THE SECRET IRS FILES
By Jesse Eisinger, Jeff Ernsthausen and Paul Kiel, ProPublica.
June 9, 2021 | EDUCATE!
Trove Of Never-Before-Seen Records Reveal How The Wealthiest Avoid Income
Tax.
ProPublica has obtained a vast cache of IRS information showing how
billionaires like Jeff Bezos, Elon Musk and Warren Buffett pay little in
income tax compared to their massive wealth sometimes, even nothing.
In 2007, Jeff Bezos, then a multibillionaire and now the worlds richest
man, did not pay a penny in federal income taxes. He achieved the feat again
in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the
world, also paid no federal income taxes.
Michael Bloomberg managed to do the same in recent years. Billionaire
investor Carl Icahn did it twice. George Soros paid no federal income tax
three years in a row.
ProPublica has obtained a vast trove of Internal Revenue Service data on the
tax returns of thousands of the nations wealthiest people, covering more
than 15 years. The data provides an unprecedented look inside the financial
lives of Americas 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.
Taken together, it demolishes the cornerstone myth of the American tax
system: that everyone pays their fair share and the richest Americans pay
the most. The IRS records show that the wealthiest can perfectly legally
pay income taxes that are only a tiny fraction of the hundreds of millions,
if not billions, their fortunes grow each year.
Many Americans live paycheck to paycheck, amassing little wealth and paying
the federal government a percentage of their income that rises if they earn
more. In recent years, the median American household earned about $70,000
annually and paid 14% in federal taxes. The highest income tax rate, 37%,
kicked in this year, for couples, on earnings above $628,300.
The confidential tax records obtained by ProPublica show that the ultrarich
effectively sidestep this system.
Americas billionaires avail themselves of tax-avoidance strategies beyond
the reach of ordinary people. Their wealth derives from the skyrocketing
value of their assets, like stock and property. Those gains are not defined
by U.S. laws as taxable income unless and until the billionaires sell.
To capture the financial reality of the richest Americans, ProPublica
undertook an analysis that has never been done before. We compared how much
in taxes the 25 richest Americans paid each year to how much Forbes
estimated their wealth grew in that same time period.
Were going to call this their true tax rate.
The results are stark. According to Forbes, those 25 people saw their worth
rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6
billion in federal income taxes in those five years, the IRS data shows.
Thats a staggering sum, but it amounts to a true tax rate of only 3.4%.
Its a completely different picture for middle-class Americans, for example,
wage earners in their early 40s who have amassed a typical amount of wealth
for people their age. From 2014 to 2018, such households saw their net worth
expand by about $65,000 after taxes on average, mostly due to the rise in
value of their homes. But because the vast bulk of their earnings were
salaries, their tax bills were almost as much, nearly $62,000, over that
five-year period.
No one among the 25 wealthiest avoided as much tax as Buffett, the
grandfatherly centibillionaire. Thats perhaps surprising, given his public
stance as an advocate of higher taxes for the rich. According to Forbes, his
riches rose $24.3 billion between 2014 and 2018. Over those years, the data
shows, Buffett reported paying $23.7 million in taxes.
That works out to a true tax rate of 0.1%, or less than 10 cents for every
$100 he added to his wealth.
In the coming months, ProPublica will use the IRS data we have obtained to
explore in detail how the ultrawealthy avoid taxes, exploit loopholes and
escape scrutiny from federal auditors.
Experts have long understood the broad outlines of how little the wealthy
are taxed in the United States, and many lay people have long suspected the
same thing.
But few specifics about individuals ever emerge in public. Tax information
is among the most zealously guarded secrets in the federal government.
ProPublica has decided to reveal individual tax information of some of the
wealthiest Americans because it is only by seeing specifics that the public
can understand the realities of the countrys tax system.
Consider Bezos 2007, one of the years he paid zero in federal income taxes.
Amazons stock more than doubled. Bezos fortune leapt $3.8 billion,
according to Forbes, whose wealth estimates are widely cited. How did a
person enjoying that sort of wealth explosion end up paying no income tax?
In that year, Bezos, who filed his taxes jointly with his then-wife,
MacKenzie Scott, reported a paltry (for him) $46 million in income, largely
from interest and dividend payments on outside investments. He was able to
offset every penny he earned with losses from side investments and various
deductions, like interest expenses on debts and the vague catchall category
of other expenses.
In 2011, a year in which his wealth held roughly steady at $18 billion,
Bezos filed a tax return reporting he lost money his income that year was
more than offset by investment losses. Whats more, because, according to
the tax law, he made so little, he even claimed and received a $4,000 tax
credit for his children.
His tax avoidance is even more striking if you examine 2006 to 2018, a
period for which ProPublica has complete data. Bezos wealth increased by
$127 billion, according to Forbes, but he reported a total of $6.5 billion
in income. The $1.4 billion he paid in personal federal taxes is a massive
number yet it amounts to a 1.1% true tax rate on the rise in his fortune.
The revelations provided by the IRS data come at a crucial moment. Wealth
inequality has become one of the defining issues of our age. The president
and Congress are considering the most ambitious tax increases in decades on
those with high incomes. But the American tax conversation has been
dominated by debate over incremental changes, such as whether the top tax
rate should be 39.6% rather than 37%.
ProPublicas data shows that while some wealthy Americans, such as hedge
fund managers, would pay more taxes under the current Biden administration
proposals, the vast majority of the top 25 would see little change.
The tax data was provided to ProPublica after we published a series of
articles scrutinizing the IRS. The articles exposed how years of budget cuts
have hobbled the agencys ability to enforce the law and how the largest
corporations and the rich have benefited from the IRS weakness. They also
showed how people in poor regions are now more likely to be audited than
those in affluent areas.
ProPublica is not disclosing how it obtained the data, which was given to us
in raw form, with no conditions or conclusions. ProPublica reporters spent
months processing and analyzing the material to transform it into a usable
database.
We then verified the information by comparing elements of it with dozens of
already public tax details (in court documents, politicians financial
disclosures and news stories) as well as by vetting it with individuals
whose tax information is contained in the trove. Every person whose tax
information is described in this story was asked to comment. Those who
responded, including Buffett, Bloomberg and Icahn, all said they had paid
the taxes they owed.
A spokesman for Soros said in a statement: Between 2016 and 2018 George
Soros lost money on his investments, therefore he did not owe federal income
taxes in those years. Mr. Soros has long supported higher taxes for wealthy
Americans. Personal and corporate representatives of Bezos declined to
receive detailed questions about the matter. ProPublica attempted to reach
Scott through her divorce attorney, a personal representative and family
members; she did not respond. Musk responded to an initial query with a lone
punctuation mark: ? After we sent detailed questions to him, he did not
reply.
One of the billionaires mentioned in this article objected, arguing that
publishing personal tax information is a violation of privacy. We have
concluded that the public interest in knowing this information at this
pivotal moment outweighs that legitimate concern.
The consequences of allowing the most prosperous to game the tax system have
been profound. Federal budgets, apart from military spending, have been
constrained for decades. Roads and bridges have crumbled, social services
have withered and the solvency of Social Security and Medicare is
perpetually in question.
There is an even more fundamental issue than which programs get funded or
not: Taxes are a kind of collective sacrifice. No one loves giving their
hard-earned money to the government. But the system works only as long as
its perceived to be fair.
Our analysis of tax data for the 25 richest Americans quantifies just how
unfair the system has become.
By the end of 2018, the 25 were worth $1.1 trillion.
For comparison, it would take 14.3 million ordinary American wage earners
put together to equal that same amount of wealth.
The personal federal tax bill for the top 25 in 2018: $1.9 billion.
The bill for the wage earners: $143 billion.
The idea of a regular tax on income, much less on wealth, does not appear in
the countrys founding documents. In fact, Article 1 of the U.S.
Constitution explicitly prohibits direct taxes on citizens under most
circumstances. This meant that for decades, the U.S. government mainly
funded itself through indirect taxes: tariffs and levies on consumer goods
like tobacco and alcohol.
With the costs of the Civil War looming, Congress imposed a national income
tax in 1861. The wealthy helped force its repeal soon after the war ended.
(Their pique could only have been exacerbated by the fact that the law
required public disclosure. The annual income of the moguls of the day
$1.3 million for William Astor; $576,000 for Cornelius Vanderbilt was
listed in the pages of The New York Times in 1865.)
By the late 19th and early 20th century, wealth inequality was acute and the
political climate was changing. The federal government began expanding,
creating agencies to protect food, workers and more. It needed funding, but
tariffs were pinching regular Americans more than the rich. The Supreme
Court had rejected an 1894 law that would have created an income tax. So
Congress moved to amend the Constitution. The 16th Amendment was ratified in
1913 and gave the government power to lay and collect taxes on incomes,
from whatever source derived.
In the early years, the personal income tax worked as Congress intended,
falling squarely on the richest. In 1918, only 15% of American families owed
any tax. The top 1% paid 80% of the revenue raised, according to historian
W. Elliot Brownlee.
But a question remained: What would count as income and what wouldnt? In
1916, a woman named Myrtle Macomber received a dividend for her Standard Oil
of California shares. She owed taxes, thanks to the new law. The dividend
had not come in cash, however. It came in the form of an additional share
for every two shares she already held. She paid the taxes and then brought a
court challenge: Yes, shed gotten a bit richer, but she hadnt received any
money. Therefore, she argued, shed received no income.
Four years later, the Supreme Court agreed. In Eisner v. Macomber, the high
court ruled that income derived only from proceeds. A person needed to sell
an asset stock, bond or building and reap some money before it could be
taxed.
Since then, the concept that income comes only from proceeds when gains
are realized has been the bedrock of the U.S. tax system. Wages are
taxed. Cash dividends are taxed. Gains from selling assets are taxed. But if
a taxpayer hasnt sold anything, there is no income and therefore no tax.
Contemporary critics of Macomber were plentiful and prescient. Cordell Hull,
the congressman known as the father of the income tax, assailed the
decision, according to scholar Marjorie Kornhauser. Hull predicted that tax
avoidance would become common. The ruling opened a gaping loophole, Hull
warned, allowing industrialists to build a company and borrow against the
stock to pay living expenses. Anyone could live upon the value of their
company stock without selling it, and of course, without ever paying tax,
he said.
Hulls prediction would reach full flower only decades later, spurred by a
series of epochal economic, legal and cultural changes that began to gather
momentum in the 1970s. Antitrust enforcers increasingly accepted mergers and
stopped trying to break up huge corporations. For their part, companies came
to obsess over the value of their stock to the exclusion of nearly
everything else. That helped give rise in the last 40 years to a series of
corporate monoliths beginning with Microsoft and Oracle in the 1980s and
1990s and continuing to Amazon, Google, Facebook and Apple today that
often have concentrated ownership, high profit margins and rich share
prices. The winner-take-all economy has created modern fortunes that by some
measures eclipse those of John D. Rockefeller, J.P. Morgan and Andrew
Carnegie.
In the here and now, the ultrawealthy use an array of techniques that arent
available to those of lesser means to get around the tax system.
Certainly, there are illegal tax evaders among them, but it turns out
billionaires dont have to evade taxes exotically and illicitly they can
avoid them routinely and legally.
Most Americans have to work to live. When they do, they get paid and they
get taxed. The federal government considers almost every dollar workers earn
to be income, and employers take taxes directly out of their paychecks.
The Bezoses of the world have no need to be paid a salary. Bezos Amazon
wages have long been set at the middle-class level of around $80,000 a year.
For years, theres been something of a competition among elite founder-CEOs
to go even lower. Steve Jobs took $1 in salary when he returned to Apple in
the 1990s. Facebooks Zuckerberg, Oracles Larry Ellison and Googles Larry
Page have all done the same.
Yet this is not the self-effacing gesture it appears to be: Wages are taxed
at a high rate. The top 25 wealthiest Americans reported $158 million in
wages in 2018, according to the IRS data. Thats a mere 1.1% of what they
listed on their tax forms as their total reported income. The rest mostly
came from dividends and the sale of stock, bonds or other investments, which
are taxed at lower rates than wages.
As Congressman Hull envisioned long ago, the ultrawealthy typically hold
fast to shares in the companies theyve founded. Many titans of the 21st
century sit on mountains of what are known as unrealized gains, the total
size of which fluctuates each day as stock prices rise and fall. Of the
$4.25 trillion in wealth held by U.S. billionaires, some $2.7 trillion is
unrealized, according to Emmanuel Saez and Gabriel Zucman, economists at the
University of California, Berkeley.
Buffett has famously held onto his stock in the company he founded,
Berkshire Hathaway, the conglomerate that owns Geico, Duracell and
significant stakes in American Express and Coca-Cola. That has allowed
Buffett to largely avoid transforming his wealth into income. From 2015
through 2018, he reported annual income ranging from $11.6 million to $25
million. That may seem like a lot, but Buffett ranks as roughly the worlds
sixth-richest person hes worth $110 billion as of Forbes estimate in May
2021. At least 14,000 U.S. taxpayers in 2015 reported higher income than
him, according to IRS data.
Theres also a second strategy Buffett relies on that minimizes income, and
therefore, taxes. Berkshire does not pay a dividend, the sum (a piece of the
profits, in theory) that many companies pay each quarter to those who own
their stock. Buffett has always argued that it is better to use that money
to find investments for Berkshire that will further boost the value of
shares held by him and other investors. If Berkshire had offered anywhere
close to the average dividend in recent years, Buffett would have received
over $1 billion in dividend income and owed hundreds of millions in taxes
each year.
Many Silicon Valley and infotech companies have emulated Buffetts model,
eschewing stock dividends, at least for a time. In the 1980s and 1990s,
companies like Microsoft and Oracle offered shareholders rocketing growth
and profits but did not pay dividends. Google, Facebook, Amazon and Tesla do
not pay dividends.
In a detailed written response, Buffett defended his practices but did not
directly address ProPublicas true tax rate calculation. I continue to
believe that the tax code should be changed substantially, he wrote, adding
that he thought huge dynastic wealth is not desirable for our society.
The decision not to have Berkshire pay dividends has been supported by the
vast majority of his shareholders. I cant think of any large public
company with shareholders so united in their reinvestment beliefs, he
wrote. And he pointed out that Berkshire Hathaway pays significant corporate
taxes, accounting for 1.5% of total U.S. corporate taxes in 2019 and 2020.
Buffett reiterated that he has begun giving his enormous fortune away and
ultimately plans to donate 99.5% of it to charity. I believe the money will
be of more use to society if disbursed philanthropically than if it is used
to slightly reduce an ever-increasing U.S. debt, he wrote.
So how do megabillionaires pay their megabills while opting for $1 salaries
and hanging onto their stock? According to public documents and experts, the
answer for some is borrowing money lots of it.
For regular people, borrowing money is often something done out of
necessity, say for a car or a home. But for the ultrawealthy, it can be a
way to access billions without producing income, and thus, income tax.
The tax math provides a clear incentive for this. If you own a company and
take a huge salary, youll pay 37% in income tax on the bulk of it. Sell
stock and youll pay 20% in capital gains tax and lose some control over
your company. But take out a loan, and these days youll pay a single-digit
interest rate and no tax; since loans must be paid back, the IRS doesnt
consider them income. Banks typically require collateral, but the wealthy
have plenty of that.
The vast majority of the ultrawealthys loans do not appear in the tax
records obtained by ProPublica since they are generally not disclosed to the
IRS. But occasionally, the loans are disclosed in securities filings. In
2014, for example, Oracle revealed that its CEO, Ellison, had a credit line
secured by about $10 billion of his shares.
Last year Tesla reported that Musk had pledged some 92 million shares, which
were worth about $57.7 billion as of May 29, 2021, as collateral for
personal loans.
With the exception of one year when he exercised more than a billion dollars
in stock options, Musks tax bills in no way reflect the fortune he has at
his disposal. In 2015, he paid $68,000 in federal income tax. In 2017, it
was $65,000, and in 2018 he paid no federal income tax. Between 2014 and
2018, he had a true tax rate of 3.27%.
The IRS records provide glimpses of other massive loans. In both 2016 and
2017, investor Carl Icahn, who ranks as the 40th-wealthiest American on the
Forbes list, paid no federal income taxes despite reporting a total of $544
million in adjusted gross income (which the IRS defines as earnings minus
items like student loan interest payments or alimony). Icahn had an
outstanding loan of $1.2 billion with Bank of America among other loans,
according to the IRS data. It was technically a mortgage because it was
secured, at least in part, by Manhattan penthouse apartments and other
properties.
Borrowing offers multiple benefits to Icahn: He gets huge tranches of cash
to turbocharge his investment returns. Then he gets to deduct the interest
from his taxes. In an interview, Icahn explained that he reports the profits
and losses of his business empire on his personal taxes.
Icahn acknowledged that he is a big borrower. I do borrow a lot of money.
Asked if he takes out loans also to lower his tax bill, Icahn said: No, not
at all. My borrowing is to win. I enjoy the competition. I enjoy winning.
He said adjusted gross income was a misleading figure for him. After taking
hundreds of millions in deductions for the interest on his loans, he
registered tax losses for both years, he said. I didnt make money because,
unfortunately for me, my interest was higher than my whole adjusted income.
Asked whether it was appropriate that he had paid no income tax in certain
years, Icahn said he was perplexed by the question. Theres a reason its
called income tax, he said. The reason is if, if youre a poor person, a
rich person, if you are Apple if you have no income, you dont pay taxes.
He added: Do you think a rich person should pay taxes no matter what? I
dont think its germane. How can you ask me that question?
Skeptics might question our analysis of how little the superrich pay in
taxes. For one, they might argue that owners of companies get hit by
corporate taxes. They also might counter that some billionaires cannot avoid
income and therefore taxes. And after death, the common understanding
goes, theres a final no-escape clause: the estate tax, which imposes a
steep tax rate on sums over $11.7 million.
ProPublica found that none of these factors alter the fundamental picture.
Take corporate taxes. When companies pay them, economists say, these costs
are passed on to the companies owners, workers or even consumers. Models
differ, but they generally assume big stockholders shoulder the lions
share.
Corporate taxes, however, have plummeted in recent decades in what has
become a golden age of corporate tax avoidance. By sending profits abroad,
companies like Google, Facebook, Microsoft and Apple have often paid little
or no U.S. corporate tax.
For some of the nations wealthiest people, particularly Bezos and Musk,
adding corporate taxes to the equation would hardly change anything at all.
Other companies like Berkshire Hathaway and Walmart do pay more, which means
that for people like Buffett and the Waltons, corporate tax could add
significantly to their burden.
It is also true that some billionaires dont avoid taxes by avoiding
incomes. In 2018, nine of the 25 wealthiest Americans reported more than
$500 million in income and three more than $1 billion.
In such cases, though, the data obtained by ProPublica shows billionaires
have a palette of tax-avoidance options to offset their gains using credits,
deductions (which can include charitable donations) or losses to lower or
even zero out their tax bills. Some own sports teams that offer such
lucrative write-offs that owners often end up paying far lower tax rates
than their millionaire players. Others own commercial buildings that
steadily rise in value but nevertheless can be used to throw off paper
losses that offset income.
Michael Bloomberg, the 13th-richest American on the Forbes list, often
reports high income because the profits of the private company he controls
flow mainly to him.
In 2018, he reported income of $1.9 billion. When it came to his taxes,
Bloomberg managed to slash his bill by using deductions made possible by tax
cuts passed during the Trump administration, charitable donations of $968.3
million and credits for having paid foreign taxes. The end result was that
he paid $70.7 million in income tax on that almost $2 billion in income.
That amounts to just a 3.7% conventional income tax rate. Between 2014 and
2018, Bloomberg had a true tax rate of 1.30%.
In a statement, a spokesman for Bloomberg noted that as a candidate,
Bloomberg had advocated for a variety of tax hikes on the wealthy. Mike
Bloomberg pays the maximum tax rate on all federal, state, local and
international taxable income as prescribed by law, the spokesman wrote. And
he cited Bloombergs philanthropic giving, offering the calculation that
taken together, what Mike gives to charity and pays in taxes amounts to
approximately 75% of his annual income.
The statement also noted: The release of a private citizens tax returns
should raise real privacy concerns regardless of political affiliation or
views on tax policy. In the United States no private citizen should fear the
illegal release of their taxes. We intend to use all legal means at our
disposal to determine which individual or government entity leaked these and
ensure that they are held responsible.
Ultimately, after decades of wealth accumulation, the estate tax is supposed
to serve as a backstop, allowing authorities an opportunity to finally take
a piece of giant fortunes before they pass to a new generation. But in
reality, preparing for death is more like the last stage of tax avoidance
for the ultrawealthy.
University of Southern California tax law professor Edward McCaffery has
summarized the entire arc with the catchphrase buy, borrow, die.
The notion of dying as a tax benefit seems paradoxical. Normally when
someone sells an asset, even a minute before they die, they owe 20% capital
gains tax. But at death, that changes. Any capital gains till that moment
are not taxed. This allows the ultrarich and their heirs to avoid paying
billions in taxes. The step-up in basis is widely recognized by experts
across the political spectrum as a flaw in the code.
Then comes the estate tax, which, at 40%, is among the highest in the
federal code. This tax is supposed to give the government one last chance to
get a piece of all those unrealized gains and other assets the wealthiest
Americans accumulate over their lifetimes.
Its clear, though, from aggregate IRS data, tax research and what little
trickles into the public arena about estate planning of the wealthy that
they can readily escape turning over almost half of the value of their
estates. Many of the richest create foundations for philanthropic giving,
which provide large charitable tax deductions during their lifetimes and
bypass the estate tax when they die.
Wealth managers offer clients a range of opaque and complicated trusts that
allow the wealthiest Americans to give large sums to their heirs without
paying estate taxes. The IRS data obtained by ProPublica gives some insight
into the ultrawealthys estate planning, showing hundreds of these trusts.
The result is that large fortunes can pass largely intact from one
generation to the next. Of the 25 richest people in America today, about a
quarter are heirs: three are Waltons, two are scions of the Mars candy
fortune and one is the son of Estée Lauder.
In the past year and a half, hundreds of thousands of Americans have died
from COVID-19, while millions were thrown out of work. But one of the
bleakest periods in American history turned out to be one of the most
lucrative for billionaires. They added $1.2 trillion to their fortunes from
January 2020 to the end of April of this year, according to Forbes.
That windfall is among the many factors that have led the country to an
inflection point, one that traces back to a half-century of growing wealth
inequality and the financial crisis of 2008, which left many with lasting
economic damage. American history is rich with such turns. There have been
famous acts of tax resistance, like the Boston Tea Party, countered by less
well-known efforts to have the rich pay more.
One such incident, over half a century ago, appeared as if it might spark
great change. President Lyndon Johnsons outgoing treasury secretary, Joseph
Barr, shocked the nation when he revealed that 155 Americans making over
$200,000 (about $1.6 million today) had paid no taxes. That group, he told
the Senate, included 21 millionaires.
We face now the possibility of a taxpayer revolt if we do not soon make
major reforms in our income taxes, Barr said. Members of Congress received
more furious letters about the tax scofflaws that year than they did about
the Vietnam War.
Congress did pass some reforms, but the long-term trend was a revolt in the
opposite direction, which then accelerated with the election of Ronald
Reagan in 1980. Since then, through a combination of political donations,
lobbying, charitable giving and even direct bids for political office, the
ultrawealthy have helped shape the debate about taxation in their favor.
One apparent exception: Buffett, who broke ranks with his billionaire cohort
to call for higher taxes on the rich. In a famous New York Times op-ed in
2011, Buffett wrote, My friends and I have been coddled long enough by a
billionaire-friendly Congress. Its time for our government to get serious
about shared sacrifice.
Buffett did something in that article that few Americans do: He publicly
revealed how much he had paid in personal federal taxes the previous year
($6.9 million). Separately, Forbes estimated his fortune had risen $3
billion that year. Using that information, an observer could have calculated
his true tax rate; it was 0.2%. But then, as now, the discussion that ensued
on taxes was centered on the traditional income tax rate.
In 2011, President Barack Obama proposed legislation, known as the Buffett
Rule. It would have raised income tax rates on people reporting over a
million dollars a year. It didnt pass. Even if it had, however, the Buffett
Rule wouldnt have raised Buffetts taxes significantly. If you can avoid
income, you can avoid taxes.
Today, just a few years after Republicans passed a massive tax cut that
disproportionately benefited the wealthy, the country may be facing another
swing of the pendulum, back toward a popular demand to raise taxes on the
wealthy. In the face of growing inequality and with spending ambitions that
rival those of Franklin D. Roosevelt or Johnson, the Biden administration
has proposed a slate of changes. These include raising the tax rates on
people making over $400,000 and bumping the top income tax rate from 37% to
39.6%, with a top rate for long-term capital gains to match that. The
administration also wants to up the corporate tax rate and to increase the
IRS budget.
Some Democrats have gone further, floating ideas that challenge the tax
structure as its existed for the last century. Oregon Sen. Ron Wyden, the
chairman of the Senate Finance Committee, has proposed taxing unrealized
capital gains, a shot through the heart of Macomber. Sens. Elizabeth Warren
and Bernie Sanders have proposed wealth taxes.
Aggressive new laws would likely inspire new, sophisticated avoidance
techniques. A few countries, including Switzerland and Spain, have wealth
taxes on a small scale. Several, most recently France, have abandoned them
as unworkable. Opponents contend that they are complicated to administer, as
it is hard to value assets, particularly of private companies and property.
What it would take for a fundamental overhaul of the U.S. 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 and his fellow billionaires have known this secret for a long time.
As Buffett put it in 2011: Theres been class warfare going on for the last
20 years, and my class has won.
Doris Burke, Carson Kessler and Ellis Simani contributed reporting.