The American tax system is like a Rube Goldberg Machine that produces huge windfalls for the super wealthy, while squeezing working people, who lack the prerogatives open only to the wealthy to avoid taxes.
by Jesse Eisinger, Jeff Ernsthausen and Paul Kiel
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.
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,...
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.
BY NAOMI JAGODA
Biden's American Families Plan proposes raising taxes on high-income Americans in several ways, including by increasing the top rate on ordinary income from 37 percent to 39.6 percent, taxing capital gains at the same rate as ordinary income for the highest-income taxpayers and taxing capital gains at death.
During a Senate Finance Committee hearing Tuesday, Committee Chairman Ron Wyden (D-Ore.) said the ProPublica report found that "the country's wealthiest, who profited immensely during the pandemic, have not been paying their fair share." Wyden is working on a proposal to tax the investment gains of wealthy Americans annually, rather than just when the investments are sold.
Wyden also said that the IRS needs to investigate how the taxpayer data was disclosed.
Biden’s American Families Plan is an improvement, but it doesn’t go far enough. We need new ways to tax wealth.
