Rich people better than you at avoiding paying tax
Print Edition
The rich really are different from you and me: They’re better at dodging the tax collector.
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 on Tuesday from the non-profit investigative journalism organization ProPublica.
Overall, the richest 25 Americans pay less in tax — an average of 15.8 percent 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 US national debate over the vast and widening inequality between the 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 US$2 million and US$5 million a year paid an average of 27.5 percent, the highest of any group of taxpayers.
Above US$5 million in income, though, tax rates fell: The top .001 percent of US taxpayers — 1,400 people who reported income above US$69 million — paid 23 percent. 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 percent) and benefiting instead mainly from investment income (usually taxed at 20 percent).
President Joe Biden, in seeking to finance his spending plans, has proposed higher taxes on the wealthy. Biden wants to raise the top tax rate to 39.6 percent for people earning US$400,000 a year or more in taxable income, estimated to be fewer than 2 percent of US households. The top tax rate that workers pay on salaries and wages now is 37 percent.
Biden is proposing to nearly double the tax high-earning Americans pay on profits from stocks and other investments. In addition, 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. People don’t have to pay tax on an increase in their wealth until they cash in. Using calculations by Forbes magazine, ProPublica noted that the wealth of the 25 richest Americans collectively jumped by US$401 billion from 2014 to 2018. They paid US$13.6 billion in federal income taxes over those years — equal to just 3.4 percent of the increase in their wealth.
Chuck Marr, a senior director at the left-leaning Center on Budget and Policy Priorities, suggested Biden’s proposals, which face fierce opposition from Republicans in Congress and from businesses, are “modest” given how much the wealthy have benefited in recent years and how comparatively little tax many of them pay.
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