The rich are really different from you and me: they dodge the tax collector better.
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 has spent three consecutive years without paying federal income tax, according to a report released Tuesday by the nonprofit investigative journalism organization. ProPublica.
Overall, the 25 richest Americans pay less tax – on average 15.8% of adjusted gross income – than many ordinary workers, once you include taxes for Social Security and Insurance. disease, ProPublica found. Its findings are likely to intensify a national debate on the vast and growing inequality between the richest Americans and everyone else.
An anonymous source provided ProPublica with tons of Internal Revenue Service data on the wealthiest people in the country, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. ProPublica compared the tax data it received with information available from other sources. He reported that “in every case we were able to verify – involving tax returns by more than 50 separate people – details provided to ProPublica matched information from other sources.”
By using perfectly legal tax strategies, many uber-rich are able to reduce their federal tax bill to almost zero.
A spokesperson for Soros, who supported a tax hike on the rich, told ProPublica the billionaire lost money on his investments from 2016 to 2018 and therefore owed no federal income tax. for those years. Musk responded to ProPublica’s initial request for comment with a punctuation mark – “?” – and did not respond to detailed follow-up questions.
The federal tax code is supposed to be progressive, meaning that the wealthy pay an increasingly higher tax rate on their income as it increases. 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 taxpayer group.
Above $ 5 million in income, however, tax rates have come down: the richest 0.001% of taxpayers – 1,400 people with incomes over $ 69 million – paid 23%. And the richest 25 people paid even less.
The rich can reduce their taxes through charitable donations or by avoiding wage income (which can be taxed up to 37%) and instead benefiting primarily from investment income (typically taxed at 20%).
President Joe Biden, seeking income to fund his spending plans, has proposed an increase in taxes on the rich. Biden wants to raise the top tax rate to 39.6% for people earning $ 400,000 a year or more in taxable income, estimated at less than 2% of U.S. households. The highest tax rate that workers pay on wages and salaries is currently 37%.
Biden is proposing to almost double the tax rate that high-income Americans pay on profits from stocks and other investments. In addition, according to his proposals, inherited capital gains would no longer be exempt from tax.
The president, whose proposals must be approved by Congress, would also increase corporate taxes, which would affect wealthy investors who own shares of companies.
ProPublica reported that the tax bills of the rich are particularly low compared to their rising wealth – the value of their investment portfolios, real estate and other assets. People don’t have to pay tax on an increase in their wealth until they cash in and, say, sell their stock or house and realize the earnings. Using calculations from Forbes magazine, ProPublica noted that the wealth of the 25 richest Americans collectively jumped $ 401 billion from 2014 to 2018. They paid $ 13.6 billion in federal taxes on the income during these years, barely 3.4% of the increase in their wealth.
Chuck Marr, senior director of the Left Center on Budget and Policy Priorities, suggested that Biden’s proposals, which meet stiff opposition from Republicans in Congress and business, are “modest” given what the wealthy have benefited in recent years and how much relatively little tax many of them pay.
“It always seems like the solutions are presented as radical when you focus less on the fact that the current situation is radical,” said Marr.
Democratic Senators Elizabeth Warren and Bernie Sanders, among others, have proposed taxing the wealth of the richest Americans, not just their incomes.
On Tuesday, Warren tweeted in response to the ProPublica report:
“Our tax system is rigged for billionaires who don’t make a fortune from their income, as working families do. The proof is clear: it’s time for a #WealthTax in America to finally make the ultra-rich pay their fair share. ″
Gabriel Zucman, an economist at the University of California at Berkeley, who is a leading expert on financial inequality, says there are three ways to make sure the rich pay more: impose a direct tax on their wealth like the one proposed by Warren; tax the gains of their heritage, whether or not they cash in and make a gain; or increase corporate income taxes.
ProPublica data “reveals that the nation’s wealthiest, who profited immensely during the pandemic, have not paid their fair share of taxes,” said Sen. Ron Wyden, D-Ore., Who heads the committee. Finance Committee responsible for drafting taxes, at the start of an IRS budget hearing Tuesday with Commissioner Charles Rettig.
Wyden proposed legislation that would strengthen enforcement of tax collection against wealthy individuals and corporations that use tricks and loopholes to avoid paying taxes. It would also eliminate the possibility for high incomes to defer paying taxes on capital gains until they are realized, so that wealth would be taxed in the same way as wages.
For his part, Rettig said the IRS was investigating the tax data leak at ProPublica and any violation of the law would be prosecuted. (ProPublica has indicated that it does not know the identity of the source that provided the data.)
“We will find out about the ProPublica article,” said Rettig. “We handed it over to the appropriate investigators, both external and internal. “
Now controlling the White House and Congress, Democrats focus 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 inequalities. Experts say the richest 10% of earners accounted for most of this gap, underreporting their liabilities, intentionally or not, as tax avoidance or outright evasion.
The tax gap is in the spotlight as a potential source of some revenue clawback to help pay for Biden’s proposed spending on infrastructure, families and education. Democrats have pushed the IRS to reinvigorate its tax collection enforcement and make it fairer, prosecuting big corporations and wealthy individuals who manage to outsmart the system.
During Tuesday’s hearing, Wyden told Rettig it was wrong “how the rich always seem to default.”
“You are more likely to be struck by lightning than to be audited if you are a partner in a partnership,” said Wyden.
Rettig replied, “We are underarms.”
Democrats have argued that the tax gap has widened mainly because large American corporations have parked income overseas and the rich have not paid their fair share. They claim that the IRS, long understaffed and underfunded, has tended to pursue taxpayers of modest means more aggressively than businessmen and large corporations.
The agency’s funding has been cut by about 20% since 2010. Biden’s new spending proposals include an additional $ 80 billion over 10 years to strengthen IRS audits of high-income individuals and businesses, with the aim of recovering approximately 700 billion dollars.
Much of the gap stems from the use of shelters overseas. The government loses between $ 40 billion and $ 120 billion a year due to overseas tax evasion. Biden’s tax plan includes measures to prevent companies from hiding their profits in low-tax countries. Last weekend, the Group of Seven Wealthy Democracies, which includes the United States, agreed to support a global minimum corporate tax of at least 15% to deter multinational companies from avoiding taxes by hiding their profits in low-rate countries.