Reaction & Response | Uber-Rich Pay Little in Taxes

The wealthiest U.S. citizens pay very little in federal taxes each year, according to a report published by ProPublica on June 8.

ProPublica analyzed Internal Revenue Service data it obtained for the wealthiest people in the U.S. over 15 years, discovering that their annual tax bill was far less than the average middle-class household and that quite a few – including Jeff Bezos, Elon Musk, Michael Bloomberg and George Soros – had managed to have $0 tax liability some years.

The approach taken by the report’s authors was to compare the actual taxes paid by the 25 wealthiest citizens in a given year according to the IRS data with their estimated net worth based on calculations by Forbes.

Over a four-year period (2014 to 2018), these individuals increased their net worth by $401 billion and paid $13.6 billion in federal income tax – a 3.4% effective tax rate.

Warren Buffett’s effective tax rate was the lowest, estimated at 0.1%, followed by Jeff Bezos (0.98%), Michael Bloomberg (1.3%) and Elon Musk (3.27%).

Comparing the wealth growth and taxes paid by Bezos to a typical U.S. household from 2006 to 2018, ProPublica found a stark contrast.

The report calculates that Bezos saw his net worth increase by $127 billion and that he paid $1.4 billion in taxes during this time period while the average household saw an $89,000 net worth increase and paid $142,000 in taxes.

ProPublica did not disclose the identity of the person who provided the IRS data, noting that it came from an anonymous source, that it was not solicited by ProPublica and that it “was given to us in raw form, with no conditions or conclusions.”

In a column explaining why they were releasing the information, ProPublica stated, “We are doing so – quite selectively and carefully – because we believe it serves the public interest in fundamental ways, allowing readers to see patterns that were until now hidden.”

IRS Commissioner Charles Rettig stated that the agency is looking into how the information was obtained. It is a felony for a U.S. employee to leak tax return information.

After completing their analysis, the report’s authors summarized their findings as follows: “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.”

I reached out to several individuals, asking them to provide a statement regarding the report’s findings and the general topic of taxation and wealth. Here is what they said:

“Living in a nation where some of the richest chief executives of some of the world’s largest corporations pay no taxes while working-class people pay significant portions of their income in taxes is not only unjust but from an historical perspective, suicidal,” said Wayne Flynt, Distinguished University Professor Emeritus at Auburn University and author of 16 books that focus on 20th century Southern U.S. politics, poverty and culture.

“All one has to do is follow closely the growing anger and increasing violence in the streets to know that if we do not address economic inequality in churches and legislatures, we will address it in public alienation, family dysfunction and political/social unrest,” he said. “History from the times of Greece and Rome forward make the point so clearly that it is amazing otherwise rational people don’t understand it.”

“ProPublica’s report about tax avoidance by the wealthiest people in the United States is a reminder of how important it is to keep working to build state and federal tax systems that are fair, adequate and transparent,” said Carol Gundlach, policy analyst for taxes and budgets at Alabama Arise.

“Many parts of the federal tax code are upside down, giving tax breaks that allow rich individuals and big corporations to evade taxes while requiring people with low and middle incomes to pay more to make up the difference,” she said. “And Alabama’s tax system is even more regressive, with families at low and middle incomes on average paying twice the share of their income in state and local taxes that people in the top 1% do.

“The Biden administration’s proposal to tax unrealized capital gains when wealthy individuals pass away is a good first step toward modernizing the federal tax code and ensuring that the wealthy and well-connected actually pay their fair share,” Gundlach said. “At the state level, the Alabama Legislature should strengthen our tax system by eliminating the state grocery tax and ending loopholes – like the state deduction for federal income taxes – that provide massive tax giveaways to wealthy people and large corporations at the expense of funding for education, public health and other vital services.”

“Tax havens are the 21st-century manifestation of the rich man’s barns in Jesus’ parable. They are built for the 1% of the 1%, and only for them,” said Chris Sanders, a practicing employment lawyer who is active in law, labor, faith and politics.

“But they are stupid-rich, blinded by their billions to the rest of us. Dollars spendable by the dozens and hundreds, amounts that keep the rest of us alive, are meaningless to them,” he said. “Then they tear these havens down, to hold even bigger hoards. In American tax policy, ‘legal’ is far removed from ‘moral.’ Their souls are required of them, now.”

“Tax policy has two key functions,” said Ralph Martire, executive director of the Center for Tax and Budget Accountability and Arthur Rubloff Professor of Public Policy at Roosevelt University. “First, it has to generate sufficient revenue to address core societal needs by adequately funding essential public services and goods, such as infrastructure, education, health care, environmental protection, social services and public safety. Second, it should distribute the tax burden fairly among taxpayers with very different levels of wealth and income.

“The ProPublica report highlights how poorly designed current federal tax policy is to perform either of these functions in the modern economy because of its focus on earned income in the form of wages as the primary means of generating tax revenue, rather than wealth that accumulates from the growth in value of various investments over time. This focus simply fails to respond to how most wealth is created in modern America,” he said.

“For instance, according to ProPublica, in 2018 the wealthiest 25 individuals in America reported earning $158 million in wages, which may sound like a lot, but in fact represented just 1.1 percent of all the income they reported that year,” Martire said. “Because it fails to respond to how the vast majority of income is actually created in the modern economy, federal tax policy neither generates adequate revenue to invest adequate amounts in core services, nor imposes tax burden fairly across taxpayers who have significantly different levels of annual earnings and wealth accretion when all sources of income are considered.”