Tax Avoidance Lets the Wealthy Set the Policy Agenda

In June, ProPublica released the data: “In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes three years in a row. ProPublica has obtained a vast trove of Internal Revenue Service data… (which) provides an unprecedented look inside the financial lives of America’s titans, including, Warren Buffet, Bill Gates, Rupert Murdoch and Mark Zuckerberg… Taken together, it demolishes the cornerstone myth of the American tax system that everyone pays their fair share and the richest Americans pay the most.”

When these facts were published, and after Republicans in Congress balked at funding President Biden’s infrastructure plan with increased taxes on the wealthy and on corporations, the Center on Budget and Policy Priorities’ Chuck Marr seized the moment as an opportunity to explain how it has come to be that these people and many others pay so little to support the basics of our society: “The main federal tax is the individual income tax, which accounts for roughly half of all federal revenue and which tens of millions of middle-class people pay throughout the year as employers withhold taxes from their paychecks. To a great degree, however, the income tax is essentially voluntary for the nation’s richest people. Much of their income comes in the form of gains in the value of their stocks and other assets, and they can avoid taxes on those gains if they hold on to these assets rather than sell them. When high-income households do pay tax on their income from their assets—such as capital gains and dividends—they pay at tax rates that are far lower than the tax rates they would pay on wages and salaries. These tax breaks, which policymakers have expanded in recent years, help to widen the enormous gaps in income and wealth between the nation’s richest people and everyone else. The top 1 percent of households in terms of income receive the vast majority of capital gains and a large chunk of dividend income, and they are reaping most of the benefits of a new deduction, enacted in the 2017 tax cut law, for what’s known as ‘pass-through’ income, which the owners of partnerships and certain other businesses report on their individual tax returns.”

There are two primary consequences of the fact that wealthy Americans pay almost no taxes.

First: There is a shortage of public revenue to pay for the basics society desperately needs—infrastructure repair, public schools in poor communities, and adequate child care.

Today Republicans in Congress balk at paying for President Biden’s desperately needed national infrastructure plan to repair what everyone agrees are rapidly deteriorating bridges and roads and old water systems where hundred-year-old pipes break deep underground and where in too many places water is carried in lead pipes. The American Families Plan, which would help our society’s poorest children in myriad ways, is deemed unaffordable. And at the same time across the states, where Republican-dominated legislatures have adopted tax cuts, the shortage of federal funds has been magnified as old infrastructure and poorly funded schools proliferate.

In Ohio last month, for example, when the Ohio Legislature argued about the 5 percent income tax cut the Republican-dominated Ohio Senate wanted to include in the new state budget,  Policy Matters Ohio’s’ Wendy Patton demonstrated that only the wealthy would benefit: “Nearly half of the tax reduction would go to those in the top 5%, who are paid more than $221,000 a year. The top 1% percent, who have income of at least $526,000, would average a cut of $1,712 and receive a quarter of the tax reductions. The tax reductions in the Senate bill come on top of huge tax cuts the richest Ohioans have received over the past 16 years. While lower-and middle-income Ohioans on average saw little change or paid more in state and local taxes, the top 1% received more than $40,000 a year in tax cuts.”  After a long debate and much pushback, the new Ohio budget includes only a 3 percent tax cut, but the primary beneficiaries will be the wealthy.

Tax cutting has become a trend in many more states than Ohio. In The Wolf at the Schoolhouse Door, education historian  Jack Schneider and journalist Jennifer Berkshire write: “Almost every state reduced spending on public education during the Great Recession, but some states went much further, making deep cuts to schools, while taking aim at teachers and their unions… Moreover, states including Arizona, Kansas, Michigan, and North Carolina also moved to permanently reduce the funds available for education by cutting the taxes that pay for schools. In Wisconsin, Governor Scott Walker… took aim at education through Act 10… (which) made $2 billion in cuts to the state’s public schools. Though Wisconsin, like many states, already capped the amount by which local communities could raise property taxes to fund schools… Walker and the GOP-controlled legislature imposed further limits, including restricting when and how local school districts can ask voters for additional help funding their schools.” (The Wolf at the Schoolhouse Door, pp. 35-36)

Second:  When they don’t pay taxes, the extremely wealthy can invest their money privately through philanthropy in ways that distort our institutions according to their own theories and whims. 

Charitable foundations no longer operate by responding when worthy organizations submit applications to fund needy projects. Instead staffs at large foundations influence policy according to their and their funders’ theories and priorities.  They pay for their own research studies to prove their theories, they buy media coverage, and, in education, they make grants to the school districts which agree to try out their experiments.

Last week, California teacher blogger Tom Ultican provided an update on what has happened to the late Eli Broad’s public school leadership program aimed to form school leaders through business principles instead of education theory. Here is a bit of background behind Ultican’s recent post. In December of 2019, a little more an a year before his death in April 2021, Eli Broad donated $100 million to Yale University’s School of Management. The gift came with a quid pro quo: Yale University’s School of Management now houses the Broad Superintendents’ Academy and Broad Residency in Urban Education. What this means is that mega philanthropist, Eli Broad, with a background as an accountant who bought a life insurance company which he turned into a retirement savings business, purchased a prestigious institutional home for a school superintendents’ training program he alone devised.  Eli Broad’s personal philosophy of education management now has the imprimatur of Yale University even though there is no academic, peer-reviewed research endorsing Eli Broad’s theories of education management.

Ultican reports that The Broad Center at Yale School of Management has just “enrolled its first cadre of 17 fellows into the ‘Fellowship for Public Education Leadership program.'”  Although many of the staff at The Broad Center have previously worked as public school leaders or staff from state departments of education, they are likely to have completed the program themselves as Broad Residents in years past. Some were leaders in privately managed Charter Management Organizations or state departments of education which created state takeover agencies to manage struggling public schools. Ultican concludes: “Significantly, the late Eli Broad chose a business institute instead of an education school to continue his training program. The Broad Center at Yale School of Management appears to be in complete fidelity with the late Eli Broad’s privatize the commons ideology.”

Also last week, Chalkbeat‘s Matt Barnum reported on a new collaboration of some of America’s richest education philanthropists “aimed at dramatically improving outcomes for Black, Latino, and low-income students.”  Certainly that is a worthy purpose, but the philanthropists who are leading this effort are not aiming to invest in reducing class size, hiring guidance counselors, creating school orchestras, or restoring the school libraries that have been cut in lean times: “The Advanced Education Research & Development Fund… is already funded to the eye-popping tune of $200 million from the Bill and Melinda Gates Foundation, the Chan Zuckerberg Initiative (CZI), and the Walton Family Foundation… AERDF (pronounced AIR-dif) says its focus will be on what it calls ‘inclusive R&D,’ or bringing together people with different expertise, including educators, to design and test practical ideas like improving assessments and making math classes more effective. Still, the ideas will have ‘moonshot ambitions,’ said the group’s CEO Stacey Childress…  The organization emerged from work that began in 2018, when CZI and Gates teamed up to invest in R&D. That resulted in a project known as EF+Math, which funds efforts to embed lessons in executive functioning—a set of cognitive skills related to self control and memory—into math classes. ‘These executive functioning skills allow you to focus on what’s important, ignore distractions, let you think flexibly to solve problems and keep track of ideas,’ said Melina Uncapher, the program’s director. ‘Perhaps not surprisingly, they’re strongly related to math skills’… The other project that AERDF announced Wednesday is called Assessment for Good, and will focus on creating better student tests that shift from focusing on students’ deficits to their strengths.”

Notice that the aim here is to change the focus of standardized testing, not to reduce our nation’s overreliance on standardized test scores that these same philanthropists have promoted for a quarter of a century. And it is important to remember that decades of sociological and educational research overwhelmingly blame poverty and growing economic inequality along with economic and racial segregation—not the lack of students’ executive functioning—for the struggles of groups of students whose test scores have lagged.

AERDF is merely a new way for mega-philanthropists to focus microscopically on technical research without addressing the rising inequality in which they are complicit.  If they paid taxes on their vast incomes, the states and the federal government would have more revenue to address the problems that simply stare us all in the face: class sizes of 40 students; shuttered school libraries; a shortage of guidance counselors; absence of school bands and orchestras; school newspapers that stopped publishing when there was no money to hire a journalism advisor; reliance on outdated computer technology; and urban schools that lack the academic enrichments suburban children take for granted—challenging literature, civics, advanced math, and lab science classes.

In Winners Take All: the Elite Charade of Changing the World, Anand Giridharadas considers what it means when the wealthiest individuals cease to pay their fair share of taxes for the public good and instead attempt to shape society according to their personal priorities via philanthropy:

“What is at stake is whether the reform of our common life is led by governments elected by and accountable to the people, or rather by wealthy elites claiming to know our best interests.  We must decide whether, in the name of ascendant values such as efficiency and scale, we are willing to allow democratic purpose to be usurped by private actors who often genuinely aspire to improve things but, first things first, seek to protect themselves. Yes, government is dysfunctional at present.  But that is all the more reason to treat its repair as our foremost national priority.  Pursuing workarounds of our troubled democracy makes democracy even more troubled. We must ask ourselves why we have so easily lost faith in the engines of progress that got us where we are today—in the democratic efforts to outlaw slavery, end child labor, limit the workday, keep drugs safe, protect collective bargaining, create public schools, battle the Great Depression, electrify rural America, weave a nation together by road, pursue a Great Society free of poverty, extend civil and political rights to women and African Americans and other minorities, and give our fellow citizens health, security, and dignity in old age.” (Winners Take All, pp. 10-11)

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