The leak of US federal tax returns filed by the world's richest tycoons sent shock waves this week. To put it simply, the headlines stemming from the ProPublica report appear damning.
According to the leaked documents the non-profit saw, in 2007 and 2011, Jeff Bezos, today the world's richest person, didn't pay a thing in federal income tax – indeed in 2011, the Amazon multi-billionaire claimed and received a $4,000 tax credit for his children. In 2018, Tesla and SpaceX supremo Elon Musk, the second richest person, did not pay a bean in federal income tax, either.
In a splashy investigation, journalists at ProPublica said they'd clapped eyes on: "data provid[ing] 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."
The outfit received what it described as a "vast trove of Internal Revenue Service (IRS) data on the tax returns of thousands of the nation's wealthiest people, covering more than 15 years." It has taken the scribes months to sift through the information, fact check, and seek comment and analysis.
It was reported by the journos, based on the information received, that between 2014 and 2018, Buffett paid total taxes of $23.7m on income of $125m, or a 19 per cent tax rate. He once said he probably pays less tax than his secretary.
Jeff Bezos is said to have paid $973m in total taxes on reported income of $4.22bn, a 23 per cent tax rate. Elon Musk is said to have paid $455m in total taxes on reported total earnings of $1.52bn, or 29 per cent.
These tax rates are less than the 37 to 39 per cent top income tax rate normal people pay in America, though they are not unexpected: much of the super-rich's wealth is tied up in stocks, property, and other securities that are only taxed when sold, and so when it comes to declaring actual annual income, there isn't much to show, relatively speaking, hence the sub-30-per-cent figures. Some years, these zillionaires thus declare no income at all.
This situation can be seen in another light, though, when you look at what ProPublica calls the "true tax rate." The non-profit estimated that from 2014 to 2018, a typical middle-class American household of workers in their early 40s would increase their wealth by $65,000 after taxes, mainly due to house price increases, however their tax bill would total about $62,000. That's pretty much a 100 per cent true tax rate on their increase in wealth.
And so, according to ProPublica, Bezos's true tax rate, given his $99bn increase in wealth in that five-year period and taxes paid, was 0.98 per cent. For Musk, who increased his wealth by $13.9bn, the true tax rate was 3.27 per cent. Buffett paid a 0.1 per cent true tax rate for a wealth increase of $24bn.
Thus, argues ProPublica, while people pay high amounts of tax compared to their wealth growth, the nation's super-rich simply pay sod all, and that imbalance just might be unfair. Though you pay tax on income and not wealth, the true tax rate, as ProPublica calls it, shows the proportion of your taxes to wealth growth. For normal folk, the rate is high, and for the mega-rich, it's low.
But, you might say, when a moneybags comes to sell their stock and properties, they'll pay their chunk of taxes on their capital gains. Well, they don't need to do that: the wealthy can take out loans using their immense holdings as collateral, which generally isn't disclosed to the IRS. And the interest on this borrowing can even be used to lower or wipe out one's tax bills.
In response to these revelations, the Biden administration said it will probe the leak – to find out how the information got out to the media.
Financiers, politicians, lawyers, and campaigners – you name it – will be crawling all over this. And if you've got time on your hands, it's well worth a look. A longer read of the piece, headlined "The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax," by Jesse Eisinger, Jeff Ernsthausen, and Paul Kiel not only shines a light on current affairs, it also digs deep into the United States' relationship with tax.
- Microsoft subsidiary makes $314.73bn profit and pays no tax in Ireland – despite registering there
- Oracle founder Larry Ellison lands on another lily pad, this time an $80m Florida mansion he intends to tear down
- Think tank report names and shames 'stakeholder capitalist' Salesforce for paying no corporate income tax in the US
- I've got way too much cash, thinks Jeff Bezos. Hmmm, pay more tax? Pay staff more? Nah, let's just go into space
In short, it's a journey that goes right back to the founding of the country, and also takes in a charming story about Myrtle Macomber, who in a 1920 court case (Eisner v. Macomber) argued successfully that the Standard Oil Company dividend she received as stock, while increasing her wealth, should not be taxed as income since it was not paid in cash.
As the ProPublica article pointed out, changing a country's tax system to ensure everyone pays their fair way given their circumstances is anything but simple: "What it would take for a fundamental overhaul of the US tax system is not clear. But the IRS data obtained by ProPublica illuminates that all of these conversations have been taking place in a vacuum. Neither political leaders nor the public have ever had an accurate picture of how comprehensively the wealthiest Americans avoid paying taxes."
Buffett told the media outlet, “I continue to believe that the tax code should be changed substantially,” and that “huge dynastic wealth is not desirable for our society.”
As for Bezos, his personal and corporate reps reportedly declined to even receive detailed questions, and Musk was said to have responded to an early inquiry with a question-mark only, and did not reply to more detailed questions. ®