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'Income Defense': America's Super-Rich Spend Billions on Secret Tax System

© Flickr / Chris PotterThe IRS refused to comment on the Meinstein case
The IRS refused to comment on the Meinstein case - Sputnik International
The richest people in the United States have created a shadowy tax system known as the "income-defense industry," which uses lobbyists, lawyers, and offshore accounts to reduce their tax rates.

The super-rich have spent billions over the past two decades creating this system to shield their wealth, according to an investigation by the New York Times.

An IMC specialist works at his post where Bank of America is traded on the floor of the New York Stock Exchange Thursday, Aug. 21, 2014 - Sputnik International
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"Operating largely out of public view – in tax court, through arcane legislative provisions and in private negotiations with the Internal Revenue Service – the wealthy have used their influence to steadily whittle away at the government’s ability to tax them. The effect has been to create a kind of private tax system, catering to only several thousand Americans," the newspaper reported.

Twenty years ago, the 400 highest-earning taxpayers in America paid nearly 27% of their income in federal taxes, according to IRS data. By 2012, that figure had fallen to less than 17%, which is just slightly more than the rate paid by the typical family making $100,000 annually.

This system, however, is unavailable to the typical family due to its cost and complexity.

The ultra-wealthy "literally pay millions of dollars for these services," Jeffrey A. Winters, a political scientist at Northwestern University who studies economic elites, told the Times. In return, he said, they "save in the tens or hundreds of millions in taxes."

Victor Fleischer, a law professor at the University of San Diego who studies the intersection of tax policy and inequality, told the Times:

"We do have two different tax systems, one for normal wage-earners and another for those who can afford sophisticated tax advice. At the very top of the income distribution, the effective rate of tax goes down, contrary to the principles of a progressive income tax system."

Moreover, these super-rich Americans are donating much of the early funding for the 2016 presidential election in an effort to keep these tax loopholes open.

"There's this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy," Jared Bernstein, a senior fellow at the left-leaning Center on Budget and Policy Priorities, told the Times.

"That's why these egregious loopholes exist, and why it's so hard to close them," added Bernstein, who also served as chief economic adviser to Vice President Joe Biden.

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