One of the most consequential series of investigative journalism of this decade was the
Propublica series that Jesse Eisinger helmed, in which Eisinger and colleagues analyzed a trove of leaked IRS tax returns for the richest people in America:
The Secret IRS Files revealed the fact that many of America’s oligarchs pay no tax at all. Some of them even get subsidies intended for poor families, like Jeff Bezos, whose tax affairs are so scammy that he was able to claim to be among the working poor and receive a federal Child Tax Credit, a $4,000 gift from the American public to one of the richest men who ever lived:
As important as the numbers revealed by the Secret IRS Files were, I found the
explanations even more interesting. The 99.9999% of us who never make contact with the secretive elite wealth management and tax cheating industry know, in the abstract, that there’s
something scammy going on in those esoteric cults of wealth accumulation, but we’re pretty vague on the details. When I pondered the “tax loopholes” that the rich were exploiting, I pictured, you know, long lists of equations salted with Greek symbols, completely beyond my ken.
But when Propublica’s series laid these secret tactics out, I learned that they were incredibly
stupid ruses, tricks so thin that the only way they could
possibly fool the IRS is if the IRS just didn’t give a shit (and they truly didn’t – after decades of cuts and attacks, the IRS was far more likely to audit a family earning less than $30k/year than a billionaire).
This has become a somewhat familiar experience. If you read the Panama Papers, the Paradise Papers, Luxleaks, Swissleaks, or any of the other spectacular leaks from the oligarch-industrial complex, you’ll have seen the same thing: the rich employ the most tissue-thin ruses, and the tax authorities gobble them up. It’s like the tax collectors don’t
want to fight with these ultrawealthy monsters whose net worth is larger than most nations, and merely require
some excuse to allow them to cheat, anything they can scribble in the box explaining why they are worth billions and paying little, or nothing, or even entitled to free public money from programs intended to lift hungry children out of poverty.
It was this experience that fueled my interest in forensic accounting, which led to my bestselling techno-crime-thriller series starring the two-fisted, scambusting forensic accountant Martin Hench, who made his debut in 2022’s
Red Team Blues:
The double outrage of finding out how badly the powerful are ripping off the rest of us, and how stupid and transparent their accounting tricks are, is at the center of
Chokepoint Capitalism, the book about how tech and entertainment companies steal from creative workers (and how to stop them) that Rebecca Giblin and I co-authored, which also came out in 2022:
Now that I’ve written four novels and a nonfiction book about finance scams, I think I can safely call myself a oligarch ripoff hobbyist. I find this stuff endlessly fascinating, enraging, and, most importantly, energizing. So naturally, when PJ Vogt devoted two episodes of his excellent Search Engine podcast to the subject last week, I gobbled them up:
I love the way Vogt unpacks complex subjects. Maybe you’ve had the experience of following a commentator and admiring their knowledge of subjects you’re unfamiliar with, only have them cover something
you’re an expert in and find them making a bunch of errors (this is basically the experience of using an LLM, which can give you authoritative seeming answers when the subject is one you’re unfamiliar with, but which reveals itself to be a Bullshit Machine as soon as you ask it about something whose lore you know backwards and forwards).
Well, Vogt has covered many subjects that I am an expert in, and I had the
opposite experience, finding that even when he covers my own specialist topics, I still learn something. I don’t always agree with him, but always find those disagreements productive in that they make me clarify my own interests. (Full disclosure: I was one of Vogt’s experts on his previous podcast, Reply All, talking about the inkjet printerization of everything:)
Vogt’s series on taxing billionaires was no exception. His interview subjects (including Eisinger) were very good, and he got into a lot of great detail on the leaker himself, Charles Littlejohn, who plead guilty and was sentenced to five years:
Vogt also delved into the history of the federal income tax, how it was sold to the American public, and a rather hilarious story of Republican Congressional gamesmanship that backfired spectacularly. I’d never encountered this stuff before and
boy was it interesting.
But then Vogt got into the nature of taxation, and its relationship to the federal debt, another subject I’ve written about extensively, and that’s where one of those productive disagreements emerged. Yesterday, I set out to write him a brief note unpacking this objection and ended up writing a giant essay (sorry, PJ!), and this morning I found myself still thinking about it. So I thought, why not clean up the email a little and publish it here?
As much as I enjoyed these episodes, I took serious exception to one – fairly important! – aspect of your analysis: the relationship of taxes to the national debt.
There’s two ways of approaching this question, which I think of as akin to classical vs quantum physics. In the orthodox, classical telling, the government taxes us to pay for programs. This is crudely true at 10,000 feet and as a rule of thumb, it’s fine in many cases. But on the ground – at the quantum level, in this analogy – the
opposite is actually going on.
There is only one source of US dollars: the US Treasury (you can try and make your own dollars, but they’ll put you in prison for a long-ass time if they catch you.).
If dollars can
only originate with the US government, then it follows that:
a) The US government doesn’t need our taxes to get US dollars (for the same reason Apple doesn’t need us to redeem our iTunes cards to get more iTunes gift codes);
b) All the dollars in circulation
start with spending by the US government (taxes can’t be paid until dollars are first spent by their issuer, the US government); and
c) That spending
must happen
before anyone has been taxed, because the way dollars enter circulation is through spending.
You’ve probably heard people say, “Government spending isn’t like household spending.” That is obviously true: households are currency
users while governments are currency
issuers.
But the implications of this are very interesting.
First, the total dollars in circulation are:
a) All the dollars the government has ever spent into existence funding programs, transferring to the states, and paying its own employees,
minus
b) All the dollars that the government has taxed away from us, and subsequently annihilated.
(Because governments spend money into existence and tax money out of existence.)
The net of dollars the government spends in a given year minus the dollars the government taxes out of existence that year is called “the national deficit.” The total of all those national deficits is called “the national debt.” All the dollars in circulation today are the result of this national debt. If the US government didn’t have a debt, there would be no dollars in circulation.
The only way to eliminate the national debt is to tax
every dollar in circulation out of existence. Because the national debt is “all the dollars the government has ever spent,” minus “all the dollars the government has ever taxed.” In accounting terms, “The US deficit is the public’s credit.”
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