The rich really are different from you and me: They’re better at dodging the tax man.
Amazon founder Jeff Bezos paid no income tax in 2007 and 2011. Tesla co-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 Tuesday from the nonprofit investigative journalism organization ProPublica.
Overall, the richest 25 Americans pay less in tax — an average of 15.8 per cent 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 national debate over the vast and widening inequality between the very wealthiest Americans and everyone else.
An anonymous source delivered to ProPublica reams of Internal Revenue Service data on the wealthiest people in the United States, 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.”
Tax code meant to be progressive
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. ProPublica found, in fact, that people earning between $2 million and $5 million a year paid an average of 27.5 per cent, the highest of any group of taxpayers.
Above $5 million in income, though, tax rates fell. The top 0.001 per cent of taxpayers — 1,400 people who reported income above $69 million — paid 23 per cent. And the 25 very richest people paid even 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 per cent) and benefitting instead mainly from investment income (usually taxed at 20 per cent).
Biden seeks boost in top tax rate
U.S. President Joe Biden, in seeking revenue to finance his spending plans, has proposed higher taxes on the wealthy. Biden wants to raise the top tax rate to 39.6 per cent for people earning $400,000 a year or more in taxable income, estimated to be fewer than two per cent of U.S. households. The top tax rate that workers pay on salaries and wages now is 37 per cent.
Biden is proposing to nearly double the tax rate that high-earning Americans pay on profits from stocks and other investments. In addition, under his proposals, 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. Using calculations by Forbes magazine, ProPublica noted that the wealth of the 25 richest Americans collectively jumped by $401 billion from 2014 to 2018. They paid $13.6 billion in federal income taxes over those years — equal to just 3.4 per cent of the increase in their wealth.
In the wake of the story, Reuters reported that the Treasury Department has asked law enforcement authorities to investigate the disclosure of tax records.
Treasury Department spokeswoman Lily Adams said in an emailed statement that the matter has been referred to the FBI, federal prosecutors and two internal Treasury Department watchdogs, “all of whom have independent authority to investigate.”