X.5: Make the Rich Pay Their Fair Share of Taxes?

Politicians love to promise their constituents that if elected they will make the rich pay their fair share of taxes.

They say they will raise the income tax rate for high income earners. And this promise will generally net many votes, and maybe even a little revenue, but the problem is it won’t make the rich pay their fair share of taxes. That is, the tax rate change will not affect the truly rich, because they shift their income into foundations which pay no taxes at all.

A little history will shed light on how this works. In 1901, the daughter (Abby Aldrich Rockefeller) of Senator Nelson W. Aldrich, married John D. Rockefeller, Jr., the son of John D. Rockefeller, the founder of Standard Oil and the richest American of all time. (John D. Rockefeller) Then in 1913 the Rockefeller family created the Rockefeller Foundation. Three years after that, the same Senator Aldrich sponsored the Sixteenth Amendment to the U.S. Constitution, which created the federal income tax. (Nelson W. Aldrich)

Ordinary people have been paying income taxes ever since, but the Rockefellers had already sheltered their income from the tax in their previously created foundation.

Incidentally, Abby and John named their son, Nelson Aldrich Rockefeller, after his senator grandfather, Nelson Aldrich. He was appointed to the office of U.S. Vice President by Republican President Gerald Ford after President Richard Nixon’s resignation. Also, we know Abby and John’s grandson, John D. Rockefeller IV, as Jay Rockefeller. He was the Democratic Senator from West Virginia from 2010 to 2015. Obviously, money equals power in both of our political parties.

A foundation’s purpose is supposedly to channel donations to charities – it’s not allowed to donate to political candidates.

(The Tax Benefits of Creating a Private Foundation)

However, the charities a foundation supports are allowed to spend their money on lobbying the government, as long as their lobbying is related to their purpose, which may be quasi-political. Also, the creator of a foundation has total freedom to control the money they put in it, as long as their lawyers ensure that they follow the rules of the tax code. And of course, we all know how complex, mysterious, and ever-changing that code is.

You can make your own decision about just how above-board you think all this may be, but the bottom line is that raising the income tax rate on high income earners will never cause “the rich” to pay any more taxes. In fact, the only people affected by increasing high income tax rates are Mom and Pop store owners, family farmers, and other small businesses. They have to invest most of their income back into their businesses. That means they can’t afford to shelter their income in foundations.

And it’s also true that those are the very people who are already paying far and away more taxes than anyone else. Moreover, tax bills are forcing more and more of them to sell their small businesses to the gigantic mega-corporations, which are controlled by the super-rich. So raising taxes actually causes the super-rich to get even richer!

One way to make the rich pay their fair share of taxes is to eliminate foundations, but that would hurt the legitimate charities they support.

Perhaps a better solution is to vastly simplify the tax code, removing the numerous complicated loopholes that allow lawyers to find ways to skirt the rules intended to ensure that charities are indeed legitimate.

Could “the people” force politicians to simplify the tax code? Do you think the rich should be able to avoid taxes by donating their income into establishments they frequent, but working people have little time for, like opera houses or art museums? Or do you think only organizations that support the poor should be considered legitimate charities?

Should a foundation be allowed to support a voter registration campaign if it only targets neighborhoods that generally support a particular political party? What about an organization that lobbies government officials with regard to an issue supported by only one particular political party? And who should have the power to declare a charity as legitimate or not?

This site is for discussing how to improve our political system. It is NOT for discussing party politics or political figures. So if you have a non-partisan question or comment, feel free to leave it below.

Sources:

Abby Aldrich Rockefeller. Wikipedia. https://en.wikipedia.org/wiki/Abby_Aldrich_Rockefeller

John D. Rockefeller. Wikipedia. https://en.wikipedia.org/wiki/John_D._Rockefeller

Nelson W. Aldrich. Wikipedia. https://en.wikipedia.org/wiki/Nelson_W._Aldrich

The Tax Benefits Of Creating A Private Foundation. Forbes. https://www.forbes.com/sites/pagesnow/2019/04/08/the-tax-benefits-of-doing-the-right-thing/#5661455c3020