ProPublica reports today that someone at the IRS has leaked a "vast trove" of private data on the tax returns of thousands of the nation’s wealthiest people. This is disturbing, but what's done is done. ProPublica acknowledges that publishing this information is a violation of privacy but says they eventually concluded that "the public interest in knowing this information at this pivotal moment outweighs that legitimate concern."
It must be a bombshell, then. Let's take a look:
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.
....In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes....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.
This is the gist of the entire piece. ProPublica simply asserts that taxes as a share of wealth represent the "true" tax rate even though the United States taxes income, not wealth. Bezos, for example, paid 22% of his income in federal income taxes. This is close to average for the top 1%. The same is true to varying degrees for the other billionaires ProPublica profiles. So what exactly have we learned?
- Wealth is not income.
- The US taxes income, not wealth.
- The income of the super rich varies greatly from year to year.
- The super rich make use of tax avoidance strategies unavailable to wage slave schlubs like you and me.
I don't know about you, but I already knew all this. The ProPublica piece is, essentially, not a revelation but merely a long op-ed arguing that we should tax wealth, not income. That's fine, but does it justify publishing private tax returns? I'm skeptical. If you aren't, keep in mind that using the IRS for political purposes has an ugly history that in no way always benefits progressives. It's not something we should take lightly.
I am by no means a wealthy individual, but in the last couple of years, my "wealth" has grown by a couple hundred thousand dollars? Why? I retired from my state job and was able to cash out a bunch of leave time and throw it into savings and my retirement account. Why else? My home has appreciate somewhere in the neighborhood of $100,000 - 200,000 in the last few years. If I had to pay taxes every year on that "wealth," it would completely change both my taxes and my "wealth." Propublica's primary thesis is poppycock, although I know many progressives are pushing the idea of a wealth tax.
Congratulations on being the good little soldier and defending the unsustainable status quo for those who benefit most from it.
No one is proposing a wealth tax that kicks in at anywhere in the same galaxy as your income level.
Taxing wealth needs to be aimed at something that can actually be extracted - not at wealth that is merely potential.
It's no different that the stupid games conservatives play in counting public employees but not contractors or aubcontractors.
Hate to break it to you, but a wealth tax doesn’t fix what is broken.
You do pay a wealth tax on your home. It's called a property tax. Income, expenditures, and tangible property is taxed in the USA. Intangible property (stock) is not.
In California, property taxes are very low and due to Prop 13 don’t actually keep pace with the increase in property value. Meanwhile, there a number of ways stock is taxed.
Howard Jarvis is a greater blight on the 1970s than Pol Pot.
Uh, you are absolutely wealthy. I'm not going to call you rich, or a plutocrat or anything like that but you are wealthy middle class.
lol. You have no clue.
Leaving aside the issue of whether ProPublica should have published this data, I do not think they are advocating for a wealth tax in this piece. Instead, they are questioning how the Internal Revenue Code defines "income."
Based on my read of the excerpt above, their point is that Bezos's *true* income was the $127 billion figure, and not the *reported* $6.5 billion. In fact, I would argue that it is an understatement, since he presumably spent money during that time period, as well. So his *net* income under this view is $127 billion.
You can argue with their definition of income; the easiest quibble in my mind would be that unrealized capital gains are not the same as other types of income. But there is at least some intuitive logic to the idea that if you are worth $127 billion more than you were 12 years ago, then your income over the last 12 years should be measured at something close to $127 billion, and not 5% of that amount.
In my experience, the general understanding of a wealth tax is "If you have $1 billion, you pay 2% of $1 billion." Certainly, that was how Elizabeth Warren defined a wealth tax during her primary campaign. This is different than that - ProPublica is arguing that you can't get $127 billion *richer* if you only have $6.5 in "income."
But that measure of wealth includes shares in businesses he cannot sell lest the business be destroyed.
It's not different than saying you need to sell off parts of your house to cover how much it has appreciated over time.
Wealth taxes have to target realized gains, not merely potential wealth.
Never technically realizing the gains is one way the mega rich avoid taxes.
They are able to borrow against it at nearly 0 interest, then pass it on to their heirs who never pay any taxes on it either.
OK, how about this solution - if you use the stock you own as the wealth collateral for loans, that portion is treated as income. At the very least, the interest on those loans isn't deductible.
What is it's not collateral? I fancy Jeff Bezos could borrower several billion--more than enough to fund the wealthiest lifestyle imaginable--on an unsecured basis. Tax law is complicated.
While I think your overall stance here makes some sense, Bezos selling even approx 10% of AMZN's market cap will not "destroy" Amazon. It's likely that it would be treated somewhat like a capital raise. He'd announce that he's selling x shares at today's price and the market snaps to that price for a while, maybe a little lower. The LT price still tracks on Amazon's LT expected value, particularly if this was an implemented system that the market would (partially) already have priced in.
Having said that, some of this depends on how he was paid. I can mount the case that pay provided in stock options is a different kind of thing than pay provided directly. If memory serves, exercising ISOs escapes both income taxes and SS/medicare/etc...
2% of 127 billion is ... $2.5 billion in taxes. And the guy had non-wealth income of $6.5 billion. Gosh, almost as if he doesn't actually have to sell the company to pay his taxes.
Over the past 20 years, my house increased in value by some absurd amount. 2% of that over 20 years is a lot less than the property taxes I currently pay without selling off my house.
As a sign of the coming apocalypse I have to say I agree with Crissa and only realized gains should be taxed.
That's a reasonable way of looking at it.
My takeaway was that these folks live by getting loans secured by their assets which don't count as income and the interest can be deducted. I wonder if my employer would give me my salary as a "loan"?
Exactly. If they take a loan out against an asset, that should be seen as a type of income.
And when they sell the asset to pay off the loan, then there would be a realized gain to tax.
I'm ok w/ that as long as the interest isn't deductable.
How can the interest be deducted? I though the IRS eliminated that loophole years ago. It's been maintained only for the interest on a mortgage.
(Businesses can obviously deduct interest expense, but if Bezos personally borrows money to finance personal expenditures, he can't deduct that interest; can he? I'm happy to be corrected.)
Trump got rid of the mortgage interest deduction in New York and California.
No, it's been capped, not eliminated.
These revelations help bring up the outrage of conservatives, who might be motivated to support a minimum corporate tax rate and a targeted wealth tax to avoid the accumulation of generational wealth.
I agree. Unfortunately there's no simple way to tax wealth, except when the owner dies. And even that isn't so easy when you talking real assets as opposed to financial wealth. The Republicans have redefined the estate tax as "death tax".. I guess Pro Publica wants to redefine the wealth tax as "income tax".
Both are nonsense.
Oh, it's just so complicated. Let's all throw up our hands and just let the overlords peacefully pass on their never taxed, unrealized capital gains to the next generation of the new ruling class. I'm sure it will work out for everyone.
They were also counting unrealized wealth such as stock options.
That's pretty toxic, honestly. Once you have to sell off businesses to pay the taxes on the business it destroys the very means to exist. Privately held companies can take risks and aim for sustainability in ways that publicly held companies cannot. (We should change the law regarding this, but it'll have to be fixed before trying to tax their gain in value.)
The guy who leaked this is going to have every private intelligence agency in the world looking for him.
I have to agree, there's enough known from publicly available data to have this discussion without leaking private tax returns. Unless there's a big and important revelation, it shouldn't be done.
I don't have strong feeling about wealth vs income. Whichever works best and most fairly. The rich abuse the current system a lot, but I'm sure they'd find ways to abuse any other system. So it really comes down to the specifics.
I pay taxes on my real estate - which btw, isn't even paid for yet -- so I don't see why Bezos shouldn't pay tax on property that isn't real estate -- i.e. wealth. Krugman's article about the 15% minimum global corporate income tax Yellen is pushing shows me that yet again the law is always tilted toward the rich. Any chance you can tilt it the other way is worth pursuing.
Once it already leaked if they didn't publish someone else would have. If they didn't commission it meh.
When Bezos actually builds a house on the moon, or on his secret hidden asteroid, will it be taxable?
This is really pretty easy to solve. The IRS should simply require withholding estimated taxes on unrealized gains. Same as on wages. Really what's the problem? When the stock is sold, the estimated taxes already paid are subtracted from the taxes owed on the sale.
What if you don't want to sell stock to pay your estimated taxes? Well, the only reason not to do that is because you want the current rules that give you a big tax break to not never sell stock (until you die, then maybe your heirs can escape paying to the extent there is a inheritance tax). No big tax break so no reason not to sell to pay the estimated tax.
What if your stock goes down? Well people pay too much estimated tax all the time. You get it back when you file.
What if you choose not to pay estimated tax? Well people do that all the time. They pay interest on the unpaid estimated tax (There is your "wealth" tax--really a tax on the tax owed on gains, not wealth)
What if it is an asset that is hard to value because there is no liquid market? Just do what banks have done for 30+ years--mark it to market based on a reasonable algorithm.
What if you CANT sell your illiquid asset to pay your estimated taxes? Allow the IRS to have an appropriate share of the asset to pay the estimated tax. So your farm gains 1000% (10x over the course of your life). When you die, the heirs get the farm, along with the 20% tax lien. Pretty much the same as current tax law except there are not exceptions for erasing taxes owed just because you inherit wealth.
Isn't it unfair that the government makes you pay taxes as your wealth gains? Gosh, that is what is supposed to be happening already--this just makes sure their is not compounded gains on the deferral of taxes eventually owed. So what's unfair about that?
I think the downside to "The IRS should simply require withholding estimated taxes on unrealized gains." is that, absent a security net, everyone who based their retirement plans on their 401ks immediately don't have a retirement plan.
It's not a bad plan, but maybe a min wealth level for it to kick in?
Under current law, withdrawals from a retirement account funded by a tax-deferred 401-k plan are taxed as ordinary income. Withdrawals are taken from principal and realized gains.
Sorry - I wasn't clear. If the idea for a 401k is to defer income to a time when you're theoretically in a lower bracket, taxing the value fluctuations as they occur defeats that purpose, and eliminates the point of the 401k, no? I suppose you'd have to grandfather in monies currently in 401ks.
I'd speculate that without the tax advantage of deferring the income, most people might not maintain a 401k. I'm not sure how that would affect the capital available to companies, though.
The idea for the 401(k) is not to defer income for a time when you are in a lower bracket — at least not primarily. The bigger benefit is that you defer taxes on your gains, so that the gains can be 100% reinvested. The downside: every withdrawal from an IRA/401(k) is taxes as ordinary income.
Since 401(k)s are already not subject to taxation by law until withdrawals, I don’t see that they would be affected by a theoretical tax on investment gains. The amount that can be put into 401(k) and IRA accounts is already limited to amounts that are trivial to the über-wealthy, so they could not escape such a law by using tax deferred accounts.
I think taxing unsold gains would bring up some complex problems. For one thing, private businesses, including family farms (which are much rarer than the rhetoric they generate) should be treated differently than liquid investments such as stock. Also, how do you handle fortunes such as those of Warren Buffett and Bill Gates? They have already announced their intention to donate the overwhelming portion of their wealth to charitable foundations. For that matter, do we want to allow billionaires to avoid paying taxes on most of their acquired wealth by setting up foundations? Many of them, including the Gates Foundation (which is where Buffett is donating his money) do seem to do good work, but it still seems that these people who have benefitted so much by living in the U.S. should be required to pay a higher amount in taxes.
My ideas: tax capital gains and dividends the same as ordinary income. If you want to give the non-wealthy a tax break, exclude the first X dollars of dividends/capital gains from being taxes. The federal income tax law used to exclude the first $600 in dividend income from being taxed. You could raise that to $10,000 (or more) and it would barely affect the tax bill of billionaires but give a big break to the middle-class person who has a small investment portfolio.
Add more brackets to the income tax and start taxing income over say, $1 million, at much higher rates, over 50%.
A 401K is a special case, which is treated differently from other investments. The payments into the fund are not taxed, unlike standard investments. The withdrawals from it are taxed as ordinary income, not as capital gains. There are strict limitations on how much can be invested in the fund, unlike ordinary investments. There is no reason to assume that the tax laws could not continue to allow this special case, while taxing other wealth in new ways.
Yep - we're saying the same thing - any "tax unrealized gains" plan would need to maintain the carveout for 401ks.
Uh, Pro Publica isn't arguing for a wealth tax: they compared the *difference* in these guys' wealth, compared to their taxes paid over the same period. IOW, they're proposing taxing unrealized capital gains, not wealth.
That's still pretty tricky to do, at least for privately held companies. But it's not a wealth tax.
If your wealth increases by $127 billion, how is that not income? It didn't materialize out of the air. That's $127 billion you have that was transferred to you from some place that is not you. By any rational definition, that wealth change should be seen as income.
there's a difference between wealth and income. the value of the stocks you own could hypothetically double in price tomorrow. that makes you wealthier but doesn't give you a dime more to spend until you cash in.
In years when my 401(k) goes down, do I get a refund from the IRS?
It’s not income because you can’t spend it. You can only spend it by selling the asset, in which case it becomes income and you are supposed to pay tax on it.
There aren't that many places that have a wealth tax. Norway's is .85%.
Bezos' roughly 200 billion would result in a tax payment of 1.7 billion this year if we had Norway's tax. For the period covered in the story, you'd get a nice chunk of change in taxes, but not really slow down his wealth accumulation.
This is the thing that seems unsatisfying about a wealth tax. Sure, the extra cash for the federal government would be nice, but the real issue is the massive accumulation of wealth in a few hands. A wealth tax just doesnt seem up to tackling that. Bezos might have 175 billion today instead of 200 with a small wealth tax. That doesn't really change anything.
Agreed. We should basically make it illegal to pass on hyper-large estates to heirs. Let Bezos give gifts to his heirs throughout his life (subject to income tax in real time, of course). And at the end of his life if he's got, say, $200 billion in undisposed assets, the government takes almost all of it (say, 99.5% of everything over $100 million). Such a rule wouldn't prevent the kids of rich people from being very comfortable. And again, they could receive gifts throughout daddy's life. But at least those transfers would be taxed (I'd argue for significantly higher marginal rates on very high incomes, too).
Allowing ever-intensifying concentrations of wealth at the very top is a choice, not an inevitability.
Not disagreeing with you, but I'm trying to game that out. What does the govt do with (lets say) 100b of AMZN. I suppose they could sell it on the open market over the course of (formula here) months without making a major dent in the stock price. I'm just thinking of how the SEC or Treasury would administer the fund of "assets taken from dead rich people".
Your last sentence is hugely important.
I'm not sure the government has to take custody of shares. But if an estate refuses to settle up, I guess the government can seize them and sell them. Would that have an adverse effect on the share price? Maybe. I don't believe Amazon's share price should be the government's concern. Also, if we enacted truly confiscatory rates on huge estates as I suggest, the market would likely exert pressure on living persons who own very large blocks of shares to avoid this situation (by diversifying). I don't necessarily think that's a bad thing. In any event, I wouldn't be opposed to a provision in the law to allow gigantic estate tax bills to be settled over a period of time, in orderly fashion, to avoid market turbulence.
I should add: tycoons must run into that problem already, right? I'm too lazy to google the top rate on the largest estates, but it's large enough to trigger share sales (or pre-death estate planning) under the status quo, I'm pretty sure. Rich Americans and large US corporations seem to be able to cope.
"allow gigantic estate tax bills to be settled over a period of time,"
Yeah, I think that'd have to be the way. If they're going to take the undisposed assets, they're going to have to have a ruleset for the estate to sell the positions or transfer them to the IRS.
Thanks for the discussion.
The U.S. owned a large portion of the reorganized General Motors after the recession of 2008. After GM was a going concern again, they gradually sold shares until they no longer had any ownership. I don’t see why they couldn’t do the same thing with Amazon stock. It would not be in the government’s interest to force the sale of a huge block of Amazon stock at one time. In fact, the government might end up gaining by taking ownership of stock and gradually selling shares (they could lose too, of course).
Probably more practical than my idea of just outright making being a billionaire illegal.
That's fine, but does it justify publishing private tax returns?
I'm ok with it. Tax returns arguably should be a matter of public record anyway. And I say this even while agreeing with Kevin's skepticism about the relevance of the ProPublica piece in question.
Amazing how Bezos, Buffett, etc had their tax returns leaked. But the tax returns for the person who used to be the most powerful man on the planet, the man who voters should know which foreign governments’ and/or corporations’ payrolls he’s on, still haven’t been released nor leaked. Remarkable.
Even if they had those returns, PP's argument here isn't about fraud/malfeasance, it's about structural problems. I also suspect that if they had those returns, they'd realize that publishing anything about them would interfere in approximately 283947 ongoing criminal investigations. Additionally, if push came to shove and they were getting pressured to reveal how they obtained the data (they are a NYC based organization), they wouldn't want to have, say, just blown up an SDNY case. Vance already has DT's returns and has an active investigation.
> ProPublica simply asserts that taxes as a share of wealth represent the "true" tax rate even though the United States taxes income, not wealth.
That's the most moronic thing I've seen you write so far. ProPublica asserts that taxes as a share of *WEALTH INCREASE* represent the true tax rate. Now explain to us why WEALTH INCREASE and INCOME are not the same thing.
These two are related, arguably quite closely. But they're not identical.
Situation A: Bob buys 10,000 shares of XYZ company five years ago for ten bucks per (100k). As of Thursday they're worth a million, and he thus sells them. That's clearly 900K in income. But on Friday the shares plummet in value; Bob's ok, though because he locked in his profit before the plunge.
Situation B: Bob buys 10,000 shares of XYZ company five years ago for ten bucks per (100k). As of Thursday they're worth a million. That would net him a cool 900K if he sold. But on Friday the shares plummet in value. Bob's no longer sitting on a potential profit of 900K. Would it be acceptable for the IRS to nonetheless send him a bill based on the 900K profit he never took? ("Sorry, Bob, you should have sold when you had the chance.")
Waiting for actual capital gains to occur instead of the mere accrual of paper profits may have some drawbacks, but it doesn't seem self-evidently crazy, either.
I think a cleaner, less distortionary way to go about getting at large fortunes is A) higher income taxes, especially on investment income; B) higher consumption taxes on luxury goods; C) a Georgite land tax; D) sharply higher inheritance taxes, including the elimination of stepped-up basis.
I'd add (as part of A) tax stock option salary as income including SS/Medicare/etc.