The Bribery Yields Enormous Returns Act of 2017 (a/k/a the “Tax Cuts and Jobs Act”) is arguably the most brazen raid on the Treasury in history. Top-end Republican donors literally threatened to cut off Mitch McConnell’s allowance if he didn’t provide them with a fat return on their investment (e.g., Boston Globe, Fortune, HuffPo). The last public hold-out (Sen. Bob Corker [R-TN]), who swore just a few weeks ago that he would not vote for any tax bill that increased the debt, WaPo, seems to have been bribed into submission. Absolute power corrupts absolutely.
Let me be blunt: This was bribery, plain and simple.[1] The quid pro quo is painfully obvious: “If you don’t get us some money, we’ll cut off your allowance!” Donors expect a return on their investment, and buying a CongressCritter is way cheaper than making a dollar in the brutal world of business. It is also honest services fraud, 18 U.S.C. §§ 1341-46, as we have been deprived of the intangible right to those public officials’ honest services. But as they control the courts and the power to prosecute, the rule of law counts for nothing.
Still, there is something we can do.
Many States have their own estate taxes. And why not? It’s always been free money. On line 3b of the estate tax return (Form 706), there is a “state death tax” deduction (uh, thank you, Frank Luntz), (26 U.S.C. § 2058, for those who care). Most state estate taxes are relatively nominal (the top rate in New York is 16%, which is unusually high), and have always been more-or-less coordinated with the federal tax. But there is no law that says that they have to be.
One of the biggest drawbacks of real estate investing is that you can’t move it. And there is nothing stopping New York from raising the top estate tax to 70-80% on estates of over $1B, with New York taxing the last marginal dollar of any estate. To illustrate how it would work, let us assume that The Donald is worth $3B, with half the value of his real estate situated in New York.
Gross estate: Assets outside NY $ 1,500,000,000
Assets in NY 1,500,000,000
---------------------
Total gross estate $ 3,000,000,000
Tax on total gross estate (at 70%) $ 1,400,000,000
Less: deduction for assets not in NY ( 350,000,000)
---------------------—
Total NY estate tax $ 1,050,000,000
Now of course, this law would have to include an array of anti-abuse provisions, such as taxing so-called “like-kind exchanges” where the target property is outside NY, and treating encumbrances on the property added after the bill is proposed as nugatory for purposes of the tax. Just as Dolt45 has reduced the value of your homes with this new tax bill, we can reduce the value of his property. All’s fair in love and war ... right, Mitch?
The next target should be tax-favored pass-through income. If the Feds gIve Trump’s LLCs a special tax break, States could impose a higher tax rate on that tax-favored income. At the end of the day, a State could take away just about any benefit the Bribery Act has bestowed at the federal level.
And there is no reason why the states could not impose highly progressive property and intangibles taxes. Colorado could impose a 5% yearly property tax on all the Republicans’ second homes in Vail and Massachusetts, a 10% property tax on mansions on Martha’s Vineyard. Florida taxes the value of intangibles; this tax could be made ubiquitous, and as progressive as the States want it to be.
Now that the top corporate tax rate is 21%, there is no reason why states can’t raise their corporate tax rates to 20%. And to ensure non-avoidance, taxes can be apportioned on the basis of sales, and the tax would be on “street” income (almost always higher). As this is fairly esoteric tax policy, it is best illustrated by an example:
Apple reports income on their financials as $100B. Through various manipulations, their federal tax is zero. They make 100% of their products outside NY, and sell 1% of their products in NY. Their NY tax would be $100B x 1% x20% = $200M. And let’s say that they made all of their products in NY. Their NY tax would still be $200M.
And with proper anti-abuse provisions, no Double-Dutch, Triple-Irish “sandwiches” or other subterfuge would save them.
The opportunities are limited only by lawmakers’ creativity. By way of example, New York and Illinois could tax parasitic hedge funds out of existence by imposing a 90% tax on hedge fund income. The sophisticated computer programs need to be in close proximity to the actual exchanges to work, so they need to be in the State. And a modest (and refundable) tax on stock purchases could eliminate the razor-thin margins they feast on. By way of example, if you invest $1M in the market, you pay a $2,500 transaction fee, which you can get back if you aren’t engaging in hedge fund transactions.
Of course, with all this excess money flowing in, States could abolish regressive sales taxes, give the working class meaningful tax relief, and invest in infrastructure, education, and health care. Think of it like the States, pledging to adhere to Paris. And for the most part, the landed gentry can’t do a lot to leave their tax burden behind. Colorado auto dealer mogul John Medved can’t abandon Colorado without losing his business. Sheldon Adelson can’t move the Venetian to Boise. And where would the Waltons go?
As an aside, if even a few legislators in CA, NY, MA, VA, CT, NJ, and IL publicly endorsed this idea by Tuesday, it might strike fear in what passes for the hearts of Paul Ryan and Mitch McConnell. And I am certain there are enough bright activists here to refine the idea.
Republicans jes’ loves dat Tenth Amendment. You should learn to love it, too.
Footnotes:
[1] 18 U.S.C. § 201 provides, in pertinent part:
(b) Whoever—
(1) directly or indirectly, corruptly gives, offers or promises anything of value to any public official or person who has been selected to be a public official, or offers or promises any public official or any person who has been selected to be a public official to give anything of value to any other person or entity, with intent—
(A) to influence any official act; [or]
(2) being a public official or person selected to be a public official, directly or indirectly, corruptly demands, seeks, receives, accepts, or agrees to receive or accept anything of value personally or for any other person or entity, in return for:
(4)….shall be fined under this title or not more than three times the monetary equivalent of the thing of value, whichever is greater, or imprisoned for not more than fifteen years, or both, and may be disqualified from holding any office of honor, trust, or profit under the United States.
The legal sin is in donors conditioning their continued support on the passage of a specific bill that benefits the donors. Promising a thing of value to influence an official act. (Republicans believe in originalism—the proposition that statutes say what they mean and mean what they say.) [Source: Cornell LII].