Anschutz’s $8 million Colorado lawsuit is everything wrong with billionaire tax breaks
Philip Anschutz – Colorado’s benevolent billionaire – should have read the mood in the room before he filed a lawsuit retroactively seeking to apply new federal tax law to get an $8 million Colorado income tax break.
Because the mood right now among those eking out a living in this great state is that we are sick of paying our fair share of taxes while the super-rich use clever accounting tricks to avoid or evade their taxes.
ProPublica this summer released secret IRS records that show billionaires like Jeff Bezos, George Soros, Carl Icahn, Michael Bloomberg, Elon Musk and Warren Buffett pay a relatively small amount in income tax compared to their net-worths, and sometimes nothing.
For example, Bezos paid zero dollars in federal income tax despite reporting an income of $46 million in 2007.
“He was able to offset every penny he earned with losses from side investments and various deductions, like interest expenses on debts and the vague catchall category of ‘other expenses,’ ” the ProPublica report said.
Anschutz’s lawsuit exposes the same types of tax avoidance ProPublica found in its investigation, but what’s worse is that the Colorado tax break Anschutz seeks uses an already generous federal tax deduction for wealthy business owners that was expanded and made retroactive under the guise of COVID relief.
Anschutz, unhappy with the federal tax break, is fighting to also get several years of income tax breaks in Colorado, amounting to $8 million. Judge J. Eric Elliff ruled against Anschutz finding that the state tax authorities had the power to promulgate rules prohibiting retroactive deductions like the one Anschutz seeks. Anschutz has appealed.
The deduction that Anschutz is seeking to apply to past Colorado income tax bills is a business loss or “net operating loss” deduction which allows owners of multiple businesses to double count a loss from one pocket as a loss in another pocket.
This complicated tax deduction is intended to shield small business owners with volatile income from year to year from overpaying taxes, but the wealthy have found ways to use it to avoid fair tax assessments.
Let’s say two spouses work in their own small businesses: one runs a preschool and the other owns a small engineering firm. The preschool operated in the red during COVID and lost $100,000 because it was closed for much of the year and the owner still had to pay rent and other expenses. The engineering firm thrived and the owner took home $100,000 in net profit. The couple on their taxes could pay zero in income tax, rightly, since collectively no income was earned.
But there should obviously be a limit to this. A media mogul or oil baron could also, wrongly, earn millions year after year but only pay a fraction of the taxes required on that income by cleverly deploying losses that are carefully manufactured by accountants.
It’s a double-dip in our tax code and the deduction can be carried forward or backward as needed to zero out taxable income.
The Trump tax cuts in 2017 ratcheted down the net-operating loss deductions to only allow 80% of a business’s losses to be deducted from other income. The law also limited how far back the losses could be applied to old tax liabilities and how far into the future they should be carried forward.
But that good reform was undone as part of the CARES Act temporarily taking the deduction back to a 100% allowable deduction. In their infinite wisdom, federal lawmakers also made the deduction retroactive so folks are double-dipping business losses for a total of eight years.
To be fair, Anschutz’s company, AEG, was hit hard by the pandemic. With concert venues shuttered by the government, AEG laid-off workers, and had pay cuts across the board. There’s no doubt Anschutz suffered losses from that company.
But rather than a good public policy to help business owners during a difficult time, the CARES Act treatment of businesses losses feels like an apology from Republicans for slightly reducing a popular deduction no matter how abused it was.
The final straw is Anschutz then trying to also claim the deduction from Colorado income taxes. Colorado income tax is based on federally calculated “adjusted gross income.” Anschutz is arguing that if his adjusted gross income was changed retroactively, he should be able to refile his Colorado taxes to lower the amount of income he reported as taxable.
The judge ruled in favor of the Colorado Department of Revenue finding that it was appropriate for Colorado tax law to be future-looking only, and not retroactively apply changes to federal tax law after taxes had been filed.
Our tax code is broken both in Colorado and at the federal level.
And the solution is easy if there is the political will to do the right thing.
President Joe Biden is working to overhaul the tax code to pay for a progressive wish list of programs. There’s no doubt that America’s extremely low current tax rates on both corporations and individuals are unsustainable.
But if Biden wants to do what Trump failed to do, he should propose a tax code that treats all income equally — regardless of how it is made or spent — with many graduated tax brackets. The federal government should not care if we make our money through stocks or through digging ditches, nor should it care if that money is spent raising children or buying depressed assets.
In Colorado, Gov. Jared Polis is eager for tax reform. His proposal of making the state income tax zero, however, is the exact opposite of what this state needs. Property, automobile and sales taxes are based on how people spend their money and are regressive, punishing those who scrimp and save for years to buy items they need and want only to face steep taxes they cannot afford.
A graduated income tax, without distinction or deduction, is the only taxation system that truly has Americans paying their “fair share.” And yes, for the lowest income Coloradans, their fair share may be zero, or in the case of those who qualify for Colorado’s Earned Income Tax Credit, they may even be a net beneficiary of the state when it comes to income tax to help offset the unequal effect of sales and property taxes, not to mention rising fees on car registration.
This of course is a pipe dream. There is almost no political will for real tax reform, as we saw when Republicans attempted this in 2017 and ended up slashing the corporate tax rate while not eliminating a significant number of tax breaks or loopholes.
Biden is targeting the wealthy and corporations with his tax increases, which after the ProPublica piece seems like a logical place to start fixing this mess. Once the rich start paying their fair share, I’ll start writing more about how my effective federal income tax rate under Trump and Biden has plummeted to nearly zero.
But for now, I think billionaires like Anschutz should stop complaining about Biden’s tax plans and stop stretching for another tax break. Perhaps the ultra-wealthy in America should try being grateful for what they have.
Megan Schrader is editor of The Denver Post’s opinion pages.
To send a letter to the editor about this article, submit online or check out our guidelines for how to submit by email or mail.
Source: Read Full Article
