Oligarchy and the Great Evasion

There was a time when the mob boss Al Capone effectively ruled Chicago. He had thoroughly corrupted the local police and politicians, and he murdered rivals with impunity. Federal authorities wanted to bring him to justice but couldn’t rely on the cooperation of state and local authorities. So how did they do it?

The answer is that the Feds convicted and imprisoned him for tax evasion.

Which brings me to the following question: could or would the Feds do something comparable today? Would a defunded Internal Revenue Service — defunded in large part because the modern Republican Party is effectively pro-tax-evasion — have the resources to go after him? And even if the Feds tried to bring charges, would a tax evader escape justice by simply buying a sufficiently large quantity of Trump family crypto?

Today’s primer is the latest in a series on the rise of American oligarchy, which I define as the extreme concentration of wealth and political power in the hands of a small number of people — not the 1 percent, but the .01 percent or even the .0001 percent, the 300 billionaires who made 19 percent of all reported federal political donations in the 2024 election.

When I began working on this series, I expected to focus mainly on changes in technology and markets, for example the “network externalities” that have created a handful of incredibly profitable technology companies. (Everyone is on Facebook because everyone else is on Facebook.) As I began looking into the math, however, it became clear that much of the rise of the modern American oligarchy has been driven by deliberate policy rather than technological or market forces. And that deliberate policy has been the decades-long dismantling of the system of progressive taxation — a system that had ended the Gilded Age, the last period of great inequality. Starting in the 1970s, right-wing politicians pushed through large reductions in effective tax rates on the wealthy. And in the 2010s, Republican-controlled congresses stripped the IRS of resources to enforce the tax code. These two changes set the stage for the reemergence of immense fortunes, with vast social and political consequences.

What exactly does a “reduction in effective tax rates” mean? Much of that change was implemented through reductions in the statutory rates. For example, the top federal tax bracket on individual incomes was more than 90% in the 1950s, versus 37% now. Large corporations paid a tax rate of 52% on their profits in the 1950s, which is now down to 21%. Large estates paid a 77% tax rate until 1976; now the rate is only 40%, and that only applies to the value in excess of $15 million.

However, beyond these reductions in statutory rates, tax avoidance and tax evasion have grown significantly. “Avoidance” and “evasion” may sound like synonyms, but they are not: avoidance involves exploiting loopholes in the tax code in ways that are legal, even if they shouldn’t be, while evasion involves breaking the law.

And tax evasion is now a very big concern. Reasonable estimates of the “tax gap” — taxes that individuals and businesses are legally obliged to pay, but don’t — are startlingly large — $600 billion a year or more – approximately 40% of the current budget deficit. Furthermore, much of this tax gap is surely accounted for by tax evasion by high-income Americans. So tax evasion is a significant contributor to both the rise of American oligarchy and the high federal debt.

Thus it is startling to realize that, except for a brief attempt to reduce the tax gap by the Biden administration, the U.S. government has over time reduced its efforts to ensure that the wealthy pay the taxes they owe. It’s clear that the purposeful reduction in the enforcement of the tax code for the wealthy is both a symptom as a well as a cause of America’s rising oligarchy. It is a key factor in America’s downward spiral into oligarchy, which is currently ravaging our politics and our democratic institutions.

Last week’s primer described how reduction in statutory tax rates, largely for the wealthy, have driven the rise in national debt. Today’s primer will cover tax evasion. Beyond the paywall I will address the following:

1. Why paying taxes used to be the American way

2. How big is the tax gap?

3. Who benefits from tax evasion?

4. Why doesn’t the federal government try harder to close the gap?