ProPublica: Uber-rich pay next to no income tax
WASHINGTON — The rich really are different from you and me: They’re better at dodging the tax man.
Amazon founder Jeff Bezos paid no income tax in 2007 and 2011. Tesla founder Elon Musk’s income tax bill was zero in 2018. And financier George Soros went three straight years without paying federal income tax, according to a report Tuesday from the nonprofit investigative journalism organization ProPublica.
Overall, the richest 25 Americans pay less in tax — an average of 15.8% of adjusted gross income — than many ordinary workers do, once you include taxes for Social Security and Medicare, ProPublica found. Its findings are likely to heighten a national debate over the vast and widening inequality between the very wealthiest Americans and everyone else.
An anonymous source delivered to ProPublica reams of Internal Revenue Service data on the country’s wealthiest people, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. ProPublica compared the tax data it received with information available from other sources. It reported that “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.’’
Using perfectly legal tax strategies, many of the uber-rich are able to shrink their federal tax bills to nothing or close to it.
A spokesman for Soros, who has supported higher taxes on the rich, told ProPublica that the billionaire had lost money on his investments from 2016 to 2018 and so did not owe federal income tax for those years. Musk responded to ProPublica’s initial request for comment with a punctuation mark — “?” — and did not answer detailed follow-up questions.
The federal tax code is meant to be progressive — that is, the rich pay a steadily higher tax rate on their income as it rises. And ProPublica found, in fact, that people earning between $2 million and $5 million a year paid an average of 27.5%, the highest of any group of taxpayers.
Tax rates drop: Above $5 million in income, though, tax rates fell: The top .001% of taxpayers — 1,400 people who reported income above $69 million — paid 23%. And the 25 very richest people paid still less.
The wealthy can reduce their tax bills through the use of charitable donations or by avoiding wage income (which can be taxed at up to 37%) and benefiting instead mainly from investment income (usually taxed at 20%).
President Joe Biden, in seeking revenue to finance his spending plans, has proposed higher taxes on the wealthy. Biden wants to raise the top tax rate to 39.6% for people earning $400,000 a year or more in taxable income, estimated to be fewer than 2% of U.S. households. The top tax rate that workers pay on salaries and wages now is 37%.
Biden is proposing to nearly double the tax rate that high-earning Americans pay on profits from stocks and other investments. In addition, under his proposals, inherited capital gains would no longer be tax-free.
The president, whose proposals must be approved by Congress, would also raise taxes on corporations, which would affect wealthy investors who own corporate stocks.
ProPublica reported that the tax bills of the rich are especially low when compared with their soaring wealth — the value of their investment portfolios, real estate and other assets. Using calculations by Forbes magazine, ProPublica noted that the wealth of the 25 richest Americans collectively jumped by $401 billion from 2014 to 2018. They paid $13.6 billion in federal income taxes over those years — equal to just 3.4% of the increase in wealth.
Democratic Sens. Elizabeth Warren and Bernie Sanders, among others, have proposed taxing the wealth of the richest Americans, not just their income.
On Tuesday, Warren tweeted in response to the ProPublica report:
“Our tax system is rigged for billionaires who don’t make their fortunes through income, like working families do. The evidence is abundantly clear: it is time for a #WealthTax in America to make the ultra-rich finally pay their fair share.”
ProPublica’s data “reveals that the country’s wealthiest, who have profited handsomely during the pandemic, have not been paying their fair share of taxes,” Sen. Ron Wyden, D-Ore., who leads the tax-writing Senate Finance Committee, said at the start of a hearing Tuesday on the IRS’ budget with Commissioner Charles Rettig.
Exploring the tax gap: Now controlling the White House and Congress, Democrats are focusing on the tax gap — the hundreds of billions of dollars’ difference between what Americans owe the government in taxes and what they pay — and its connection to economic inequality. The top 10% of earners have accounted for most of that gap, experts say, by underreporting their liabilities, intentionally or not, as tax avoidance or as outright evasion.
The tax gap is under a spotlight as a potential source for recouping some revenue to help pay for Biden’s proposed spending on infrastructure, families and education.
At Tuesday’s hearing, Wyden told Rettig that it’s wrong “how the wealthy always seem to skip out on their obligations.”
“You have a better chance of being struck by lightning than being audited if you’re a partner in a partnership,” Wyden said.
Rettig responded, “We are outgunned.”