An investigation conducted by ProPublica revealed that the very wealthiest Americans, including Amazon founder Jeff Bezos, Warren Buffet, Tesla CEO Elon Musk, Microsoft co-founder Bill Gates, Facebook’s Mark Zuckerberg and right-wing media mogul Rupert Murdoch pay very little in federal taxes in comparison to their massive wealth.
ProPublica published their findings after obtaining a mountain of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. An example of the valuable information found in these leaked tax documents is seen in Amazon’s Jeff Bezos’ tax returns for 2007 and 2011, where the then-multibillionaire, and now the world’s richest man, paid not one red cent in income taxes.
Between The Lines’ Scott Harris spoke with Matthew Gardner, senior fellow with the Institute on Taxation and Economic Policy, who discusses the significance of what the ProPublica investigation revealed and the urgent need to reform the U.S. tax code to create a fair and equitable system that no longer rewards obscene wealth while penalizing working families.
MATTHEW GARDNER: To me, there are two really important findings in this report. One is that if you look at a very small number of the best-off Americans, at their effective tax rates in sort of a traditional way, take their taxes paid as a share of their AGI, their income reported on their income tax forms — they’re paying remarkably low tax rates. These guys found an effective tax rate of 15 percent of income for the 25 wealthiest Americans over a five-year period between 2014 and 2018. So it’s not cherry-picking. It’s not like a single year. This is a pretty coherent multi-year look at the very best-off Americans. And it shows that they’re paying a tax rate on their income less than half what you would expect from the top statutory rate that was in effect during this time.
The second headline — and I think it’s much more important than the first in the sense that it’s telling us things we didn’t really know. When you try to evaluate the taxes paid by the best-off Americans measured against an alternative much broader measure of what ProPublica calls the true income of these families, the tax rate these folks are paying is incredibly low: one, two percent. What’s meant by true income for purposes of this article is basically, what they’re trying to do is evaluate the growth of people’s wealth. So, you know, if you have a stock portfolio and it goes up from $1 million to $2 million over the course of a year, because the stock market has gone way up, everything you own is now worth twice as much, that is meaningfully income and should be thought of as part of a much broader measure of income. So that’s the second headline.
So by either measure, what we see is that this very small, very privileged group of Americans are paying way less than you would think based on what we know about our tax system and how it’s supposed to work.
SCOTT HARRIS: President Biden has proposed some fixes to our system. From your perspective is Biden going far enough with his proposal? It still has to struggle through the filibuster in the Senate to go anywhere. But do tell us your thoughts on what Biden’s proposing and in a perfect world where you’d like to see the reforms go.
MATTHEW GARDNER: As you know, as I’m sure, you know, Biden has drawn this line in the sand at $400,000 of income below which he will not, he says, impose taxes on anybody and above what he will. In the case of capital gains, he’s gone even further and said, “If and only if your taxable income is over $1 million, then we’re going to get rid of this special, lower tax rate for capital gains and dividends. And again, it’s only on taxable income over $1 million that is these capital gains. If that’s true, then you’re going to be subject to the same top tax rate, which in Biden’s plan would be 39.6 percent that would apply to other income salary and wages. So we’d have complete equality at the very high end, between in theory between the taxation of wealth and work. That is a big deal.
Is it anywhere near what I would like to see? No, I think the straightforward solution on capital gains should be simply stripping away all the capital gains preferences: Treating wealth like work, taxing capital gains under the exact same rate structure that’s applied to wages and all the other forms of income that middle- and low-income families enjoyed here. That’s not what he’s doing whether it’s on the personal income tax side or on the corporate income tax side where the president has proposed are, really to my mind, revolutionary and important and good set of corporate tax reforms. What we’re seeing from this administration is a set of tax reforms that are designed to get both of the things I told you my organization cares about — sustainability and fairness. We’re going to get a lot more tax revenue that we’ve been needing for decades, systematically underfunded important services, and we’re going to get it and about as fair a way as you can imagine, by focusing on the very best off Americans. This is such a sea level change from what any administration in the past quarter-century has meaningfully pursued.
This is really the first time I can remember when I’ve seen a proposal that really trying to change the narrative. It’s trying to change the way we think about the role of taxes and about how they ought to look and it’s defending taxes on their face. It is a refreshing change. So yeah, I would love to see a more, all-inclusive approach to taxing wealth like work, to taxing capital gains in the same way as wages, again, just to focus on that one narrow example. And because such a huge fraction of all capital gains is going to these folks — over a million dollars to begin with — you know, in money terms, this is a really big deal. It goes a long way — not all the way, not even close to all the way — but a long way towards mitigating one of the worst sources of inequity in our tax code.
For more information on The Institute on Taxation and Economic Policy, visit ITEP.org.
