Tax Lawyer's Blog

Economist and tax preparer Mary O’Keeffe of the very good Bed Buffaloes In Your Tax Code blog says that the American tax system is not as progressive in practice as it is in theory:

Essentially, the rich can hire high-priced expert ranch-hands to manage all those bed buffaloes in the tax code to figure out legal ways to keep their tax burden well below what you’d expect based on the statutory schedule shown above. In fact, some of those super high-income taxpayers managed to hold their effective tax rate below 10%, as this IRS study shows.

I have no doubt that this is true; however, if the rich are availing themselves of mechanisms that were built into the tax code to encourage certain conduct, there must be some social value for their doing so. In other words, Congress must have believed that the benefit of the conduct encouraged outweighs the benefit of the revenue generated by taxing it.

Unless, of course, Mary is suggesting that the rich are merely manipulating the tax code by finding loopholes in it that were not intended by Congress. But even then the solution would be to close those loopholes rather than deepen the already deep progressivity of U.S. tax rates.

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