US Gaps in Cash: ‘Don’t Be Surprised If Billionaires Keep Growing’

Saturday 12 June 2021

American loopholes in cash
Don’t be surprised if billionaires keep growing

What Bezos & Co. pays to the US tax authorities is often a fraction of the billions with which their fortune grows each year. In an interview with Capital.de, tax expert Stefan Bach gave good reasons for this. It explains why the situation is still unfair and how the system can be improved.

Mr. Bach, do you understand the excitement that the wealthy in the United States pay so little in taxes?

Stefan Bach: Well, in principle, it’s cold coffee, even if accurate tax data is now available. Warren Buffett used to joke that his secretary had a higher tax rate than him.

why is that?

This is because the income of many super-rich people is rarely distributed in the private sphere and is therefore not subject to progressive income tax. They store their brutal incomes in their companies or holding structures. Only when they make and distribute the profits will withholding tax or, in other countries, similar taxes be levied. But the profits are not distributed, they are invested more.

Labor income is taxed more than capital income in both Germany and the USA. It must create unrest.

Yes, but this is also the case that income should not be taxed twice. German companies already pay taxes of up to 30% on corporate profits. When owners pay their dividends, they pay another 25 percent of withholding taxes plus solos on the remaining 70 percent.

So the incentive is that the profits stay with the company.

exactly. This is how we promote real investment, for example among German medium-sized companies. But we also encourage the accumulation of the ultra-rich’s fortunes – regardless of whether they are investing at home or abroad. You should not be surprised if the number of billionaires in our country is increasing all the time. You can reinvest your earnings over and over, paying only corporate taxes, but there is no withholding tax and no progressive income tax.

Does Low Tax on Stock Investments Always Encourage Investment?

The difference between Bezos or Musk and our good average German companies is that investing in medium-sized companies results in a corporate tax burden of up to 30%. It seems that Elon Musk and Jeff Bezos are paying a little bit on their earnings. The United States taxed local corporate profits heavily. But what Musk or Bezos have to pay in taxes in Europe and Asia, they redirect through Ireland, Luxembourg and other countries to tax havens that don’t tax corporate profits. See buecher.de and Amazon. Some had to pay tax on their earnings, others did not. This is of course an unfair competitive advantage. This is why it makes sense to have an international minimum tax for corporations.

So it’s a problem. On the other hand, the wealth of the rich continues to grow because they can reinvest their profits at low tax rates, and on the other hand, investments should be preferred for taxes. How can that be changed?

You can return huge income to investors to income tax. But this is difficult. Or you can have wealth taxes, basic wealth tax, but that also has its problems. In the end, it’s always a question of weight: fairness or efficiency? The same applies to the inheritance tax. Smaller inheritances are tax deductible. Rich people with ordinary wealth have to quickly pay ten percent. The super-rich with large corporations and collectibles are largely free. But if you approach it in a practical way, you can do a lot. Many wealthy people see the connection and are willing to pay more taxes to the general public again. Taxes should not be exaggerated as this is less economically harmful. With real estate too, for example, Germany is a tax haven.

What tax increases are realistically possible without burdening the economy?

A balanced mix of wealth, inheritance, high capital gains and property taxes can easily generate €20-30 billion in income per year without negatively impacting investments, jobs and growth. The money should then be used to relieve the exhausted middle classes, burdened with a heavy burden of social contributions and income tax.

Roland Lindenblatt spoke to Stefan Bach

Interview at the beginning Capital.de Posted.