The invaluable investigative news outfit ProPublica has come out with a blockbuster report on how little the really wealthy pay in taxes and ow they do it. It is based on secret IRS files that they received from an anonymous source.
In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes.
Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row.
ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.
Taken together, it demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most. The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.
Many Americans live paycheck to paycheck, amassing little wealth and paying the federal government a percentage of their income that rises if they earn more. In recent years, the median American household earned about $70,000 annually and paid 14% in federal taxes. The highest income tax rate, 37%, kicked in this year, for couples, on earnings above $628,300.
The confidential tax records obtained by ProPublica show that the ultrarich effectively sidestep this system.
America’s billionaires avail themselves of tax-avoidance strategies beyond the reach of ordinary people. Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell.
To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period.
We’re going to call this their true tax rate.
The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.
It’s a completely different picture for middle-class Americans, for example, wage earners in their early 40s who have amassed a typical amount of wealth for people their age. From 2014 to 2018, such households saw their net worth expand by about $65,000 after taxes on average, mostly due to the rise in value of their homes. But because the vast bulk of their earnings were salaries, their tax bills were almost as much, nearly $62,000, over that five-year period.
…No one among the 25 wealthiest avoided as much tax as Buffett, the grandfatherly centibillionaire. That’s perhaps surprising, given his public stance as an advocate of higher taxes for the rich. According to Forbes, his riches rose $24.3 billion between 2014 and 2018. Over those years, the data shows, Buffett reported paying $23.7 million in taxes.
Buffet’s effective tax rate was 0.1%, Bezos’s was 0.98%, Bloomberg’s was 1.30%, and Musk’s was 3.27%.
One way that these people avoid taxes is that they get their money in the form of assets that can be shielded from tax until sold instead of as income that is taxed the year that it is generated.
Most Americans have to work to live. When they do, they get paid — and they get taxed. The federal government considers almost every dollar workers earn to be “income,” and employers take taxes directly out of their paychecks.
The Bezoses of the world have no need to be paid a salary. Bezos’ Amazon wages have long been set at the middle-class level of around $80,000 a year.
For years, there’s been something of a competition among elite founder-CEOs to go even lower. Steve Jobs took $1 in salary when he returned to Apple in the 1990s. Facebook’s Zuckerberg, Oracle’s Larry Ellison and Google’s Larry Page have all done the same.
Yet this is not the self-effacing gesture it appears to be: Wages are taxed at a high rate. The top 25 wealthiest Americans reported $158 million in wages in 2018, according to the IRS data. That’s a mere 1.1% of what they listed on their tax forms as their total reported income. The rest mostly came from dividends and the sale of stock, bonds or other investments, which are taxed at lower rates than wages.
…Every person whose tax information is described in this story was asked to comment. Those who responded, including Buffett, Bloomberg and Icahn, all said they had paid the taxes they owed.
…One of the billionaires mentioned in this article objected, arguing that publishing personal tax information is a violation of privacy. We have concluded that the public interest in knowing this information at this pivotal moment outweighs that legitimate concern.
The consequences of allowing the most prosperous to game the tax system have been profound. Federal budgets, apart from military spending, have been constrained for decades. Roads and bridges have crumbled, social services have withered and the solvency of Social Security and Medicare is perpetually in question.
There is an even more fundamental issue than which programs get funded or not: Taxes are a kind of collective sacrifice. No one loves giving their hard-earned money to the government. But the system works only as long as it’s perceived to be fair.
Our analysis of tax data for the 25 richest Americans quantifies just how unfair the system has become.
By the end of 2018, the 25 were worth $1.1 trillion.
For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth.
The personal federal tax bill for the top 25 in 2018: $1.9 billion.
The bill for the wage earners: $143 billion.
One of the billionaires complained that publishing this information was an invasion of their privacy? Cry me a river.
In a separate article ProPublica explains their decision to publish this confidential information.
Many will ask about the ethics of publishing such private data. We are doing so — quite selectively and carefully — because we believe it serves the public interest in fundamental ways, allowing readers to see patterns that were until now hidden.
Tax experts have long understood that the wealthiest Americans reap outsized benefits from the federal tax code’s emphasis on taxing income rather than assets like stock holdings and property. Yet, when The New York Times disclosed in 2020 that President Donald Trump had amassed so many deductions he paid no taxes in 11 of 18 years, it was assumed that his case was an anomaly, reflecting the unique breaks real estate developers receive under our tax system.
…A second question certain to arise is the motives and identity of the source who has provided this data to ProPublica. We live in an age in which people with access to information can copy it with the click of a mouse and transmit it in a variety of ways to news organizations. Many years ago, ProPublica and other news organizations set up secure systems that allow whistleblowers to transmit information to us without revealing their identity.
We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests.
…Provenance is not essential; accuracy is. We have gone to considerable lengths to confirm that the information sent to us is accurate. We compared the tax data in our possession to other sources of the same information wherever we could find them, some of which were public (a tax return for a candidate for national office), others of which were private. In every instance we were able to check — involving tax filings by more than 50 separate people — the details provided to ProPublica matched the information from other sources.
…There is also a legal question here, and we want you to know we have taken it seriously. A federal law ostensibly makes it a criminal offense to disclose tax return information. But we do not believe that law would be constitutional if applied to bar or sanction publication of a story in the public interest when the news organization did not itself remove the information from the control of the IRS or solicit anyone else to do so — as we did not. And this is not our first experience with this law.
In 2012, someone at the IRS (we don’t know who or why; they used a plain brown IRS envelope) sent ProPublica copies of tax filings seeking exemption for a number of political committees, including Republican political guru Karl Rove’s Crossroads GPS. The filings were not yet supposed to be public, and the IRS indicated that it would consider our publication of them to be criminal. We explained our view of the constitutionality of that statute as applied in such circumstances and published our story, which raised concerns about whether Rove’s group had been forthcoming with the agency. We never heard about the matter from the IRS again.
We should thank once again Edward Snowden and Chelsea Manning. After Snowden leaked blockbuster confidential information at great risk to himself about the US and other governments’ illegal spying activities on people in collusion with massive tech companies, he revealed himself as the source so that no one else would be scapegoated. As a result, he was mercilessly hounded by the Obama-Biden administration (that promised to be ‘the most transparent in history’) and threatened with prosecution under the Espionage Act that would have prevented him from using many legal protections. As a result, he is now in involuntary exile in Russia. Then we had Chelsea Manning tortured by the same Obama administration for revealing the war crimes committed by the US in its wars. Many other whistleblowers were hounded by the government and lost their jobs and had to spend their savings fighting legal battles.
All those cases revealed the importance of whistleblowers and the need for them to be able to disclose information in the public interest without personal risk. As a result, many media companies set up systems by which whistleblowers could send them information without risking their identity becoming known. It looks like this whistleblower used one of those systems.
ProPublica promises more articles in the days to come using these files to “explore in detail how the ultrawealthy avoid taxes, exploit loopholes and escape scrutiny from federal auditors.”
I should add that I have been contributor to ProPublica since I first heard about them, which was even before they started operations. One of the founders Richard Tofel gave a talk at my university about what they were trying to do to make up for the cutting of investigative journalism at newspapers and TV networks. Their proposed model of having their own team of investigative reporters who could devote the time to go deeply into stories but partnering with the legacy media outlets so as to get the widest coverage of their exposes seemed like a great idea to me. What has emerged has greatly exceeded my expectations.
It’s surprising there haven’t been big IRS leaks before now. That’s an obvious target and all the data is aggregated in one big pile.
One would expect peasant uprisings with pitchforks and torches but the scam seems to have worked: the fake taxation system allows the rich to play heinous tricks, invisibly. The peasants can’t count the lamborghinis and assume the taxes are being paid. But it’s all secret, why? Seriously, why are taxes secret? It’s not to protect poor people’s financial privacy -- they have none.
Bogus. Bezos paid $973 million and Musk $455 paid million over the years they cover. Those articles conflate income tax with their “true tax” without making the difference clear. Taxes aren’t based on net worth.
I want tax reform as much as anyone, but inventing a metric (‘true tax rate”) that suggests they should pay based on net worth is a very bad idea — none of us would want the same thing applied.
@dean56:
Read that again: “how much Forbes estimated their wealth grew“.
That last word is key. Those numbers aren’t about net worth, they’re about increases in net worth… in other words, how much more they have at the end than the previous year.
And they did some of the same calculations for the average person as well, given they point out above that for many people, one of their biggest increases in net worth was appreciation of the value of their home.
@jenorafeuer:
Exactly. Perhaps excluding the value of one’s principal residence would make it fairer.
Responsible reporting should certainly be clear about what they mean by “true tax rate”, which the ProPublica article definitely is. The whole point of the calculation is just to demonstrate how the fantastically wealthy are financially fundamentally different than the other 99.99% of us. In that sense, I think it’s a perfectly reasonable calculation to consider when we’re thinking about tax reform.
I think it’s also worth considering that ignoring wealth growth entirely, they paid anywhere between 3 and 30%, which is pathetically low considering how much they make. Also, since their income is almost certainly not wages, they’re probably doing very little to support our underfunded entitlement programs. All of this is very important data that should be considered for tax reform.
While I think the ProPublica article is good, and important, I have one comment on it. Using highly volatile assets like stock value as a measure of wealth comes with a huge caveat. While that wealth may be valued at a high level today, part of that evaluation includes the fact that the person isn’t selling those assets. If it was clear, for example, that Bezos was divesting himself of all his shares in Amazon, the value of his stock would plummet, as would his wealth. That doesn’t mean an analysis looking at the current value of his stock is in error, only that his total wealth is far more variable than that of other people. And that’s the problem with trying to tax capital gains prior to their realization (i.e. before they are sold). If Amazon stock goes up 20%, and Bezos has to sell some of his stock to pay taxes on that capital gains, then the stock value will probably drop. Which results in Bezos getting tax money back next year because of his losses. Taxing capital gains prior to realization will cause huge market instability (which I’m not judging as good or bad, only that it will happen).
That doesn’t invalidate ProPublica’s numbers, article, or conclusions, but I think that point can be easily forgotten.
For the interested, here are my recommended changes:
First , restore the 90% tax bracket on income. The first result of doing this is that every CEO/Lawyer/Highly Paid Athlete/etc. will fix their top income to that level. I.e. if the 90% tax bracket is set as starting at $4M, and for every dollar anyone has in income above $4M the government gets 90 cents of it, then most people will say, “Screw the government!” and reduce their income to the beginning of the 90% bracket. The economic results of this is an expansion in the money supply for everyone else (the money has to go somewhere). Wages go up, debts get paid, education gets cheaper, since everyone’s wages go up the government gets more money from income tax for infrastructure. Oh, and we get inflation, but inflation would mainly hurt the oligarchy not the rest of the country as long as wages kept up with it. I’m slowly becoming convinced that the reason we have had so little inflation over the last 30 years is because of the growth of the rich. The overall money supply in our economy has been constrained because the rich are sucking it all up, not because the Federal Reserve has been doing a great job in managing inflation.
Second; set income taxes on realized capital gains at twice that of normal income taxes, rather than half the rate as they are today. At the same time lower taxes on dividend income to half that of normal income tax. The only way to get reliable dividend income is through running a company successfully over the long term. If you want to see Wall Street start looking longer than the next quarter, there needs to be incentives to have them look further ahead. I believe my suggested change to the tax code would encourage it. We know that taxing capital gains at a lower level encourages investing in volatile stocks, and encourages stock pumping. So let’s not incentivize that behavior, let’s discourage it.
@flex
I think that’s a good start. The other “no-brainer” reform I’d add is taxing income from all sources to pay for entitlements without a cap.
My fixes are:
Hugely higher progressive income tax rates, as mentioned above. 90% on the filthy rich sounds like a good start.
Hugely higher progressive inheritance tax rates. 99% on the filthy rich sounds like a good start.
Straight up progressive asset taxes. We already have property taxes for certain kinds of property. Make that include stocks and all other assets. Set it up so that the tax rate is 0% for 99% of people. Even a 1% asset tax rate for the filthy rich might be substantial. For exact values, I suggest talking to an honest economist. (Is there such a thing?)
Tax investments. The idea that you only tax when a profit or loss is realized is absurd. You don’t only tax people on their houses when they sell them.
It’s a consequence of deficit-hawks always favoring programs that benefit the wealthy and powerful, while despising everything else that ordinary citizens rightly demand from their government.
It’s not like the government does in fact need the taxes in order to “afford” any of it. So, I take issue with this way of framing it as a straightforward and seemingly-unavoidable consequence, because it isn’t. But deficit-hawk claims to that effect (which many people still take seriously even though they know they shouldn’t) only ever pop up when the program at issue helps any normal person near the bottom, to any extent no matter how small.
That’s part of it. But it also only “works” if the system in question doesn’t create the kind of actual/significant economic devastation that we’ve been facing, rather than merely a perception of unfairness. If everybody thought it was being done fairly, yet it still had those effects, it wouldn’t make any sense to say that it’s a system which “works.”
——
flex, #6:
Yes, exactly. Stephanie Kelton likes to say they may have gotten the brakes and the gas pedal confused at times, although the more important point is I guess that monetary policy like that just doesn’t do as much as it should either way…. Not what I’d call “doing a great job.”
It can be hard to imagine the scale of it all sometimes, the effects of the huge concentration of wealth among a relatively small group of people, who mainly just know how to hoard lots of money they’ll never need, while much of what they do actually spend it on is about stocks or real estate or other such things.
The prices for ordinary products/services that ordinary people are most concerned about regarding inflation are not affected as much as you might expect by the actual spending of these super-wealthy people, because this is first of all a relatively small group, and you can’t just take an ordinary shopper/consumer and multiply them X million times to get the right idea of where that money ends up in the economy. It’s not as if Jeff Bezos is out there every week buying millions of gallons of milk for himself to drink or something like that.
This doesn’t only apply to the super-wealthy though. It’s fairly obvious (but maybe it’s still worth a reminder) that even though there are a large number of poor people, they aren’t exactly the most voracious consumers, because they have so little to spend. Meanwhile, middle- and upper-class types spend lots of money on various kinds of expensive junk, which sort of belongs in an altogether different world from the realm of more mundane stuff that a poor person has to purchase just to sustain their bleak existence.
Yet who gets almost all of the tax credits (= government handouts) and so forth? Well, it’s not people like me, I know that much. And so where does that money actually go? Congress never ask themselves that when they come up with their shit policies. There’s apparently some kind of rule against this, and if I had to bet, they would probably say the Senate Parliamentarian crafted it for them back in 19-whatever, so there’s no way to fix it now.
By conflating unnrealized capital gains with income, the current discussion is not really helping. The discussion should be about the discrepancy that capital gains are not taxed at the same rate as income, which mostly helps the richest or why higher incomes and inheritances should’t be taxed higher. Those are the real problems.
“Those who responded, including Buffett, Bloomberg and Icahn, all said they had paid the taxes they owed.” Assuming this is true, this means they paid what the law required. What they don’t explain is that their wealth—and, therefore, access and influence—allows them to dictate what the law says and requires in the first place.