ProPublica’s explosive tax report that wasn’t – Reason.com

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In a report presented as a “bomb”, an investigative media ProPublica succeeded at access and publish private tax returns thousands of the richest people in the country. They claim the data “demolishes” the “myth” that the richest Americans pay the most taxes, and the authors use tortured reasoning in an attempt to come up with an absurd new “real tax rate” for the data tax that no real tax expert would take seriously.

The idea that the tax code is already progressive enough is not at all a myth – the richest Americans pay a much higher tax rate on their income than low income taxpayers.

Despite ProPublicaBest efforts to make the information it contains seem overwhelming, the data tells us little that we didn’t already know. For the 2018 tax year, the latest year for which we have data, the richest 1% paid more than 40% of federal income tax, despite earning just under $ 21. % of total adjusted gross income (AGI). The poorest 50 percent of taxpayers earned 11.6 percent of the total AGI, but paid less than 3 percent in income taxes. The same story applies to all sources of income as well, so it’s not just income tax that is progressive.

ProPublica, however, is trying to argue that the rich get away with the tax code, so they “do a calculation that has never been done before, by comparing the growth in wealth over the course of a year to taxable income. They use it to calculate an individual’s “real tax rate“, which is a bit like handing out wins in a baseball game in the middle of the first innings and calling it the “real result” of the competition.

It’s hard to overstate how absurd this comparison is (maybe that’s why it’s never been done before). Our tax system rightly does not tax wealth growth until it is realized in the form of income. After all, the alternative is a monstrously complex and unfair system of wealth taxation that developed countries have avoided.

The reason wealth isn’t taxable is quite simple: you don’t benefit directly from it until it’s turned into income (at which point it’s taxable). Wealthy Americans may not pay taxes on the growth in their net worth, but if they want to sell assets that have appreciated in value, they would be liable for capital gains tax on that. growth.

And this is hardly a special exception for the rich. If you own a home, retirement account, or even a car, it has probably appreciated in value over the past year. And yet, unless you sell these things and lock in those gains on paper, you don’t pay taxes on that increase in value.

This does not constitute tax evasion; it’s just the way the code works.

It should be noted how intentionally misleading this is. ProPublica could easily have scored a lot of clicks on Twitter by taking that data and using it to show the impact of a wealth tax on wealthy Americans, for example. Instead, they’ve chosen to deliberately mislead readers in order to advance a tale of corruption and obscure exclusions for the wealthy bogeymen.

ProPublica isn’t the first group to use creative accounting to try and make the case that the rich aren’t paying their fair share.

Take Gabriel Zucman and Emmanuel Saez, progressive economists who have long advocated for a wealth tax. They received a lot of media attention several years ago for claiming they had groundbreaking new data showing that the rich pay a lower tax rate than everyone else.

To come to this conclusion, economists simply ignored parts of the tax code that were impractical. Refundable tax credits such as the child tax credit or the labor income tax credit are very progressive and are in the tax code in part to compensate for the regression of other levies such as the payroll tax. Still, Saez and Zucman decided to simply exclude them from their analysis.

Or more recently, take the widespread reports of the richest Americans murdering the stock market last May as scores of other Americans struggled to cope with the pandemic. These reports come from calculating the growth of equity portfolios from mid-March to mid-May – a cleverly designed starting point that omitted the February to mid-March period when the stock market then crashed. as fears of COVID-19 were increasing. This allowed analysts to disguise the subsequent rally to benchmarks as if it were a massive windfall in new earnings.

Or take the outrage over reports of large companies paying no income tax in any given year. Very low or no corporate tax rate reports ignored the fact that it usually came from those companies spreading their losses from a previous year or taking advantage of tax incentives for research and development – provisions of the code that enjoy bipartisan support.

Relying on the inherent complexity of the tax system to convince taxpayers that they are only getting the small end of the stick can be an effective way to achieve political goals, but it is misleading and will surely lead to the end. misguided policy making.

The biggest takeaway in the ProPublica the data revealed should be how well the data matches what we already know. There have been no revelations of covert tax evasion and evasion – just the obvious point that the rich have a lot of illiquid assets, presented as a smoking gun.

It should also be noted that someone may have committed a serious federal crime by handing over sensitive tax return information to ProPublica. It is something that senators lobby for increased IRS tax enforcement capabilities must keep in mind: if the IRS cannot protect the tax data entrusted to it today, adding 87,000 new agents and giving them access to bank account information for every American is a recipe for disaster.

Taxpayers should not be fooled by this “talk”. Instead of denouncing the misdeeds of the rich, ProPublica exposed how far some are willing to go to deceive the public in the service of the great progressive campaign for higher taxes.



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