Occupy protesters are putting their bodies on the line day and night -- leaving their homes, living in tents, braving the elements, and being treated as criminals by the police.
But the super-rich whose influence they are protesting have others to do their fighting for them.
"Oligarchs can go about their business as literally thousands of fulltime professionals work for their interests," says Northwestern University political economist Jeffrey Winters, author of the 2011 book Oligarchy.
Winters coined the term "wealth defense industry" to describe this veritable army that serves the super-rich, and in a recent article in the American Interest he explained that it "is comprised of lawyers, accountants, wealth management consultants, revolving-door lobbyists, think-tank debate framers and even key segments of the insurance industry whose sole purpose is income defense for America’s oligarchs. "
It's "a multi-billion dollar industry per year, and it feeds completely on the need of wealthy people to defend their wealth," Winters says in an interview.
The paramount goal is simple and specific: "To not pay taxes and to keep as much of their fortunes as they possibly can across generations."
The means are extremely complicated and expensive, typically involving individually tailored, painstakingly crafted techniques -- or "structured tax products"-- based on arcane interpretations of the nation's 70,000-page tax code.
Those schemes often involve moving money through offshore tax havens and anonymous shell corporations -- generally with the goal of sheltering the money and creating paper losses that can be applied to the client's tax bill.
"The wealth defense industry arose as part of the demand on the part of wealthy people, but it's now taken on a life of its own and is proactive," Winters says.
In the 1970s, oligarchs paid an average effective tax rate of about 55 percent, which was almost 80 percent of the top rate, Winters calculates. Over the years, the wealth defense industry lobbied relentlessly to cut the top tax rates -- while the ability of oligarchs to hide their money increased. So by 2007, their effective tax rate was down to 16.5 percent, or about half the top rate.
"The result is that the tax rate on the wealthiest American is absolutely regressive," Winters says.
And needless to say: "There is no equivalent to the wealth defense industry for average Americans -- or even the vast majority of the affluent."
Most Americans are what Winters calls "Turbotaxpayers" -- they type in their financial information, the computer program reminds them of their deductions, and they file.
"That's the extent of wealth defense for the average American."
The current tax system, he says, "is only progressive up to the level of the mass affluent." (He considers households with annual incomes in the $500,000 to $3 million range to be the "mass affluent.")
"Their incomes are actually too low for this industry to pay attention to them," he says. "Those people tend to pay their full tax bracket -- and they complain the most."
"Every major law firm has a wealth-management or trusts section. There are whole firms that are wealth management firms that are wholly devoted to this."
And the amount of money the industry saves its clients is staggering. Estimates of how much tax revenue is lost each year simply due to wealthy individuals using offshore tax schemes range as high as $70 billion.
By comparison, the Bush tax cuts for those making over $250,000 cost the U.S. Treasury about $60 billion a year.
"The Bush tax cuts are on the political radar screen; an equivalent amount is off the radar screen," Winters says.
And, he notes: "Even if you put the Bush tax cuts back in place, those who use the wealth defense industry would never pay those rates."
The nearly secret weapon of the wealth defense industry is what's known as a "tax opinion letter."
"No taxpaying mortal has ever heard of a tax opinion letter. Most of us can't afford to buy one," Winters says. "The very cheapest one you can find will cost roughly $300,000 per letter" and that's a "downmarket" version. "The ordinary tax opinion letter costs closer to $3 million."
A 2003 Senate report on KPMG's massive tax-shelter business explained:
A tax opinion letter, sometimes called a legal opinion letter when issued by a law firm, is intended to provide written advice to a client on whether a particular tax product is permissible under the law and, if challenged by the IRS, how likely it would be that the challenged product would survive court scrutiny.
"It gives you a very complex tax product, often a combination of trusts along with sheltering personal assets in foreign tax havens," Winters says. A frequent element is the establishment of " anonymous shell corporations that engage in transactions that are not actually real, rack up huge losses on paper, all of which is incredibly hard to follow."
And here's the crux: "If you're challenged by the IRS, the law firm, as part of the tax opinion process, guarantees that it will back you."
The undisguised message: "I not only have the resources to buy this tax instrument in the first place, but I have the resources to stare down the IRS if it gets challenged."
Because IRS auditors are supposed to take "litigation risk" into consideration to avoid getting bogged down in costly and time-consuming lawsuits, this creates an incentive for them to look elsewhere.
And if they do pursue a challenge, they have a big incentive to come to some kind of settlement -- negotiated by the same tax attorneys who wrote the original letter -- that doesn't involve any criminal charges.
"The oligarchs get the tax savings initially; chance of getting challenged is low; chance of getting criminally charged is almost zero," Winters says.
The gains the industry provides its clients have hugely contributed to income inequality, Winters says. In his article in the American Interest, he offers up what he calls a "Material Power Index" where the number one equals the average wealth position of Americans across the bottom 90 percent of the population.
Here's what the wealth defense industry has wrought: Measured by household wealth, he finds that "oligarchs at the very top of American society have an MPI just over 20,000, which happens to be twice the MPI of Roman senators relative to their society of slaves and landless farmers. If home equity is excluded, the MPI for the richest Americans doubles to 40,000 times an average member of the middle class.”
What this means, Winters says, "is that although U.S. democracy is founded on one-person-one-vote, each oligarch can bring to the political table the dollar impact of 20,000 Americans. Decisions like Citizens United open the flood gate for oligarchs and their minions in the wealth defense industry to flex the maximum political muscle money can buy. And that's just in the context of electoral campaigns. No one is even talking about how the wealth defense industry silently and invisibly benefits American oligarchs every day, year-round."
By contrast, he says: "Anybody who wants to challenge the wealthy, they've got to get rained on, and eventually snowed on, and it means they have to stop whatever they're doing. Ordinary citizens actually have to join organizations and physically be there and participate, to the exclusion of anything else they might do. And that is at tremendous burden."
His conclusion: "This is one of the reasons a very small number of ultra-wealthy Americans can distort democracy in their favor against tens of millions of ordinary citizens."
Dan Froomkin is the deputy editor of the Nieman Watchdog Project. He is also Senior Washington Correspondent for the Huffington Post.
This post originally appeared at NiemanWatchdog.org.
Follow Dan Froomkin on Twitter: www.twitter.com/froomkin
http://www.nieman.harvard.edu/reportsitem.aspx?id=100453
Jim Sullivan
Ventura, CA
Then there is me. I do it because it is the only thing I have been really good at, my whole life. Other that making money, I am pretty average. I guess if you are going to be good at something, there are worse things to be good at, than making money.
That is what squatters do.
And I've got news for you: it's a lot more than the "evil 1%" who are protecting their wealth. I'm doing it to and I'm unapologetic about it. I'm not rich, just doing fairly well right now but what I have I want to keep and there are plenty of legal, international ways to defend your money from the grabbing hands of government looters whether you are at the top of the pyramid or still climbing it. People get tired of being vilified for being successful and they're not going to simply roll over while the government finds a way to slurp down half of their income. Capital controls, IRA nationalization, punitive taxes....it's all coming because here's a revelation for you....there is no solution to 14.7 trillion dollars of debt. The government will come for your money out of desperation and it's not just the 1% that they're going to raid. It's you too.
"It includes some positive measures that could bring comfort to the millions of Americans who are struggling under the Obama economy and are looking for hope this holiday season. Camp said of the bill, 'With its passage, Americans can be confident that these programs and provisions will be available next year, that they will not result in decades of debt and that they will be paid for with fiscally responsible reforms, not job-killing tax hikes.'" Obama's vetoing it. Notice Obama is threatening to veto a bill that would both lower taxes and create jobs. Cutting taxes and creating jobs, and he's going to veto it.
:-)
But what the heck;
1. Using the term 'offensive' in regards to causing the veto is asinine.
2. The supposed revenue and job creation numbers are suspect - we've heard multiple different numbers for each and they are being steadily revised upward to make it sound even more super wonderful.
3. Environmental concerns abound with the pipeline, notably groundwater contamination.
4. Eminent domain and land seizure for the pipeline is a serious issue.
5. My taxes are fine right where they are. We already have a revenue problem and issues with funding Social Security, so making it worse isn't exactly a bright idea.
6. The use of the term 'job killing tax hikes' demonstrates the utter cluelessness of the Rep who used it. Taxes are at the lowest level in almost a century and still no jobs.
1. Your comment is a puddle of lies and Straw Man Arguments.
2. See number 1.
:-)
Of course, this means a total lack of comfort and a threat to anyone's lifestyle. But i don't think a large enough number of people will be willing to take on such a risk/burden.
Congress doesn't work for the people, and I just don't see any other way of affecting change anymore.
Yes I would say the rich have us common folk out gunned.
Hundreds of people, several months and we barely scratch the surface
I am sure thier Wealth Defense Industry is matched only by thier Personal Defense Industry.
Thanks for that illuminating article exposing how unfair our tax code is to the wealthy that they have to hire a multitude of wealth defense specialists to protect that from the government-enabled expropriation by a bigger and bigger ‘taking class’ of people.
It is a shame that they are being signaled out for discrimination in our tax code. This discrimination must stop and I thank you for bringing its egregious existence to our attention.
I also like the way you pointed out how the Occupy protestors are doing nothing useful or productive with their time, which may explain why they have no jobs and no wealth. Thanks for making that clear.
Keep up the good work.
Kai
unless you are one of the 1% you are paying these people's share of the cost for running the Government.
I guess you like giving your extra dollars to make up for their off shore accounts and lawyer trickery.
If they paid what they should be paying we probably would not need to pay so much.
but if you are happy paying thier portion more power to you.
Kai
They have no idea what those with very little must deal with to survive and eke out an existence beyond bare subsistence living. They also fail to realize how much their own success depends on luck, circumstance, who they know or who they owe. Hard work is a component of success, but not the only one.
Thanks for pointing out that
a) Yes, although the tax rate is lowest it has been for EVERYONE in a century, are normalized tax revenue is still about 18% of GDP, where it has been since the late 50’s when the second greatest tax cutter in History, and the greatest…prior to Bush II, President Kennedy raised revenue by cutting taxes (the tax rate averaged 16% of GDP the decade before) So thanks for illustrating that by cutting everyone’s taxes, including the rich, we are better off.
b) Also, thanks for pointing out that despite the cuts, the rich pay a BIGGER share of tax revenue than they ever have, especially when you take into account that the bottom 40% have negative federal income tax rates (meaning they get paid to be American, and the bottom 20% has a all-in effective tax rate that is 1/6 that of the rich, which is why we have the MOST progressive tax rate in the OECD.
c) Also thanks for pointing out that the poor whine and cry when they cannot take other people’s money.
d) 80% of millionaires are self made, most small business owners or professionals, doctors, lawyers, bankers, etc. They know what it is like to make their own money…the poor should try it some day…it works.
Kai
The plan is to make America a "safe haven" for the worlds rich oligarchs-criminals... and then to use our military and police to protect them.
Our country has been taken over by criminals.