How Obama Could End the Romney Loophole Right Now

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For the last two decades, a regrettable IRS ruling called the “carried interest loophole” has allowed wealthy private equity and venture capital managers to pay a lower tax rate on their income than the rest of us. Fair tax advocates have long called on Congress to close this loophole as a step toward tax fairness. While the prospects for legislation improving tax fairness in Congress have languished this year, the Obama Administration could bypass Congress and take immediate action to close the loophole.

The carried interest loophole has gained even more notoriety in recent years because former Republican presidential nominee Mitt Romney during his time at Bain Capital, resulting in the loophole being nicknamed the “Romney loophole.”

The way the carried interest loophole (PDF) works is that managers of investment partnerships such as private equity and venture capital funds are often compensated with a percentage of the profits earned by assets under their management. Because of an unfortunate 1993 IRS ruling, this income is incorrectly treated as capital gains, which means the managers of these partnerships receive the special preferential rate of 20 percent rather than paying the 39.6 percent rate applied to ordinary income. Given the extraordinarily high compensation that many of these fund managers earn, its unconscionable that the tax system allows them to pay a lower tax rate on their income than their receptionists pay.

As tax professor Victor Fleischer noted in the New York Times, to end this preferential treatment of fund managers, all the administration has to do is direct the IRS to reclassify them as service providers, which would require that their income be taxed as ordinary income. Ironically, even some private fund managers have admitted (PDF) in the past that they the work they do should be characterized as “income earned in exchange for the provision of services,” rather than as a capital gain.

While there is not an official estimate on the revenue impact that such an executive action would have, the Obama administration’s most recent budget proposals include a provision substantially restricting the carried interest loophole and projected to raise almost $14 billion over 10 years.

Over the long term, it would be preferable to end preferential treatment of capital gains, but closing the carried interest loophole would represent a significant step the Obama administration could take now, without congressional approval, to improve fairness in the tax code. 

Much of What You’ve Heard about Corporate “Inversions” Is Wrong

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With yet another big U.S. corporation (this time it’s the medical device maker Medtronic) announcing its intentions to “invert” and officially become a “foreign” company for tax purposes, it’s time to correct a few misunderstandings.

1. What is a corporate inversion?

Incorrect answer: A corporate inversion happens when a company moves its headquarters offshore.

Correct answer: A corporate inversion happens when a company takes steps to declare itself a “foreign” corporation for tax purposes, even though little or nothing has changed about where its business is really conducted or managed.

The law used to be so weak that an American corporation could simply reincorporate in Bermuda and declare itself a foreign company for tax purposes. In 2004, Congress enacted a bipartisan law to prevent inversions, but a gaping loophole allows corporations to skirt this law by acquiring a smaller foreign company. The loophole in the current law allows the company resulting from a U.S.-foreign merger to be considered a “foreign” corporation even if it is 80 percent owned by shareholders of the American corporation, and even if most of the business activity and headquarters of the resulting entity are in the U.S. (A proposal from the Obama administration to change these rules has been introduced in Congress by Carl Levin in the Senate and his brother Sander Levin in the House.)

2. How are the offshore profits of American corporations taxed?

Incorrect answer: When American corporations officially bring their offshore profits to the U.S., they must pay the 35 percent U.S. tax rate, and this is why they want to escape the U.S. tax system.

Correct answer: When American corporations officially bring their offshore profits to the U.S., they must pay the U.S. tax rate of 35 percent only if their profits have been shifted to tax havens.

When American corporations “repatriate” offshore profits (officially bring offshore profits to the U.S.) they are allowed to subtract whatever corporate taxes they paid to foreign governments from their U.S. corporate tax bill. (This break is called the foreign tax credit.) The only American corporations that would pay anything close to the full 35 percent U.S. corporate tax rate on offshore profits are those that claim their profits are in countries where they are not taxed — countries we know as tax havens.

American multinational corporations report to the IRS massive amounts of profits earned in countries that either have an extremely low (or zero) corporate tax rate or otherwise allow them to escape paying much in corporate taxes. It is obvious that these reported tax haven profits are not truly earned in these countries, and in fact that would be impossible. For example, the profits American corporations overall report to earn in Bermuda are 16 times the size of Bermuda’s economy. Obviously, these profits are truly earned in the U.S. or other countries with real consumer markets and real business opportunities, and then manipulated to appear to be earned in countries where they are not taxed.

The corporations that make the most use of these tax haven maneuvers — maneuvers that are probably legal, but which should be barred by Congress — are the corporations that would pay close to the full 35 percent tax rate if they repatriated their offshore profits.

3. What profits are corporations trying to shield from U.S. taxes when they invert?

Incorrect answer: When American corporations invert, they do it to escape the U.S. system of taxing offshore profits, which is something most other countries don’t do. After they become a foreign company, their U.S. profits would still be subject to U.S. taxes.

Correct answer: American corporations invert to avoid paying taxes in any way possible, and often that includes avoiding U.S. taxes on their U.S. profits. It’s true that, in theory, all corporate profits earned in the U.S. (even profits of a foreign-owned corporation) are subject to the U.S. corporate income tax. But corporate inversions are often followed by “earnings stripping” to make any remaining U.S. profits appear to be earned offshore where the U.S. cannot tax them.

Earnings stripping is the practice of multinational corporations reducing or eliminating their U.S. profits for tax purposes by making large interest payments to their foreign affiliates. Corporations load the American part of the company with debt owed to a foreign part of the company. The interest payments on the debt are tax deductible, reducing American taxable profits, which are shifted to the foreign part of the company and are not taxed.

If the American part of the company is the parent corporation shifting its profits to offshore subsidiaries, then the benefit is that U.S. tax will not be due on those profits until they are repatriated, which may never happen. But if the American part of the company can claim to be just a subsidiary of a foreign parent company — which would technically be the case after a corporate inversion — then the benefits of earnings stripping are even greater because the profits that are officially “offshore” are never subject to U.S. taxes.

This is part of what motivated the 2004 reform and a 2007 report from the Treasury Department that found that rules enacted earlier to address earnings stripping did not seem to prevent inverted companies from doing it.

Dear Congress: The Internet Never Was an Infant Industry That Needed Coddling

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1998 was a lifetime ago in the world of technology. E-commerce was in its infancy, Mark Zuckerberg was a 14-year-old and Napster hadn’t yet been invented. But even then, many people rightly scoffed at the notion that the Internet was an “infant industry” requiring special protection from state taxes.

Congress, however, agreed the Internet required exclusions and enacted the “Internet Tax Freedom Act” (ITFA), which placed a moratorium on state and local sales taxes on Internet access (the monthly fee consumers pay for home Internet access) and prohibited all “multiple or discriminatory” taxes on sales of items purchased over the Internet. Since the ITFA expired in fall of 2001, Congress has extended the ITFA moratorium several times, and it is now set to expire in November of 2014.

If the “infant industry” argument was highly questionable in 1998, it’s utterly absurd now. From books to airline tickets, virtually everything consumers purchased in “brick and mortar” stores in 1998 is now available online. Internet access, while not yet omnipresent is widely accessible. Many traditional retailers are going under due to competition from companies such as Sixteen years later, the infant of 1998 now has the car keys to the American economy.

Nonetheless, Sens. John Thune and Ron Wyden have cosponsored the “Internet Tax Freedom Forever” act, which would turn the moratorium into a permanent ban on Internet access taxes. A glowing Wyden press release claims the bill will “giv[e] online innovators and entrepreneurs the stability they need to grow their businesses.”

While other tax bills have deadlocked Congress, the Internet Tax Freedom Forever act has garnered 50 co-sponsors in the U.S. Senate. The most likely reason is Congress is playing with other people’s money. The fiscal impact of ITFA in 2014, as in 1998, falls entirely on state and local governments. So Wyden and Thune can breezily pre-empt an entire economic sector from tax without hurting the federal budget’s bottom line. But for state and local governments, the bill would represent a real hit on their ability to balance budgets in the long term.

Besides taking a bite out of state budgets, “Internet tax freedom” is simply bad policy. A sustainable sales tax should apply to personal consumption as universally as possible—and it’s especially vital that the tax apply to sectors that are growing most rapidly. By permanently exempting Internet access from sales taxes, the Thune-Wyden bill will make it more likely that state governments will have to hike the sales tax rate on all the other items subject to the tax to make up the revenue loss.

This year’s bill goes beyond simply turning a temporary bad idea into a permanent one. It would also eliminate a “grandfather clause” that allows nine states (Hawaii, New Hampshire, New Mexico, North Dakota, Ohio, South Dakota, Texas, Washington and Wisconsin), which had enacted taxes on Internet access before the original ITFA, to continue to levy these taxes.  So in addition to choking off future state revenues, the Thune-Wyden bill would also put an immediate hit on budgets in the nine states that have been sheltered by the grandfather clause to date.

To be sure, state sales taxes have their flaws. They’re regressive, falling most heavily on low-income families, and are littered with special-interest exemptions. As we have argued elsewhere, shifting away from sales taxes and toward the progressive personal income tax is a sensible reform strategy for states. But a federal ban on internet access taxes is not a way to move this debate forward.

Senate Democrats, Joined by Three Republicans, Come Up Short on Buffett Rule, Student Loan Bill

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Three Senate Republicans (two of whom have signed Grover Norquist’s infamous no-tax-increases pledge) joined their Democratic colleagues Wednesday to support a bill that would use the “Buffett Rule” to raise taxes on millionaires and offset the cost of easing student loan repayments.

Introduced by Sen. Elizabeth Warren (MA), the bill had the support of 57 senators, three short of the threshold for cloture in the Senate.

The three Republicans voting in favor were Susan Collins (ME), Bob Corker (TN) and Lisa Murkowski (AK). Corker and Murkowski have publicly said they do not feel bound by the Norquist pledge.

The “Buffett Rule” started out as the principle, proposed by President Barack Obama, that the tax code should be reformed in a way that ensures that millionaires don’t pay lower tax rates than middle-income people. It was inspired by the billionaire investor Warren Buffett, who famously argued that it was unfair that his effective tax rate was lower than his secretary’s rate.

As a CTJ report explains, some millionaires have lower effective tax rates than middle-income people mostly because investment income that mainly goes to the wealthiest Americans is subject to lower rates under the personal income tax and is not subject to the Social Security tax. The simplest remedy is to eliminate the special, low personal income tax rates that apply to two types of investment income, capital gains and stock dividends.

The tax provision in Sen. Warren’s bill, which was first introduced by Senate Democrats in 2012, takes the more roundabout approach of imposing on millionaires a minimum effective tax rate (including personal income taxes and health care taxes) of 30 percent. It is projected to raise $73 billion over a decade.

In 2012, CTJ called this measure “a small step in the direction of tax fairness” and explained it would raise much less revenue than simply taxing capital gains and dividends like other income under the personal income tax. One reason is that taxing capital gains and dividends like other income would subject them to a top personal income tax rate of 39.6, plus an additional 3.8 percent under the Obamacare tax, rather than 30 percent. Another reason is that there is a great deal of capital gains and dividend income that goes to taxpayers who are among the richest five percent or even one percent but who are not millionaires and therefore not affected by the Senate Democrats’ proposal.

Sen. Warren’s proposal is a good start that should be enacted and built upon one day with a more comprehensive reform.

Reid-Paul “Transportation Funding Plan” is No Plan at All

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The nation has a number of pressing problems, and our polarized Congress all too often can’t seem to compromise on policies that would address fundamental issues that most of us care about. In this context, it seems a pending proposal by Democratic Senator Majority Leader Harry Reid and Sen. Rand Paul, a Republican senator and libertarian stalwart, would be a refreshing change from the norm. But not so much.

Unfortunately, Sens. Reid and Paul have proposed to “fund” the Highway Trust Fund with a nonsensical measure that would reward corporate tax avoidance and raise almost no revenue, according to their own description of the plan.

Policymakers know our nation’s roads are chronically underfunded. Since 2008, Congress has covered $53 billion of transportation funding shortfalls by taking needed tax dollars out of general fund revenue, and official forecasts show the need for a huge infusion of new cash to maintain our roads and bridges. There is a straightforward policy solution—increasing the federal gas tax to offset large inflationary declines over the past two decades—that requires a legislative champion.

Instead of taking the obvious step of fixing the federal gas tax, Reid and Paul propose a repatriation tax holiday, which would give multinational corporations an extremely low tax rate on offshore profits they repatriate (profits they officially bring back to the United States). The idea is that corporations would bring to the United States offshore profits they otherwise would leave abroad, and the federal government could tax those profits (albeit at an extremely low rate) and put the revenue toward the transportation fund.

The first problem with such a proposal is many of these offshore profits are clearly earned in the United States and then manipulated through accounting gimmicks so corporations appear to earn the money in countries where it won’t be taxed, as demonstrated by several recent CTJ reports. In fact, profits corporations report earning in zero-tax countries would receive the biggest breaks under a repatriation holiday because the U.S. tax normally due on repatriated profits is reduced by whatever taxes have been paid to foreign governments.

The second problem with a repatriation holiday is that Congress enacted this type of proposal in 2004, and critics have widely panned that measure as providing no increase in employment or investment but only enriching shareholders and executives.

The third problem is that it loses revenue. The non-partisan Joint Committee on Taxation (JCT) has estimated that a repeat of the 2004 measure would reduce revenue by (and increase the budget deficit by) $96 billion over a decade.

According to JCT, one reason for the massive revenue loss is that some of the offshore profits would be repatriated anyway absent any new tax break, and companies would pay the full tax. Another reason is that the measure would encourage corporations to engage in even more accounting games to make their U.S. profits appear to be earned in offshore tax havens, with the expectation that a little lobbying could prod Congress to enact another repatriation holiday in a few years.

Reid and Paul have added a detail that they claim improves their proposal. They argue that companies would rather borrow money than tap profits they claim to hold “offshore.” Reid and Paul therefore propose to also limit the tax-deductibility of corporate borrowing by asserting that any business borrowing that is done for the purpose of avoiding repatriating offshore cash would be non-deductible.

It is unclear how this could possibly be implemented, but even if it works, the New York Times reports that Reid’s staff believes the net effect would raise just $3 billion over a decade. This is laughably insufficient. Replenishing the Highway Trust Fund just to maintain spending until the end of 2015 will cost $18 billion

State News Quick Hits: Red Ink Mounting in Tax Cutting States

News we cannot make up from our friends at the NC Budget and Tax Center: The North Carolina Senate wants to take a sacred public trust, the education of our children, and subject it to the whims of a voluntary funding system. After frittering away precious resources for schools by giving millionaires – among the only people who have prospered much in recent years – an income tax cut they didn’t need, the Senate now wants North Carolinians to voluntarily give back part or all of their income tax refunds so teachers can get a pay raise. A better, saner solution would be for the Senate to acknowledge reality: the tax plan that it and the House passed last year and the governor signed into law is failing the people of North Carolina – and their kids. Read more about this ridiculous plan here.

Kansas lawmakers should be prepared to see lots of red ink within the next year. Former state budget director Duane Goossen has said the state simply won’t have enough money to pay its bills. One reason Kansas is going down this path is because the state no longer taxes pass-through business income, and the price tag of the deduction is largely unknown.  Perhaps this is the evidence Kansans need to prove that Governor Brownback’s experiment has failed.

Tax Fairness advocates take heart! Kudos to Missouri Gov. Jay Nixon for coming out against a sales tax hike for transportation. The governor said, “The burden of this … sales tax increase would fall disproportionately on Missouri’s working families and seniors.” The need for increased transportation funding is real, but it makes little sense to hike the sales tax almost immediately after cutting income taxes.

Perhaps South Carolina Governor Nikki Haley hasn’t closely watched the income tax elimination debate that has sputtered to a halt in other states. If she were paying attention she would see that each of these proposals has gone  nowhere, yet she is proposing that very same thing in the Palmetto State.

Keeping Score? Real Tax Reform 0. Tax Cuts 2

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Illinois lawmakers are putting the state’s bond rating and already shaky fiscal house in further disorder by failing to address the state’s temporary 5 percent tax rate, which is set to fall to 3.75 percent in 2015.

State lawmakers vigorously debated two tax proposal this legislative session to resolve the issue.The first would have allowed a ballot question in November to amend the state constitution and allow a graduated income tax, and the second would have made the 5 percent income tax rate permanent.  Illinois lawmakers adjourned without going down either path but instead agreed to a fiscal year 2015 budget that is widely viewed as “kicking the can down the road.”

Voices for Illinois Children analyzed the budget and created an infographic that shows why lawmakers’ decision will be detrimental to the state: It ignores that the 5 percent income tax is temporary, relies on borrowing from other funds, and under funds state obligations. Many speculate election year politics got in the way, with lawmakers not wanting to cast tough votes in favor of maintaining current tax rates ahead of November.

Meanwhile, in Ohio …

Lawmakers okayed a $400 million tax cut package that we told you about last week. The package includes accelerating already scheduled income tax rate reductions and increasing an existing tax break for “pass through” businesses, while providing much smaller tax breaks to low- and middle-income families. The legislation now goes to Gov. Kasich, who is expected to sign the bill into law. For more on this legislation see Policy Matters Ohio report here.

ITEP Powers Wisconsin Tax Calculator

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Recently the Wisconsin State Journal ran an important piece describing the current tax debate in the Badger State. Gov. Walker has said he is interested in income tax repeal and already pushed through three major tax cuts during his term in office.  

Governor Walker’s major challenger, Mary Burke  has said, “My pledge is not to raise taxes overall and to make sure that Wisconsin taxes and fees are in line with other states.”

Clearly tax issues will be a hotly debated issue over the course of the gubernatorial campaign. At the request of the Wisconsin State Journal the Institute on Taxation and Economic Policy provided data that powers a new interactive tax calculator that allows readers to answer the question “What’s the right tax  mix for Wisconsin?”

Tax Foundation’s Dubious Attempt to Debunk Widely Known Truths about Corporate Tax Avoidance Is Smoke and Mirrors

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Yesterday, the conservative Tax Foundation wrote a misleading response to the report, “Offshore Shell Games,” by U.S. Public Interest Research Group (PIRG) Education Fund and Citizens for Tax Justice (CTJ).

Major Conclusions Not Challenged by the Tax Foundation

The Tax Foundation does not challenge most of the report’s findings because a strong body of research by academics, journalists and other tax policy analysts reach the same conclusions.

USPIRG Ed Fund/CTJ conclude that American corporations in the aggregate are obviously engaging in tax avoidance when they report to the IRS that their subsidiaries earn $94 billion in profits in Bermuda during a year when that country has a GDP (total economic output) of just $6 billion. We conclude that American corporations are engaging in obvious tax avoidance when they report to the IRS that they earn $51 billion in the Cayman Islands when that country has a GDP of just $3 billion. The Tax Foundation does not challenge this.

We also conclude that when Apple discloses it would pay a U.S. tax rate of about 33 percent on its offshore profits if it officially brings those profits to the United States, that means Apple has only paid a 2 percent effective tax rate to countries where it claims to have earned those profits. We conclude that when U.S. Steel discloses that it would pay a U.S. tax rate of about 34 percent on its offshore profits if it officially brings them to the U.S., that means U.S. Steel has only paid a 1 percent effective tax rate to the countries where it claims to have earned those profits. The findings are similar for Nike, Microsoft, Oracle, Safeway, American Express, Wells Fargo, Citigroup, Bank of America, and several other companies. This strongly suggests that most of these profits are reported to the IRS as earned in tax havens.

The Tax Foundation challenges none of this.

Tax Foundation’s Own Analysis Depends on Wildly Misleading Use of Data

The Tax Foundation claims that we ignore IRS data that “reports corporations actually paid a tax rate of about 27 percent on their reported foreign income” in 2010, as one of its own reports claims.

This is outrageously misleading. The Tax Foundation’s 27 percent figure is based on the offshore profits that American corporations “repatriate” to the U.S., which excludes profits that are reported as “earned” in tax havens or other countries with low tax rates. (Specifically, the Tax Foundation uses data reported on form 1118, which applies to offshore profits actually taxed by the U.S. in a given year.) The profits booked offshore for tax purposes that the U.S. PIRG Ed Fund/CTJ cite are those that companies have claimed are “permanently reinvested” offshore, meaning they have no plans to ever pay U.S. tax on them. By definition then, the Tax Foundation study does not factor in those profits at all.

As our report explains, when offshore corporate profits are “repatriated,” (officially brought to the U.S.) they are subject to U.S. corporate income tax minus a credit for any corporate income tax they paid to foreign governments. (This is the foreign tax credit.) As a result, American corporations are far, far more likely to repatriate offshore profits that have been subject to relatively high foreign tax rates, because they generate larger foreign tax credits. They are far less likely to repatriate offshore profits that they reported to earn in tax havens, because these profits would generate few if any foreign tax credits.

Tax Foundation’s Attempts to Pick Apart US PIRG Ed Fund/CTJ Analysis Do Not Withstand Scrutiny

The Tax Foundation attempts to pick apart pieces of the analysis in order to create a general sense that there is disagreement about the data and what the data can tell us. For example, we explain that only 55 companies disclose how much they would pay in U.S. taxes on their offshore profits if they officially brought those profits to the U.S. That’s how we determined that Apple, U.S. Steel, and those other companies officially hold most of their “offshore” profits in tax havens. The Tax Foundation claims that we are “cherry-picking” because most companies do not disclose this. We cannot possibly be “cherry-picking” if we provide the data for every Fortune 500 company that discloses such data. Further, there is no reason to believe (and none suggested by the Tax Foundation) that these 55 corporations are not representative of the rest of the Fortune 500 that have significant offshore profits.

In addition, the Tax Foundation challenges our use of IRS data to show how much of the officially “offshore” profits of American corporations are reported to be earned in tax havens, claiming that double-counting makes the data unreliable. The fact is that this data have been used in the same way in the report on tax havens by the non-partisan Congressional Research Service (CRS). Another report from CRS used data from the Bureau of Economic Analysis (BEA), which is similar, and noted (on page 9) that any double-counting in the BEA data would not have a significant impact on the results.

For some unknown reason, the Tax Foundation also challenges our definition of the countries that are tax havens. As discussed in the text of the report, the definition of tax haven is based on the list of countries created by the non-partisan General Accountability Office’s (GAO) review of research done by the Organization for Economic Cooperation and Development (OECD), the National Bureau of Economic Research (NBER), and a U.S. District Court.

Rather than disputing the robust research done by various independent authorities that classify these countries as tax havens, the Tax Foundation makes the baseless claim that our list includes countries that have “international recognized normal tax systems.” In reality, each of the countries they define as normal has a well-known history of facilitating tax avoidance. For example, the Tax Foundation lists the Netherlands and Ireland as having normal tax systems, despite the well publicized use of international tax avoidance techniques like the ‘Double Irish With a Dutch Sandwich’ that utilize subsidiaries in these countries.

The bottom line is that the Tax Foundation is probably close to right that American corporations pay about a 27 percent tax rate to foreign countries where they actually do business. Of course, that finding contradicts the Tax Foundation’s frequent false claim that U.S. companies pay lower taxes to real foreign governments than they pay to the United States on their U.S. profits.

But the profits that American corporations book in offshore tax havens for tax purposes are mostly U.S. profits that these companies have artificially shifted offshore to avoid paying U.S. taxes. Such profit shifting is one reason why American corporations pay only a little over half the 35 percent corporate tax rate on the profits they actually earn in the United States.

New IRS Report Demonstrates yet Another Reason Income Inequality Persists

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New IRS Report Demonstrates Yet Another Reason Income Inequality Persists

If we reported that the rich continue to find ways to avoid paying taxes, the statement would elicit no more than a passing yawn, as by now this fact is common knowledge. But a new report released earlier this week by the IRS reveals why the nation shouldn’t continue to accept wealthy tax dodging as inevitable.

The IRS report confirms that the best-off taxpayers (those with incomes of $200,000 or more) continue to find legal ways to make their federal tax obligation $0. Worse, the report finds that this is occurring at a pace not seen for decades.

From the report’s first publication in 1977 through 2000, the number of high-income Americans paying no tax never exceeded 3,000. But the past four years have seen an explosion of high-end tax avoidance: in each of these years, the number of zero-tax Americans found in this report has exceeded 30,000.

In 2011 (the latest year for which data are available), almost 33,000 people with incomes over $200,000 paid no federal income tax. For this group—less than one percent of all Americans with incomes over $200,000 in 2011—tax-exempt bond interest and itemized deductions are among the main tax breaks that make this tax-avoiding feat possible. 

In 1977, Congress mandated the IRS publish this report annually to help policymakers understand whether high-income tax avoidance was an ongoing problem, and (presumably) to help build the case for reform. This latest report paints a clear picture of a growing problem.

The good news is that tax reforms included in President Barack Obama’s budget plan for the upcoming fiscal year would pare back tax breaks for itemized deductions and bond interest, making important strides toward restoring these high-income Americans to the tax rolls.

Whether it’s gigantic Fortune 500 corporations or super-rich individuals, tax avoidance has a corrosive effect on the public’s confidence in our tax system, not to mention it perpetuates worsening income inequality. Ensuring the best-off Americans have some “skin in the game” should be a basic priority of tax reform.