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Tuesday 13 October 2026 12:31:45 GMT
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The biggest source of inequality in the U.S. is a gaping hole in the tax code—and no one is talking about it, Rogé Karma argues. “For 40 years, a huge number of rich business owners have taken advantage of a tax concept known as pass-through income,” Karma explains. “This anodyne-sounding technique allows millionaires and billionaires to exempt their fortunes from the corporate tax and shield large portions of them from income taxation, depriving the government of trillions of dollars in revenue, driving a huge amount of inequality, and creating a powerful political constituency opposed to reform.” “The advantage of pass-through income is not just the corporate-tax exemption, but the much more extensive set of tax-avoidance techniques that pass-through structures make possible,” Karma continues. In 2017, Donald Trump’s tax bill included a provision that allowed owners of pass-throughs to deduct up to 20 percent of their business profits, “effectively making a fifth of their income completely tax-free,” Karma writes. “In just the first five years after the provision was passed, pass-through owners used it to claim nearly $900 billion in deductions.” “The justification for this system is that pass-throughs are primarily small businesses that shouldn’t be burdened with excessive taxation,” Karma continues. But today, pass-through businesses include some of the largest and most profitable companies in the country. “The upshot is that some of America’s richest households are, on average, paying far less in taxes than the 22 percent that a working-class individual pays on wages above $50,000,” Karma writes. “In theory, fixing this system should not be complicated,” Karma argues. But “the problem is political.” In many cases, “politicians are so afraid of the power of the pass-through industry that they don’t even try to oppose it,” Karma continues. “If politicians are serious about addressing inequality and funding government services, then sooner or later, they will have to find some way to deal with this gaping hole in the tax code.” Read more at the link. 📷: The Atlantic. Source: Getty.
The biggest source of inequality in the U.S. is a gaping hole in the tax code—and no one is talking about it, Rogé Karma argues. “For 40 years, a huge number of rich business owners have taken advantage of a tax concept known as pass-through income,” Karma explains. “This anodyne-sounding technique allows millionaires and billionaires to exempt their fortunes from the corporate tax and shield large portions of them from income taxation, depriving the government of trillions of dollars in revenue, driving a huge amount of inequality, and creating a powerful political constituency opposed to reform.” “The advantage of pass-through income is not just the corporate-tax exemption, but the much more extensive set of tax-avoidance techniques that pass-through structures make possible,” Karma continues. In 2017, Donald Trump’s tax bill included a provision that allowed owners of pass-throughs to deduct up to 20 percent of their business profits, “effectively making a fifth of their income completely tax-free,” Karma writes. “In just the first five years after the provision was passed, pass-through owners used it to claim nearly $900 billion in deductions.” “The justification for this system is that pass-throughs are primarily small businesses that shouldn’t be burdened with excessive taxation,” Karma continues. But today, pass-through businesses include some of the largest and most profitable companies in the country. “The upshot is that some of America’s richest households are, on average, paying far less in taxes than the 22 percent that a working-class individual pays on wages above $50,000,” Karma writes. “In theory, fixing this system should not be complicated,” Karma argues. But “the problem is political.” In many cases, “politicians are so afraid of the power of the pass-through industry that they don’t even try to oppose it,” Karma continues. “If politicians are serious about addressing inequality and funding government services, then sooner or later, they will have to find some way to deal with this gaping hole in the tax code.” Read more at the link. 📷: The Atlantic. Source: Getty.

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