The richest Americans pay little income tax: report
Amazon founder Jeff Bezos was worth around $18 billion in 2011, but he paid no federal income taxes that year. The investment losses exceeded any income he received, leaving him with a zero income tax bill. At the same time, his lack of net income made him eligible for the Child Tax Credit payment. Bezos claimed and received $4,000 from the IRS to help offset the cost of raising his children.
These details are part of an investigative report published Tuesday by ProPublica, which showed that Bezos is not alone in paying little or no income tax despite staggering wealth. Tesla CEO Elon Musk paid no federal income tax in 2018, the report said, while financier George Soros paid no income tax for three consecutive years beginning in 2016. Other billionaires Michael Bloomberg and Carl Icahn also had years in which they paid no income. tax whatsoever.
The ProPublica report is based on an analysis of IRS-disclosed data on thousands of America’s wealthiest people over a 15-year period. Overall, the data shows that the wealthiest Americans pay little income tax relative to their great wealth. In an analysis of the 25 richest people determined by Forbes, ProPublica found that their wealth grew by $401 billion from 2014 to 2018, but they paid $13.6 billion in federal income taxes. , or just 3.4% of their overall increase in wealth.
“Taken together, [the report] demolishes the fundamental myth of the American tax system: that everyone pays their fair share and that the wealthiest Americans pay the most,” write Jesse Eisinger, Jeff Ernsthausen and Paul Kiel of ProPublica. “IRS records show that the wealthiest can – legally – pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, that their wealth grows each year.”
Income vs wealth: The report sheds light on the different ways in which income and wealth are treated by the tax code. In general, wealth is only taxed when capital gains are realized, which means leaders like Bezos can be worth billions of dollars and pay little or no income tax as long as they keep their assets. .
But that’s not the whole story. ProPublica says that even looking only at income and ignoring wealth, the wealthiest Americans pay a lower rate of tax than many members of the middle class. These 25 richest Americans paid $13.6 billion in income taxes between 2014 and 2018, but reported about $86 billion in adjusted gross income, meaning their income tax rate was only 15.8%. “That’s less than the rate a single worker earning $45,000 a year could pay if you include Medicare and Social Security taxes,” the report’s authors state.
Sophisticated strategies: The super-rich have the best financial advisers money can buy, and they have developed a variety of techniques to dramatically reduce or eliminate the taxes they pay. According to ProPublica, the overall strategy boils down to a simple phrase: buy, borrow, die.
Instead of taking income or selling assets, both of which involve paying taxes, the very wealthy can simply borrow against their wealth, the only expense being the interest rate – which, depending on how the loans are structured, can sometimes be deducted as a fee.
These loans can be difficult to detect because they don’t have to be reported to the IRS, but ProPublica found information showing Tesla’s Musk used 92 million shares worth more than $57 billion. to secure personal loans last year. Yet Musk’s income tax bills are on a very different scale, totaling just $65,000 in 2017 and zero in 2018.
The final part of the tax avoidance strategy is to pass on enormous wealth at death, without paying taxes on the underlying increases in asset value. Heirs can receive millions or even billions of wealth without paying capital gains tax at all, thanks to the “increasing base” rule that makes those gains disappear on death. And even inheritance tax, which tops out at 40%, can be manipulated through the use of trusts and other loopholes.
New focus on a wealth tax: The ProPublica report has prompted some lawmakers to renew their calls for a wealth tax. “Our tax system is rigged for billionaires who don’t make their fortunes from their earnings, like working families do,” tweeted Senator Elizabeth Warren. “The evidence is very clear: it’s time for a #WealthTax in America to force the ultra-rich to finally pay their fair share.”
During a Tuesday hearing with IRS Commissioner Charles Rettig, Senate Finance Chairman Ron Wyden (D-OR) said he was working on a proposal to increase wealth taxes. “What this data reveals is that the wealthiest in the country – who have profited enormously during the pandemic – have not paid their fair share,” he said. “I will have a proposal to change that.”
Wyden released outlines for a wealth tax in 2019, which included an annual capital gains tax, but he did not release any legislation. “I’ll have him ready to go here shortly,” Wyden said after the hearing. “And today, this ProPublica article highlights — I’ve had senators ask me about this before, you know, since then — highlights the need for the reform that I will be proposing.”
The Biden administration, however, has not embraced the idea of a wealth tax. Earlier this year, Treasury Secretary Janet Yellen said such a tax is “something that has very difficult implementation issues”, and the president’s proposals have focused on more aggressive taxation of wealthy estates. .
Yet the ProPublica report draws more attention to the issue of low taxes being paid by the wealthy, at a time when the Biden administration is proposing ways to generate more revenue to help pay for the president’s ambitious spending plans. “I think it’s important because it tells the story of wealth and how it’s taxed in a way that everyone expected but didn’t know,” said Philip Hackney, a former official. from the IRS, to the Washington Post.
Privacy issues: The White House, lawmakers and IRS officials have expressed concern over the leak of sensitive tax information. “Unauthorized disclosure of confidential government information is illegal,” Treasury Department spokeswoman Lily Adams said. IRS Commissioner Rettig told lawmakers that federal authorities are investigating the leak. In response to a question from Sen. Chuck Grassley (R-IO) about whether the leakers could be prosecuted, Rettig said, “Absolutely.”