Originally published at: ProPublica investigation finds ultra-rich pay almost nothing in federal income tax | Boing Boing
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But…but… think of all they’ve contributed to the economy
Narrator: They have not contributed much.
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And US lawmakers will make sure it stays that way.
It’s what the donor class requires of them.
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I read the ProPublica piece and they are at least clear about how they did calculations. They use how much someone’s wealth increased, not income. The two are not the same, and taxes are based on income. It’s not so much a loophole as the foundation of our tax system. One that should be addressed.
That’s not to say billionaires aren’t using loopholes too, but the vast majority of what ProPublica is pointing out is not a non-payment of income taxes. For it to be income, they would have to liquidate all of their assets. Or at least the equivalent of the amount of increase in value. Instead, they liquidate, say, a hundred million one year, pay taxes on that income, and live on the cash in the bank for a year or two without paying taxes. The rest just grow. Borrowing against assets is also common. Now that IS a exploited loophole.
Tax avoidance really is a good name for it. You don’t sell something, you don’t have income, you don’t have taxes. That can be addressed. But carefully. Homeowners, family businesses, or even grandma’s CD’s are currently only taxed when sold (and not reinvested), which is the same tax “loophole” billionaires use. Seems like that shouldn’t be too hard though.
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The link goes to a Wikipedia article about the right wing group, not the propublica article as I expected. to find that article more easily, search for “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax”
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We need to change the laws on capital gains so that they are paid not just when something is sold, but also when it is used as security for a loan.
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That may be the best option. To tax wealth may require a constitutional amendment (I just learned about this). Seems the original Constitution barred direct taxes. Indirect, such as tariffs, were permitted. But no directly assessed taxes. The 16th Amendment changed that to permit income taxes. “The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.”
Note how it specifies income, which would seem to preclude wealth. But interpreting loans as income under some circumstances makes sense. Just need to be careful to distinguish from a mortgage. Otherwise you could either create a loophole and/or end up taxing people that refinance their home or other unintended consequences.
Edit: Most tax systems are based on transactions. Goods/services/assets/cash changing hands is a definable event with a time and value. Wealth is often fuzzy. It’s an estimate of what a transaction could be. But nobody know the value of that Picasso or unique McNugget (to give a couple extreme examples) until it is sold. So it could become fiendishly difficult to tax people, especially the wealthy, on their wealth because everyone with the means will appeal any decision forever. Which might be why local property taxes use conservative values for a house.
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Well you would only tax refinancers on the capital gains that were being used as security. So only to the extant that they were getting a cash-out refi for more than what they bought the house for. Which does not seem like a problem to me.
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In the years since the Panama Papers and other leaks, I haven’t noticed any action cracking down on offshore wealth/income hiding.
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But that’s money that still has to be paid back. So you might get $10k out, pay 25% in taxes, but still owe the $10k. The IRS says you don’t owe taxes now, because it’s owed money. Trying to change it will hit middle income folks harder than rich. Which would create a common cause to fight such a tax change.
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Taxing wealth increase is a bit tricky. Musk owns a lot of Tesla stock. One year their value increase a lot and he has to pay a lot in taxes. Next year the bubble burst and the value of them drop. Does he get the taxes back?
There is also going to be a loophole if the value of the stocks is counted on a special day, say December 31:st as people will use a lot of tricks to make sure the price that particular day closes at low value.
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Trump ran on “draining the swap” and “fixing loop-holes” which had a lot of support of republican / swing voters, only in practice he did the opposite.
Sometimes I wonder if rather than pushing progressive tax plans, democrats could instead push for fixing loop-holes that allow the top 1% to pay way less in taxes. That might foster more bi-partisan support (at least in terms of voters). Progressive tax plans could be a “progressive enhancement” once all the loop-holes in our current taxing scheme are fixed. Related, it’s kind of bullshit rich people can put their money in trusts to prevent the government from taking a portion of their assets when they pass, but blue collar folks often end up giving up a % back to the government.
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And that would discourage people from trying to use their houses as a piggybank. It used to be that “tapping equity” was NOT considered a normal thing to do. Paying down one’s mortgage is a form of retirement savings. For most people is was their primary form of retirement savings. Perhaps making it more difficult for people to borrow their way to the poor house would be a good thing.
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I’m glad I’m not the only person who raised an eyebrow at the suggestion these people should have been paying taxes on unrealized gains—because that’s just not how the American tax system works. Bezos still paid nearly 25 percent of his actual income, but that’s probably much less than if he had paid taxes on that amount as W-2 income as opposed to, say, capital gains.
News stories proclaiming Bezos or Musk or Buffett is “worth” some amount of money don’t tell the whole story, because that value is theoretical.
Or that Doge NFT, which is So Hot Right Now but maybe not next year.
The federal estate tax exemption is something like $11 million, and the lowest state estate tax exemption is $1 million. It’s unlikely any blue collar worker will ever have to pay the estate tax.
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Interesting part about the source data used for the ProPublica piece:
“…motives and identity of the source who has provided this data to ProPublica. We live in an age in which people with access to information can copy it with the click of a mouse and transmit it in a variety of ways to news organizations. Many years ago, ProPublica and other news organizations set up secure systems that allow whistleblowers to transmit information to us without revealing their identity.”
“We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests. In particular, a number of government agencies were compromised last year by what the U.S. has said were Russian hackers who exploited vulnerabilities in software sold by SolarWinds, a Texas-based information technology company. We do note, however, that the Treasury Department’s inspector general for tax administration wrote in December that, “At this time, there is no evidence that any taxpayer information was exposed” in the SolarWinds hack.” -Why We Are Publishing the Tax Secrets of the .001%
Also interesting that tax info about trump wasn’t leaked as well. Clearly the source has access.
The SolarWinds hack is a mess.
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Yet, nothing changes, and they go about polluting / raping / ransacking the planet and its citizens.
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One conservative argument is “they are the job creators” but even if that were true (and I’m not sure their individual or corporate wealth creates more employment than smaller local businesses as a whole), I don’t see how that matters-- these guys are not going to give up and retire if they are taxed at a slightly higher rate-- in fact when they were less wealthy they were taxed at a higher rate and kept pushing for more wealth.
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