<Unmasking the Reality of Tax Rates for America's Wealthiest>
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“Class warfare has been ongoing for the past two decades, and my class has emerged victorious.” — Warren Buffett
Recently, ProPublica published an eye-opening investigation that indicates the wealthiest 25 Americans pay virtually no income tax relative to their substantial net worth. This includes well-known figures like Warren Buffett, Bill Gates, Rupert Murdoch, and Mark Zuckerberg.
This revelation is particularly striking considering that leaking tax returns is a federal offense.
ProPublica, a nonprofit news organization focused on exposing power abuses, claims to have obtained the data from a confidential source, likely someone at the IRS disillusioned by the elite's influence over the system. The leak features the tax returns of numerous affluent individuals over a fifteen-year span. According to ProPublica, this report shatters the myth that everyone contributes their fair share in taxes, particularly that the wealthiest citizens pay the most.
The Treasury Department is currently probing the leak, but one might argue that if America truly functioned as a democracy, the priority would be investigating the tax evaders rather than targeting a whistleblower advocating for transparency.
Let’s examine the details of this leak to understand how the nation’s richest individuals skirt their tax responsibilities.
The Biggest Beneficiaries
The report uncovers alarming statistics:
- Jeff Bezos paid $0.00 in federal income taxes in both 2007 and 2011.
- Elon Musk also paid $0.00 in federal income taxes in 2018.
- Carl Icahn reported $0.00 in federal income taxes on two occasions.
- George Soros managed to pay $0.00 in federal income tax for three consecutive years.
Take a moment to absorb that.
Looking at Bezos in 2007, he reported an income of $46 million while simultaneously increasing his net worth by $3.8 billion. He offset all his taxable income with “losses” from various investments, dubious interest expenses, and other vague categories of deductions.
In 2011, he repeated this strategy, claiming such low earnings that he qualified for a $4,000 child tax credit.
Here's a comparison of Jeff's tax situation against that of an average American household:
It certainly doesn’t seem equitable, does it?
That's because it is not.
In the United States, the highest federal income tax bracket is 37% for individuals earning over $628,300. However, the 25 wealthiest Americans only contributed an average tax rate of 13.3%, which is even lower than the tax rate for a single worker earning $45,000 annually when accounting for withheld Medicare and Social Security taxes.
How Is This Even Feasible?
The secret lies in their avoidance of wage income.
Salaries are subject to taxation, which is why notable figures like Steve Jobs, Larry Ellison, Larry Page, and Mark Zuckerberg opted to take a mere $1 as their annual salary from their companies.
The wealthy are averse to income taxes.
Instead, they indulge in extravagant lifestyles funded through three primary alternative methods:
1. Extractive Income
Rather than drawing large salaries, billionaires often receive their earnings as capital gains and investment dividends, which are typically taxed at a lower rate of 20%. It’s frustrating to realize that the richest individuals actually benefit from a tax discount on their passive income, rather than facing a higher tax burden on non-active income. This discrepancy becomes clearer when one considers that the elite influence the creation and enforcement of tax laws.
2. Mega Debt
The ultra-wealthy maintain their fortunes by refraining from selling their stocks. Most own shares in companies that don’t distribute dividends. It’s noteworthy that many major corporations, including Microsoft, Google, and Amazon, have adopted the Berkshire Hathaway model of not paying dividends.
Consider this:
- If the wealthy took their earnings as income, they would owe 37%.
- If they sold stock, they would incur a 20% capital gains tax.
- If they received dividends, they would also pay 20%.
Consequently, they choose to borrow instead. They take advantage of low-interest loans secured against their stockholdings.
For example, Larry Ellison has a credit line backed by $10 billion in shares. Elon Musk used $57 billion in Tesla shares as collateral for personal loans last year. Carl Icahn maintained a $1.2 billion mortgage that allowed him to deduct interest expenses.
Rather than cashing out their stocks and contributing taxes, they perpetually carry debt, letting inflation work in their favor while the general populace bears the burden.
3. Faux Charity
The wealthiest individuals are also fond of making “charitable donations.” However, instead of selling their stocks, paying taxes, and then donating the remainder, they contribute stock directly to their own foundations. This allows them to avoid taxation while still benefiting from significant tax deductions, all while retaining control over their wealth through mere paperwork.
Fair Contribution
Defenders of billionaires argue that they are fulfilling their tax obligations, a claim that ProPublica’s data contradicts.
Their analysis of tax records for the 25 richest Americans illustrates the severe inequities present in the system:
By the end of 2018, these individuals held a combined wealth of $1.1 trillion. For context, it would take approximately 14.3 million average American workers to amass the same amount.
Their total federal tax bill for 2018 was $1.9 billion, while ordinary wage earners owed $143 billion.
Read that again.
And again.
The wealthiest individuals in American history are contributing less than 1/75th of their actual fair share.
The Implications of Tax Avoidance
Billionaires like Buffett, Bloomberg, and Icahn have responded to the ProPublica leak by claiming they paid all legally required taxes. While true, they fail to acknowledge that their class has manipulated the tax system to their advantage.
Tax avoidance at the scale of Bezos poses significant issues for three primary reasons:
1. Legal Evasion
While they may not technically break the law, they certainly disregard its intent. The distinction between tax avoidance and tax evasion is often blurred, especially when the wealthiest create loopholes and employ a multitude of lobbyists.
2. Undermining Democratic Responsibility
Most people believe that those who benefit more should contribute more. Higher prices for premium services reflect this principle. If someone profits immensely from the labor of others, they should be expected to pay a much higher tax rate than, say, essential workers.
3. Distorting Competitive Fairness
The most troubling aspect of tax avoidance is that it grants billionaires a significant advantage over smaller businesses. If one party enjoys a 20-30% cost advantage on every transaction, it’s clear who will dominate the market.
This imbalance is why companies like Amazon and Uber outcompete smaller firms.
To ensure a fair marketplace, we require a global minimum corporate tax rate, alongside a personal tax rate, wealth taxes, and stringent inheritance taxes. A progressive tax system should impose heavy taxes on passive income as well.
If we fail to act, the concentration of wealth will continue to favor billionaires, leaving the rest of us without solid ground to stand on.
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PS: I encourage everyone to keep up with ProPublica’s Secret IRS Files, as they continually expose these significant financial injustices.