US loopholes in criticism: “Don’t be surprised if billionaires keep growing”

US loopholes in criticism
“Don’t be surprised if billionaires keep growing”

What Bezos and Co pay to the tax authorities in the US is often only a fraction of the billions by which their wealth grows every year. In an interview with Capital.de, tax expert Stefan Bach gives good reasons for this. He explains why the situation is still unfair and how the system could be improved.

Mr. Bach, do you understand the excitement that the super-rich in the US pay so little taxes?

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

Why is that?

It is because the incomes of many super-rich are rarely distributed in the private sphere and therefore not subject to progressive income tax. They hoard their monster incomes in their companies or holding structures. Only when they realize the profits and distribute them will the withholding tax or, in other countries, similar taxes be charged. But the profits are not distributed, but are further invested.

Labor income is taxed more heavily than capital income in both Germany and the USA. That should create the unrest.

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

So the incentive is for the profits to stay with the company.

Exactly. In this way, we promote real investment, for example among German medium-sized companies. But we are also promoting the wealth accumulation of the super-rich – regardless of whether they invest at home or abroad. You shouldn’t be surprised if there are more and more billionaires in our country too. You can reinvest your profits again and again, only pay corporate taxes, but no withholding tax and no progressive income tax.

Does the lower tax on equity investments always encourage investments?

The difference between Bezos or Musk and our good German medium-sized companies is that investments in medium-sized companies result in a corporate tax burden of up to 30 percent. Elon Musk and Jeff Bezos also apparently pay little on their winnings. The US has taxed domestic corporate profits rather heavily. But what Musk or Bezos have to pay tax in Europe and Asia, they redirect via Ireland, Luxembourg and other countries to tax havens that hardly tax corporate profits. See buecher.de and Amazon. Some had to pay tax on their profits, others didn’t. This is of course an unfair competitive advantage. That is why it makes sense that we get an international minimum tax for companies.

So it’s a dilemma. On the one hand, the wealth of the rich continues to grow because they can reinvest their profits at low tax rates; on the other hand, investments are made with tax benefits. How can that be changed?

You can bring the huge income of investors back into income tax. But that’s difficult. Or you can tax wealth, keyword wealth tax, but that also has its problems. Ultimately, it is always a matter of weighing up: fairness or efficiency? The same applies to inheritance tax. Smaller inheritances are tax-free. Wealthy people with normal wealth have to pay ten percent quickly. The super-rich with the large companies and holdings are largely free. But if you approach the matter pragmatically, you can do a lot. Many super-rich see the connection and are ready to pay more taxes for the general public again. You shouldn’t exaggerate and tax where it is less economically damaging. 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 and inheritance taxes and higher capital gains and real estate taxes could easily generate 20 to 30 billion euros in income per year without adversely affecting investments, jobs and growth. The money should then be used to relieve the battered middle classes, who are heavily burdened with social contributions and income tax.

Roland Lindenblatt spoke to Stefan Bach

The interview is at first Capital.de published.

.