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Monday, May 10, 2010

Johnston: Anschutz and a 21st Century Tax System

Tax AnalystsDavid Cay Johnston has published Anschutz and a 21st Century Tax System, 127 Tax Notes 699 (May 10, 2010):

Johnston looks at a major Tax Court case [Anschutz Co. v. Commissioner, T.C. Memo. 2006-40 (Mar. 13, 2006), T.C. Memo. 2006-124 (June 14, 2006)] and its implications for developing a new tax system for the 21st-century economy. ...

The policy issue raised by the Anschutz cases is not just if and when super-rich investors should be taxed, but how much of the nation's economic gain flows to them and, thus, how much of the burden of government they bear. The evidence is that they bear a lot less of the burden than many people believe. ...

Anschutz's cash -- just from the deals examined at trial -- would, if counted as income, be more than three times the average of the top 400 taxpayers that year. Just replacing the 400th-highest-income taxpayer that year (who made less than $87 million) with Anschutz would significantly change the average income and tax burdens in the top 400 list. Indeed, it is enough money to alter the data on the top hundredth of 1 percent, the top 30,000 people in America, who now report more than six cents out of each dollar earned by more than 300 million Americans.

We need a proper measure of economic gain at the top, not just of income measured by tax rules. Without that knowledge, we cannot begin to draft a tax system for the 21st century.

All wealth is based on taxes. Without government, and the taxes that support it, all of Anschutz's genius as a businessman would be worth nothing, because some band of thugs would just take his property. At the same time, the rest of society, in harvesting the economic gains of the successful to finance government, must also devise rules that encourage wealth creation, not mere accumulation.

What kind of a tax system we need in a world of intangible assets and wealth built on intellectual firepower and intellectual property rights is not clear. But it will forever be obscured in the smoke of tax rules, and tricks to get around them, until we get a proper measure of gain.

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