How tax evasion by the ultra-rich is everyone’s problem

Hi. This is Zara, the current intern at Datawrapper. This week’s Weekly Chart addresses an elephant-in-the-room kind of topic that affects us all. Without further ado, let’s dive in.

Taxation > Philanthropy?

Charity is a cold, grey loveless thing. If a rich man wants to help the poor, he should pay his taxes, not dole out money at a whim.

Francis Beckett

It is easy to get caught up in Forbes listicles of the ultra-elite and marvel at the wealth they have amassed. But one thing that often gets left out is the abuse of corporate philanthropy that many – probably not all – millionaires and billionaires use to avoid taxes. You don’t have to pay tax on the part of your income that you donate, and that’s true for many countries, among others the United States (Nicolas Duquette wrote an excellent primer on this).

But for the elite, giving away your money doesn’t mean giving up control. While people like you and me might give to charities we trust but don’t have insight into, rich people (or their friends) often own or at least monitor the charities they give to. As the New York Times phrases it: “The sponsoring organizations make grants to hospitals, schools and the like only at a donor’s request. So while donors enjoy immediate tax benefits, charities can wait for funds indefinitely, and maybe forever.”

How much do the big fish save in taxes?

Which brings us back to our Weekly Chart. I found data on the most profitable US corporations in 2018 and how much in corporate income tax they paid. In the aftermath of President Trump’s enacted tax law in 2017 that brought down effective federal income tax rate from 35% to 21%, many large corporations – particularly J.P. Morgan Chase, Wells Fargo, Bank of America, Amazon, and Verizon (your usual suspects) – enjoyed billions in tax cuts.

“But XYZ gives so much money to ABC cause. Surely some giving is better than none?”

Many have argued that the tax collected by the IRS (the Internal Revenue Service, the US agency that collects federal tax and is responsible for enforcing tax laws) would never actually make its way to help those in need, and that donations by a few ultra-wealthy individuals help more than the government does. But that argument doesn’t take into account that the rich people decide to which cause their money should go – which might be noble, but not high-priority for their state or country. (For more on this, read these excellent books here and here.)

And while it’s true that the government faces systematic problems that hinder the appropriate redistribution of these resources, the donations from the ultra-rich are not a great help either. As illustrated in the table below, the charitable donations by the richest 20 Americans account for less than 1% of the total wealth of the donors. These donations are nothing but drips from gigantic wealth resources. The economist Gabriel Zucman showed the data of the following table on Twitter to make this point:

It is important to remember that there are people in the government and private sector who are working to address economic inequality. I think as responsible members of our society, we owe it not only to ourselves but also to the people around us and future generations to be aware of the festering problem of rich people avoiding taxes, and we should do everything to address this problem.

That’s it for now. If you want to learn more about the scatter plot or the table and its settings, hover over the top right of the chart and click Edit this chart. As for the making of this chart, I added a hyperlink to the description in the scatter plot using HTML covered in a Datawrapper Academy article here, and I added the superscript in the table using Unicode characters as explained here. Feedback, comments, criticism? Let me know in the comments. See you next week!