Any surprise here? Most of the tax code is remnants of Regan era economics.
Frank
-----Original Message-----
From: blind-democracy-bounce@xxxxxxxxxxxxx
<blind-democracy-bounce@xxxxxxxxxxxxx> On Behalf Of Miriam Vieni
Sent: Thursday, June 10, 2021 5:46 PM
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Subject: [blind-democracy] THE SECRET IRS FILES
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 world's 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 nation's wealthiest people, covering more than
15 years. The data provides 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.
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.
America's 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.
We're 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.
That's a staggering sum, but it amounts to a true tax rate of only 3.4%.
It's 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. That's 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 country's tax system.
Consider Bezos' 2007, one of the years he paid zero in federal income taxes.
Amazon's 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. What's 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%.
ProPublica's 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 agency's 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 it's
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 country's 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 wouldn't? 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, she'd gotten a bit richer, but she hadn't received any money. Therefore,
she argued, she'd 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
hasn't 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.
Hull's 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 aren't
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 don't 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, there's 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. Facebook's Zuckerberg, Oracle's Larry Ellison and Google's 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. That's 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 they've 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 world's sixth-richest person - he's 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.
There's 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 Buffett's 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 ProPublica's 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 can't 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, you'll pay 37% in income tax on the bulk of it. Sell stock and
you'll pay 20% in capital gains tax - and lose some control over your company.
But take out a loan, and these days you'll pay a single-digit interest rate and
no tax; since loans must be paid back, the IRS doesn't consider them income.
Banks typically require collateral, but the wealthy have plenty of that.
The vast majority of the ultrawealthy's 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, Musk's 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 didn't 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. "There's a reason it's
called income tax," he said. "The reason is if, if you're a poor person, a rich
person, if you are Apple - if you have no income, you don't pay taxes."
He added: "Do you think a rich person should pay taxes no matter what? I don't
think it's 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, there's 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 lion's 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 nation's 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 don't 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 Bloomberg's
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 citizen's 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.
It's 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
ultrawealthy's 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 Johnson's 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. It's 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 didn't pass. Even if it had, however, the Buffett Rule
wouldn't have raised Buffett's 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 it's 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: "There's been class warfare going on for the last
20 years, and my class has won."
Doris Burke, Carson Kessler and Ellis Simani contributed reporting.