WASHINGTON – A jaw-dropping report from ProPublica detailing how America’s richest men avoided paying taxes has fueled Congress, even among some Republicans, in changing tax laws to ensure people like Jeff Bezos and Warren Buffett pay their fair share.
For Republicans, the idea that the tax law should give investment preferential treatment was sacrosanct, ostensibly to encourage economic growth and innovation that could benefit everyone. But this week’s news showed how the treatment of stocks, bonds, real estate, and huge loans withdrawn from those assets drove the tax bills of the richest Americans down.
“My intention as the author of the 2017 tax reform was not that multibillionaires shouldn’t pay taxes,” said Senator Patrick J. Toomey, Republican from Pennsylvania who helped draft the bill that cut taxes by more than $ 1 trillion . “I believe dividends and capital gains should be taxed lower, but certainly not zero.”
Democrats, particularly in the Senate, have worked hard on a tax package to fund President Biden’s costly domestic agenda, including a major infrastructure plan, measures on climate change, and the expansion of education and health services. Much of that work – which was vehemently opposed by Republicans – has focused on reclaiming corporate tax cuts provided by the Tax Act of 2017, the signature achievement of President Donald J. Trump, and preventing multinational corporations from overseas taxable profits relocate.
The ProPublica report analyzed a plethora of documents detailing the tax bills of well-known names like Mr. Bezos, Mr. Buffett, Elon Musk, and Michael Bloomberg, and showed that the country’s richest executives paid only a fraction of their wealth in taxes – $ 13.6 billion in federal income taxes over a period when their collective net worth rose by $ 401 billion, according to a table from Forbes.
The United States taxes people on their income and investment returns, not on their net worth. But ProPublica calculated that after all the fancy bookkeeping, the 25 richest Americans were paying a so-called “true tax rate” – the proportion of their total wealth in taxes – of just 3.4 percent. That’s a tiny fraction of the amount wealthy Americans are supposed to pay in income taxes – 37 percent – or the 20 percent who pay most on income from property sales.
In some years they paid no taxes at all.
In 2007, Mr. Bezos, the CEO of Amazon and the richest man in the world, paid no federal income taxes even when his company’s share price doubled. Four years later, as his net worth grew to $ 18 billion, Mr Bezos reported losses and even claimed – and received – a tax credit of $ 4,000 for caring for his children, according to ProPublica, whose report was based on leaked data from the IRS
“Americans knew billionaires played these kinds of games,” said Oregon Senator Ron Wyden, chairman of the finance committee on taxation, on Wednesday. “What mattered yesterday was that everything about the wealthiest people in America was detailed.”
He said he was working on a number of proposals to resolve the problem, possibly including a return to some sort of minimum tax, and would soon come up with specific proposals.
“Billionaires will have to pay their fair share every year,” he said.
The ProPublica revelations came on a widely understood subject: that the super-rich make virtually all of their wealth from the ever-increasing value of their wealth, especially in the stock market, and that the sale of those assets is taxed less than normal income from a paycheck Point that Mr. Buffett makes a lot of.
But the analysis also revealed a less recognized strategy used by the super-rich: borrowing huge amounts and using their wealth as collateral. It enables them to avoid selling their assets and taxes and even write off some borrowing costs. In this way, Mr. Bezos and Mr. Buffett were able to show annual income losses even though their fortunes grew by billions of dollars.
These kind of tricks, which are perfectly legal under tax law, would be unaffected by some of Mr Biden’s proposals, such as increasing the top tax rate from 37 to 39.6 percent and taxing capital gains at income tax rates for individuals who earn more than $ 1 million a year. Such proposals are still based on paychecks, which the super-rich largely eschew, and on selling assets they normally avoid.
The details of the report could support the cause of a wealth tax driven by Senator Elizabeth Warren, Democrat of Massachusetts, which proposed a 2 percent tax on a person’s net worth over $ 50 million – including the value of stocks , Houses, boats, and everything else a person owns, after deducting all debts.
“Americans know the game has been rigged for those at the top,” said Ms. Warren, “but they seldom get pushed in enough to emphasize how many billionaires pay nothing while American families struggle.”
Mr. Wyden said he would look into the approach as well. The repealed alternative minimum tax was once intended to ensure that the rich paid a substantial amount and came in as a parallel system once taxpayers claimed a certain number of deductions.
But Mr. Wyden said it was designed to aim for high incomes rather than high wealth and would eventually free the richest of the rich. He said he will act to close the so-called carry interest loophole that allows many hedge fund and private equity managers to declare income fees as capital gains from their clients and pay a far lower interest rate in return.
“We need to get more aggressive,” said Senator Sherrod Brown, a Democrat from Ohio and a member of the finance committee. “The whole message from the Republicans was, ‘Pay less taxes, you’ll have more economic growth.'” He added, “You’ve been through too long and we haven’t had enough Democrats to oppose it.”
Most Republicans do not change their positions. Senator Charles E. Grassley of Iowa, a senior Republican on the finance committee who once acted aggressively against tax avoidance, said he was most outraged not by the contents of the ProPublica report but by the fact that so much private tax data had leaked .
His concern was that any attempt to tax the value of assets before they were sold would hit farms and private companies. Taxing the capital gains of the super-rich as income, he said, “would delay investments that create jobs”.
Another committee member, Mr Toomey, was more open but said he wanted to make sure the ProPublica report is correct and that he understood the tax avoidance mechanisms before sticking to a blunt instrument like a new alternative minimum tax.
“I’d rather try to understand if it’s true, what is the dynamic that makes it true, and do something about it,” he said.
Senate Democrats are already working on a number of tax proposals that would be paired with infrastructure spending, either in a bipartisan deal or a sole democratic bill that would have to go through a budget process called reconciliation. They include a package of energy tax credits and a plan to combat multinational tax avoidance.
The Democrats’ approach to individual taxation is likely to stem from a 33-page plan that aims to convert wealth into income for taxation purposes. Instead of just taxing when assets are sold, taxpayers with $ 1 million income and $ 10 million worth of assets would have to pay tax on the profits of some of their assets each year. The transfer of some assets, particularly stocks, for example from a wealthy parent to a child, would be considered a sale and taxed accordingly to prevent wealth from being passed on from generation to generation without taxation.
These income limits set in 2018 are likely to be higher; but the goal will be the same.
“A tax on this stock leads us to a wealth tax that offsets the burden of all Americans,” said Ms. Warren. “From there we can tax other forms of wealth, including real estate, jets, yachts, paintings. This stuff is evaluated every year for insurance purposes. “
Some protection would be provided on primary residences, family businesses and retirement accounts.
The Democrats also want to increase the IRS budget to tackle fraud. And they want to strengthen inheritance tax by setting the inheritance price when a wealthy person dies and not the value when the asset is bought.