Democratic presidential candidate Joe Biden used a tax loophole that the Obama administration tried and failed to close, substantially lowering his tax bill.
Mr. Biden and his wife, Dr. Jill Biden, routed their book and speech income through S corporations, according to tax returns the couple released this week. They paid income taxes on those profits, but the strategy let the couple avoid the 3.8% self-employment tax they would have paid had they been compensated directly instead of through the S corporations.
The tax savings were as much as $500,000, compared to what the Bidens would have owed if paid directly or if the Obama proposal had become law.
“There’s no reason for these to be in an S corp—none, other than to save on self-employment tax,” said Tony Nitti, an accountant at RubinBrown LLP who reviewed the returns.
“As demonstrated by their effective federal tax rate in 2017 and 2018—which exceeded 33%—the Bidens are committed to ensuring that all Americans pay their fair share,” the Biden campaign said in a statement Wednesday.
The technique is known in tax circles as the Gingrich-Edwards loophole—for former presidential candidates Newt Gingrich, a Republican, and John Edwards, a Democrat—whose tax strategies were scrutinized and drew calls for policy changes years ago. Other prominent politicians, including former President Barack Obama and fellow Democrat Hillary Clinton, as well as current contenders for the 2020 Democratic nomination Sens. Elizabeth Warren and Bernie Sanders, received their book or speech income differently and paid self-employment taxes.
Unlike his Democratic rivals and predecessors in both parties, Mr. Trump has refused to release his tax returns, and his administration is fighting House Democrats’ attempt to use their statutory authority to obtain them. Democratic presidential candidates have released their tax returns and welcomed criticism to draw a contrast with Mr. Trump.
Mr. Biden, who was vice president from 2009 to 2017, has led the Democratic field in polls since entering the race. He is campaigning on making high-income Americans pay more in taxes and on closing tax loopholes that benefit the wealthy.
Mr. Biden has decried the proliferation of such loopholes since Ronald Reagan’s presidency and said the tax revenue could be used, in part, to help pay for initiatives to provide free community-college tuition or to fight climate change.
“We don’t have to punish anybody, including the rich. But everybody should start paying their fair share a little bit. When I’m president, we’re going to have a fairer tax code,” Mr. Biden said last month during a speech in Davenport, Iowa.
“America will never be a socialist country,” President Trump said as he launched his bid for re-election last week.
That declaration was an effort to frighten Americans and undermine growing support for expanding Medicare and Social Security—two popular programs that have long been derided as “socialist.” Mr. Trump’s declaration hypocritically ignores that he and his Republican colleagues are the nation’s leading purveyors of an insidious form of corporate socialism, which uses government power and taxpayer resources to enrich Mr. Trump and his billionaire friends.
When we defeat Mr. Trump in this election, we are going to end his corporate socialism and use those resources to create a 21st Century Economic Bill of Rights that benefits all people.
Consider the corporate socialism we’ve seen on Wall Street, where the high priests of unfettered capitalism reign. As you will recall, Wall Street’s deification of “free markets” went out the window in 2008 as they watched the financial crisis caused by their own greed and illegal behavior threaten the existence of some of the largest financial institutions in the country. Suddenly, Wall Street became strong supporters of big-government socialism.
They begged the federal government for unprecedented taxpayer assistance, and Congress provided them with the largest bailout in history. The major banks received some $700 billion from the Treasury and trillions in low-interest loans from the Federal Reserve.
Meanwhile, working people all across the country lost their jobs, their homes and their life savings. The most vulnerable were hit the hardest, with the African-American community losing half its wealth.
That was not an aberration. The norm across the corporate world is what the Rev. Martin Luther King Jr. called “socialism for the rich, and rugged free enterprise capitalism for the poor.”
If you are a fossil-fuel company, whose carbon emissions are destroying the planet, Mr. Trump and congressional Republicans offer billions in government subsidies, including special tax breaks, royalty relief and funding for research and development. But if you are struggling to pay your utility bill, you get the free market—higher and higher electric bills.
If you are a pharmaceutical company, you make huge profits on patent rights for medicines that were developed with taxpayer-funded research. But if you are a taxpayer, you get the free market and pay the highest prices in the world for prescription drugs—and in some cases you die because you cannot afford the medication you need.
If you are a monopoly like Amazon, owned by the wealthiest person in the U.S., you get hundreds of millions of dollars in economic incentives from taxpayers to build warehouses, yet you end up paying not one penny in federal income taxes. But if you are a small business that falls behind on your store’s rent, you get the free market—which means you get an eviction notice.
If you are the billionaire Walton family, state and local governments grant you free land and subsidies and build infrastructure for your stores, even as Walmart ’s tax-avoidance schemes drain local towns of public revenues. But if you are a Walmart worker, you get the free market—which means starvation wages.
If you are the Trump family, you got $885 million worth of tax breaks and subsidies for your family’s housing empire, which was built on racial discrimination. But if you are a homeowner struggling to pay your mortgage, you get the free market—which means foreclosure.
The time is long overdue for the U.S. to end corporate socialism for Mr. Trump and the rest of the billionaire class. Instead, those resources should be put to work to ensure shared prosperity by enhancing Social Security and Medicare and investing in roads and bridges, public schools, clean water and clean air.
Mr. Trump believes in corporate socialism to protect the wealth and power of the rich. I believe the U.S. must end corporate socialism and instead fulfill President Franklin D. Roosevelt’s vision of enshrining basic economic rights for all Americans. These include the rights to health care, a living wage, a decent job, a quality education, a secure retirement, affordable housing and a clean environment. We can make this 21st Century Economic Bill of Rights a reality with initiatives like Medicare for All, a $15 minimum wage, a Green New Deal, student-debt cancellation and legislation to expand Social Security.
I recognize that this agenda will face enormous opposition from corporate America and the 1%. They have a vested interest in protecting the corporate socialism that has enriched and empowered them. The wealthiest three families now own more wealth than the bottom half of the country, and they will do everything they can to block our agenda.
But more Americans are noticing the contradiction between coddled socialism for the rich and the destruction of opportunity for everyone else. I am confident that we will be able to build a grass-roots movement that will not only defeat Donald Trump in this election but finally create a government that works for all people, not just the billionaire class.
Mr. Sanders, an independent, is a U.S. senator from Vermont and a candidate for the Democratic presidential nomination.
The very rich are richer than people imagine.
A peculiar chapter in the 2020 presidential race ended Monday, when Bernie Sanders, after months of foot-dragging, finally released his tax returns. The odd thing was that the returns appear to be perfectly innocuous. So what was all that about?
The answer seems to be that Sanders got a lot of book royalties after the 2016 campaign, and was afraid that revealing this fact would produce headlines mocking him for now being part of the 1 Percent. Indeed, some journalists did try to make his income an issue.
This line of attack is, however, deeply stupid. Politicians who support policies that would raise their own taxes and strengthen a social safety net they’re unlikely to need aren’t being hypocrites; if anything, they’re demonstrating their civic virtue.
But failure to understand what hypocrisy means isn’t the only way our discourse about politics and inequality goes off the rails. The catchphrase “the 1 Percent” has also become a problem, obscuring the nature of class in 21st-century America.
Focusing on the top percentile of the income distribution was originally intended as a corrective to the comforting but false notion that growing inequality was mainly about a rising payoff to education. The reality is that over the past few decades the typical college graduate has seen only modest gains, with the big money going to a small group at the top. Talking about “the 1 Percent” was shorthand for acknowledging this reality, and tying that reality to readily available data.
But putting Bernie Sanders and the Koch brothers in the same class is obviously getting things wrong in a different way.
True, there’s a huge difference between being affluent enough that you don’t have to worry much about money and living with the financial insecurity that afflicts many Americans who consider themselves middle class. According to the Federal Reserve, 40 percent of U.S. adults don’t have enough cash to meet a $400 emergency expense; a much larger number of Americans would be severely strained by the kinds of costs that routinely arise when, say, illness strikes, even for those who have health insurance.
So if you have an income high enough that you can
- easily afford health care and good housing,
- have plenty of liquid assets and
- find it hard to imagine ever needing food stamps,
you’re part of a privileged minority.
But there’s also a big difference between being affluent, even very affluent, and having the kind of wealth that puts you in a completely separate social universe. It’s a difference summed up three decades ago in the movie “Wall Street,” when Gordon Gekko mocks the limited ambitions of someone who just wants to be “a $400,000-a-year working Wall Street stiff flying first class and being comfortable.”
Even now, most Americans don’t seem to realize just how rich today’s rich are. At a recent event, my CUNY colleague Janet Gornick was greeted with disbelief when she mentioned in passing that the top 25 hedge fund managers make an average of $850 million a year. But her number was correct.
One survey found that Americans, on average, think that corporate C.E.O.s are paid about 30 times as much as ordinary workers, which hasn’t been true since the 1970s. These days the ratio is more like 300 to 1.
Why should we care about the very rich? It’s not about envy, it’s about oligarchy.
With great wealth comes both great power and a separation from the concerns of ordinary citizens. What the very rich want, they often get; but what they want is often harmful to the rest of the nation. There are some public-spirited billionaires, some very wealthy liberals. But they aren’t typical of their class.
The very rich
- don’t need Medicare or
- Social Security; they don’t use
- public education or
- public transit; they
- may not even be that reliant on public roads (there are helicopters, after all).
Meanwhile, they don’t want to pay taxes.
Sure enough, and contrary to popular belief, billionaires mostly (although often stealthily) wield their political power on behalf of tax cuts at the top, a weaker safety net and deregulation. And financial support from the very rich is the most important force sustaining the extremist right-wing politics that now dominates the Republican Party.
That’s why it’s important to understand who we mean when we talk about the very rich. It’s not doctors, lawyers or, yes, authors, some of whom make it into “the 1 Percent.” It’s a much more rarefied social stratum.
Critiques Washington Post anti-Bernie Sanders articles.