Working-class Americans pay nearly a quarter of their wealth to the taxman every year, but for the richest 25 people in the country, it’s a paltry 3.4%. And the real kicker? Billionaires don’t even have to cheat on their taxes to whittle their IRS bills down to this level—it’s all legal.
June 9, 2021 12:53 PM CDT
A bombshell report from ProPublica released Tuesday confirmed in stunning detail what everyone has long suspected: The United States has two tax systems—one for the wealthy and one for the rest of us.
The nonprofit investigative journalism group announced an anonymous source had passed it a vast trove of IRS data from 15 years of tax returns from thousands of the country’s wealthiest individuals. After an extensive review of the information, the authors of Tuesday’s report say it “demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.”
The damning exposé is filled with examples of how some of the top billionaires have gamed the tax regime and made out like bandits while working people had to pay up. Comparing the Forbes estimate of billionaires’ wealth expansion with the actual amount they paid in taxes, ProPublica calculated what it calls their “true tax rate.”
Amazon titan Jeff Bezos, for instance, saw his wealth balloon by $120 billion during the years 2006 to 2018, yet his federal taxes were only 1.09% of that bonanza. In 2011, accounting wizardry managed to get his official income so low that he qualified for a $4,000 tax credit on his children, which was a benefit intended to help poor and working families survive.
Along with others—like Tesla’s Elon Musk, hedge fund boss George Soros, media tycoon Michael Bloomberg, and investor Carl Icahn—he managed to pay no federal income taxes at all in some years.
Perhaps none made out better than Warren Buffett, the Berkshire Hathaway stock guru known as the “Oracle of Omaha.” Buffett regularly advocates higher taxation on the wealthy and complains of how it’s unfair that his secretary pays more in taxes than he does. But the appalling scale of the difference is now apparent.
Between 2014 and 2018, Forbes estimated Buffet’s hoard of riches grew by $24.3 billion, yet he paid the IRS only $23.7 million in taxes during those same years. He, therefore, paid only one dime for every $100 he added to his stockpile of money—a true tax rate of just 0.1%.
A rigged system
While it is easy and sensational to paint individual billionaires as villains (and it’s true, they often are), the real problem highlighted by the secret IRS data is that the entire taxation system is rigged in favor of the rich. They skate by, paying next to nothing relative to their growing wealth, while workers see their paychecks to fund things like bloated military budgets. Meanwhile, the country’s infrastructure crumbles, public services wither, and Republicans use Social Security, and Medicare bankruptcy scares to justify cuts.
The United States adheres to a tax system in which wages earned on a paycheck are considered taxable income, but the explosive wealth gains of stocks and other assets aren’t considered income until the day they are sold.
This allows billionaires to pay themselves “salaries” ranging from the middle-income take-home pay of $80,000 for Bezos all the way down to the $1-a-year that Apple’s Steve Jobs and Facebook’s Mark Zuckerberg took. Such publicity stunts (which were copied by President Donald Trump when he was in office) distract from the real sources of wealth for the super-rich.
The reality is that wages have always been taxed at a high rate in comparison to other sources of income. That’s why the 25 top billionaires arranged to only “earn” $158 million on their official paychecks in 2018. The other 98.9% of their income that year came from stock dividends and the sale of shares, bonds, and other investments. Not coincidentally, all those things are taxed at much lower rates than the pay that comes from actual work.
Merely holding onto stocks and other financial instruments is how the rich use money to beget money. Between the time they buy shares or other assets and the time they sell them, the wealthy borrow against those assets, financing their lifestyle from gains that have never been taxed or only taxed at low rates. They even deduct the costs of their borrowing (things like interest and fees) to save more on taxes.
And then, when the day comes that they finally do sell off their assets and cash in, the government taxes those gains at a minuscule percentage compared to the taxes charged on paychecks.
Just like extracting profit from workers by paying them less than the value they create on the job, this rigged system is a form of class struggle in practice.
And the deeper you dig, the worse it gets. Earlier ProPublica investigations documented how Republican cuts to tax enforcement budgets pushed the IRS to spend more time auditing and chasing down the poor and workers and less time trying to catch corporate and billionaire tax cheats.
Meanwhile, Congress has continually dropped taxes on the rich for decades. A combination of corporate lobbying, hefty political campaign contributions, and billionaires themselves running for office—think Trump and Bloomberg—have pushed the tax debate in favor of the top .001%.
“It’s amazing how much we’ve cut taxes even since 1997—on dividends, the estate tax threshold, capital gains, and the top rate,” Owen Zidar, a Princeton University economist, told the New York Times recently. “All of those things have become more favorable to the top of the distribution.” The decline in the corporate tax rate—effectively a tax reduction for shareholders—has also been important.”
Tax the rich, for real this time
The Biden administration has made some modest tax proposals that would move toward addressing the problem. At various times on the campaign trail and during his time in office, the president pushed for raising the corporate income tax rate to 28% and boosting the top income tax bracket marginal rate to 39.6%. However, as discussed, corporate income and paycheck salaries are not the chief sources of wealth for the super-rich.
Biden’s plan to hike capital gains taxes to be in line with the tax on wages would be a much bigger step toward combatting the kind of tax inequality exposed by ProPublica. Making capital gains subject to the same taxes as wages rather than their current 20% rate would hit the billionaires, but again, only when they finally sell their shares or assets. It won’t address the buy-and-borrow model in which the wealthy use assets’ paper value as collateral to access more and more credit.
Barring outright expropriation, perhaps the next best way to take on the billionaires’ empires of riches is through direct wealth taxes, such as those proposed by Sen. Elizabeth Warren, Sen. Bernie Sanders, Rep. Pramila Jayapal, and other progressives in Congress.
Their “Ultra-Millionaire Tax Act” would place a 2% annual tax on households worth between $50 million and a billion and an extra 1% surtax on those over a billion. The bill would also beef up IRS enforcement against the super-rich and set minimum audit rates for them. Warren estimates the measures could raise $3 trillion over ten years—money that the U.S. could spend on priorities for working people rather than the rich.
With the Senate split 50-50 and Democratic Party centrists like Sen. Joe Manchin are sabotaging even the Biden administration’s modest agenda. However, the Ultra-Millionaire Tax Act is going nowhere in the current Congress. Shifting the balance of power in 2022 and 2024 will be essential.
The ProPublica revelations are ammunition for battles ahead; they have exposed the secrets of the most powerful members of the capitalist class in this country. The information now available—and the data still to come—must become the stuff of memes, articles, and education campaigns that can reach millions. As the authors of the study remind us, Warren Buffett himself described what’s at stake: “There’s been class warfare going on for 20 years, and my class has won.”
As with all op-eds published by People’s World, this article reflects the opinions of its author.
Similar Recent Posts by this Author:
- PULLING BACK FROM THE BRINK ?
- G7 tax deal won’t challenge corporate power
- LABOUR LICKSPITTLE COUNCILS LUMP TAX ON THE MOST LIKELY
- VACCINATION IS HALF THE STORY – ANTIBODY IMMUNITY IS THE OTHER THWARTED BY LOCKDOWN
- Neoliberalism Was Born in Chile; Neoliberalism Will Die in Chile: the Tenth Newsletter (2021)
- VACCINE CLOTS GET £120,000 DAMAGES-TAX FREE- UPDATED