Earlier this year, in “The Wealth Tax And Our Shared Insanity,” I suggested that anyone worth $1 billion or more who hasn’t figured out how to avoid paying most taxes has “failed as a rich person.”
Although that assessment was meant to elicit a chuckle, it wasn’t a joke. It’s mostly true. If you’re rich and you’re paying taxes, you’re derelict in your duties as a rich person. That, even as you make good on your obligation to society, where you, like everyone else, enjoy all manner of perks ostensibly funded by taxpayers (let’s leave aside the fact that, strictly speaking, the US government doesn’t actually “need” anyone’s tax dollars to fund spending).
Tax avoidance by the rich is like most other contentious issues in at least one regard: The public periodically gets a glimpse of the unvarnished truth, but nobody really cares because everyone knows nobody is going to do anything about it.
Earlier this year, for example, a new study suggested the richest Americans “hide” 20% of their wealth from the IRS, likely “robbing” the government of some $175 billion annually. Scarcely anyone cared. If anything, it felt like the number should be higher. Other research suggests it is.
It’s with the above in mind that I read ProPublica’s Tuesday exposé, in which Jesse Eisinger, Jeff Ernsthausen and Paul Kiel detailed what they billed as “revelations” from “a vast cache of IRS information showing how billionaires like Jeff Bezos, Elon Musk and Warren Buffett pay little in income tax compared to their massive wealth.” “Sometimes,” the article’s suspenseful subtitle read, they “even [pay] nothing.”
Forgive me for channeling Steve Martin’s Neal Page: “Do you think so?”
I like to bury the lede in almost everything I write. Contrary to popular belief, I don’t do that to be annoying. If you follow journalistic protocol, you end up telling the entire story in the first two paragraphs. Below, for example, are the first two paragraphs from the ProPublica piece:
In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes.
Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row.
Why would you read any further? What else do you need to know? In fact, all but the most credulous Americans probably stopped reading after the article’s title, which trumpeted: “Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.” There’s the whole story, right there. IRS documents show rich people don’t pay what they “should.” Next you’ll tell me politicians lie.
I didn’t want to pan ProPublica’s work. I really, really didn’t. They’re clearly quite proud of it and I’m sure Democrats (and especially Progressives) will pounce all over it to promote various versions of a wealth tax. But the article is a laughable collection of “no sh*t Sherlock” passages, including this one:
Taken together, [a vast trove of IRS data] 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.
And this one:
Many Americans live paycheck to paycheck, amassing little wealth and paying the federal government a percentage of their income that rises if they earn more. The confidential tax records obtained by ProPublica show that the ultra-rich effectively sidestep this system.
Nobody needed any “confidential tax records” to come to the conclusion that the super-rich “sidestep” the tax system. That’s part of being super-rich. I’m reminded of the “It’s what you do” GEICO commercials: “If you’re rich, you avoid paying taxes. It’s what you do.” Now that you mention it, that’s especially apt given that Warren Buffett owns GEICO.
The figure below (adapted from ProPublica’s piece) is simple enough.
The red bars are useless. And that’s on purpose. The fact that they’re essentially invisible is a testament to the notion that the richest Americans pay basically no taxes, at least when compared to their wealth gains. For example, on ProPublica’s math, Warren Buffett’s wealth grew by more than $23 billion from 2014 to 2018. He paid a total of $23.7 million (with an “m”) in taxes. His effective tax rate, according to ProPublica, was thus 0.10%.
You’re reminded that the world’s richest 20 people saw their net worth balloon by a half-trillion in 2020 while the world suffered through the pandemic (figure below).
ProPublica refused to say how it got the data for the exposé. “[It] was given to us in raw form, with no conditions or conclusions,” the article said, adding that reporters “spent months processing and analyzing the material to transform it into a usable database.”
Poor guys (and gals). They should have just perused the article linked here at the outset. The richer you are, the better you “should” be at avoiding taxes. It’s part of the (mostly legal) game.
I’ll recycle some of the language I used back in March. We argue vociferously (as a society) about whether it’s “fair” to say that wealthy people “deserve” to be hit with a punitive tax. While there’s no way to answer that definitively when the discussion is couched in normative terms, there is a way to answer it definitively when you think about it from the perspective of “creative” accounting. Again: If you’re wealthy, and you’re still paying taxes, then yes, you “deserve” to be taxed at an even higher rate. Why? Because you apparently aren’t smart enough to have figured out the one ironclad rule of being rich — namely, you don’t ever pay any taxes. Just ask Donald Trump.
Although that assessment was exaggerated for comedic effect, the bottom line is always the same. Most wealthy people aren’t paying anywhere near their “fair share,” and everyone knows it. So yes, obviously, they “should” be paying more. If that’s the debate, it’s not clear it’s worth having.
Enormous fortunes tend to multiply exponentially, and the larger they are, the more true that tends to be. When you consider offshore accounts, loopholes, and business structures that allow for legal tax avoidance, the pittance the government might be able to extract in the form of a wealth tax is meaningless — a rounding error for anyone who ends up paying it, and just like all other attempts to tax the rich, they’ll figure out a way around it, likely via some kind of offset.
In closing, I’d just note that the reason Trump’s infamous $750 payment in 2017 garnered as much attention as it did wasn’t because Americans felt collectively shocked and aggrieved that Trump wasn’t paying more. Rather, it was news because of the lengths he went to to avoid releasing his returns. The public was arguably more interested in how he might react to the disclosure (by The New York Times) than to the figures themselves. The surprise would have been if Trump paid anything close to what one might describe as “fair.”
In a written response to ProPublica, Buffett said (among other things) that after his death, “99.5% of what I have will go to some combination of taxes and disbursements to various philanthropies.” He didn’t dispute the article’s contention of his “true” tax rate. “Huge dynastic wealth is not desirable for our society,” he remarked.