to end deductions for parents who donate to schools their children attend. Wyden cites deductions for the naming of campus buildings and scholarships, and for sports tickets, as of particular concern.
This is, apparently, not Ted Kennedy’s Democratic Party.
“[H]eadlines about the wealthiest Americans buying access to our elite colleges and universities is just a new version of an old story,” he explained after the scandal broke. “While the prosecutor attempted to distinguish these crimes from payoffs in the form of buildings or stadiums to secure access for the undeserving, it is all part of the same corrupt system.”
The senator does not stretch a point too far to compare illegal bribes to perfectly legal donations. The legal code may make distinctions about such quid pro quo transactions but the moral code does not.
One wonders whether Wyden, and his senatorial brethren, also see the connection between the college admissions scandal gaining headlines and the scandal, discussed in more muted tones, of obscene tax deductions allowing the wealthiest to pay nothing. Both instances seem “all part of the same corrupt system” in which the haves take advantage at the expense of others.
Amazon, certainly as famous as Lori Loughlin, manipulated the tax code in such a way as to pay zero in corporate income taxes for the last two years.
“Amazon, the ubiquitous purveyor of two-day delivery of just about everything, nearly doubled its profits to $11.2 billion in 2018 from $5.6 billion the previous year and, once again, didn’t pay a single cent of federal income taxes,” the Institute on Taxation and Economic Policy points out. The online behemoth, in fact, reported a tax rebate of $129 million for 2018. Just as YouTube celebrity Olivia Jade took a deserving kid’s spot at USC, Amazon took a tax rebate better used to fix a road, pay a soldier, or reduce the debt.
Amazon, like parents who time donations to colleges in anticipation of a child seeking admittance, does not break the law. But to most it seems like they take advantage of the existing law, which begs for reform.
Amazon, like Laughlin and Huffman, did not alone transgress decency here. They merely acted as the most famous of those who did. They used shortcuts. But they did not create these shortcuts.
In the case of Amazon, the same government deprived of revenue created the shortcuts. And despite political rhetoric decrying the Trump cut of the corporate rate, the rates do not represent the problem. The labyrinthian loopholes do.
Consider history. Although individual rates in the 1930s dwarfed current rates and corporate rates now eclipse rates during the 1930s, the government consistently derived a higher portion of its receipts from corporations than it did from individual payers. Currently, the federal government gets almost half of its revenues from individual income taxes. It receives less than a tenth of the total from corporate taxes. As late as World War II, the federal government took more from corporations than it did from individuals.
This does not mean the federal government should revert to relying more heavily on corporations than individuals. It does mean that higher rates do not mean higher revenues. This stems in large part because voluminous deductions make a farce of the prevailing rate. Unlike Dorothy, when the Wizard tells us to pay no attention to that man behind the curtain, we heed his advice. We fixate on rates when we should focus on loopholes. Closing loopholes makes for a more honest tax code.
Amazon and other companies owe a duty to their shareholders, not the taxpayers. Congress owes a duty to the taxpayers, not Amazon’s shareholders. The fault lies primarily with those who make laws, not those who manipulate them. The fix does too.
Hunt Lawrence is a New York-based investor. Daniel Flynn is the author of six books.