Essential reading: Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax

[SoonerPride]

https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax

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.

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.

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.

Read on at the link and get pissed off.

[markie]

1. will read later, but

already know and have been angry for a long time about it...


from the '80's

[Hoyt]

2. Wonder how much capital gains tax was paid by the millions selling shares in Amazon? Lots, and with

a capital gains tax rate increase, they'll be paying a lot more.

[Pinback]

3. Good reminder of why ProPublica is worth supporting.

Thanks for the link.

In the coming months, we plan to use this material to explore how the nation’s wealthiest people — roughly the .001% — exploit the structure of our tax code to avoid the tax burdens borne by ordinary citizens.

Many will ask about the ethics of publishing such private data. 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.
- Why We Are Publishing the Tax Secrets of the .001%

https://www.propublica.org/
https://donate.propublica.org/give/141278/#!/donation/checkout

[KPN]

12. +1 ... thanks.

[Nevilledog]

4. K & R

[fescuerescue]

17. 973m in taxes on 4.2b in income

That's about 20% I think.

Why does the chart only show .98%

I think one of those numbers is incorrect.

[Pinback]

25. Looks like they're using the Wealth Growth column as an indicator of True Tax Rate.

$973 Million is 0.98% of $99 Billion.

One of their main points is that the wealth of the the wealthiest 0.001% grows untaxed, so they are able to declare an annual taxable income that is relatively paltry compared to their actual growth in wealth.

Wealth tax is a tax based on the market value of assets owned by a taxpayer. Although many developed countries choose to tax wealth, the United States has historically relied on taxing annual income to raise revenue. Recently, however, the immense and increasing disparity in wealth in the United States—as of 2018 the wealthiest 10% owned 70% of the country’s wealth while the richest 1% owned 32%, according to the Federal Reserve Board—prompted politicians such as Bernie Sander and Elizabeth Warren to propose a wealth tax , in addition to the income tax, in the run-up to the 2020 Presidential election. In March 2021, Senator Warren introduced S. 510, a revised version of her earlier proposal, to impose a tax on the net worth of very wealthy individuals.
- Source: Investopedia -- https://www.investopedia.com/terms/w/wealth-tax.asp (much more at link)

[fescuerescue]

26. OIC.

So this is really more of an advertisement for a wealth tax, instead of the system we have now.

I wonder how most people would feel if they were taxes on how much their home went up in value each year?

I suppose we could move to a wealth tax system and tax unrealized gains. For homeowners and those with pensions and retirement accounts, that would involve writing a pretty big check every year.

It would raise a lot of money.

[Pinback]

27. It's a news article, not an "advertisement." BTW, Elizabeth Warren's proposal would have zero effect

on most Americans' taxes.

Ultra-Millionaire Tax
A small tax on the great fortunes of more than $50 million can bring in nearly $4 trillion to rebuild America’s middle class.
- more at: https://elizabethwarren.com/plans/ultra-millionaire-tax

Of course, Republicans will distort this and say that it hurts "Mom and Pop businesses," "hard-working Americans," "small family farmers," et al., just as they did with the "death tax." The estate tax has absolutely no effect on the inheritances passed down by the vast majority of Americans who kick the bucket. But that never stopped the Party of Lying Liars from lying about it, so you can count on them to do their part to defend the rights of America's downtrodden billionaires.

[fescuerescue]

35. I'm happy to use the word advocate then.

And I'm sure that Warren is genuine on her plan.

But once the wealth tax is passed, she won't control it anymore. And eventually Republicans will be in control of it. No party ever has permanent control.

Do you trust the Republicans not to expand a wealth tax? Can you imagine a scenario where a Republican taxes us on the increase in the price of our house or 401k?

See that's the thing. Any new power we give Washington, we are also giving to the people who wee disagree with most.

[dsc]

39. There is one

It is called property taxes

[fescuerescue]

42. indeed

[AllaN01Bear]

5. going on for years , and they still keep screaming ,"my taxes are too high",

and their buddies in the state house and the halls of congress keep giving the tax decreases and they still whine . and the rs complain "we are broke ?". go figure.one of my anthems ,,

&t=326s

[cbabe]

6. Give it back.

If you don't want to pay for it, give it back.

Give back the roads.
Give back sidewalks.
Give back the courts.
Give back the law.
Give back the internet
Give back clean water and sewage treatment plants.
Give back food safety.
Give back medical drug safety.
Give back educated workers.
Give back the police and firefighters.
Give back national parks.
Give back Kermit and Big Bird and all PBS.

Give it all back.

[aggiesal]

20. What do you mean by ''... give it back.''? ...

What do you mean by "Give back the roads."?
...

Just trying to understand your statement.


BTW, welcome to DU.
Some of the smartest & funniest people, participate in this forum.

[cbabe]

29. Give it back

as in 'you need to pay to play'. No pay, you don't get to use what everyone else has paid for. We paid for it so we own it. No more free ride for nonpayers.

Obviously one can't actually give back roads, etc. Give it back is my poetic metaphor or slogan to call the greedmeisters to account.

Clear as mud?

[aggiesal]

34. Understood, thanks. n/t

[thesquanderer]

7. No mystery. We tax income, not wealth.

Last edited Tue Jun 8, 2021, 04:43 PM - Edit history (1)

If the value of someone's stock goes up (but they do not sell it), their paper wealth increases, but it is not income and therefore not taxed. (Though for some odd reason, when they DO finally sell and the tax on the appreciation is due, it is often taxed at a lower rate... "capital gains"... and that discrepancy should be fixed... but that's not what this article is about.)

Despite the subject line, this article is not really about avoiding income tax, it's about the fact that we don't tax wealth increases that are not income (like stock appreciation, or the increased value a homeowners' house over time). Which is why Elizabeth Warren proposed a wealth tax. It is not related to income, or income tax.

[SoonerPride]

8. No, this is specifically about INCOME tax

These billionaires reported INCOME of millions and paid nothing.

Not capital gains. Not reserve wealth. Not inheritance.

INCOME.

Read the ARTICLE.

[thesquanderer]

15. I did read a lot of the article. It seems like maybe you didn't?

The article's primary focus is that their "paper" wealth growth isn't taxed.

According to the first chart in the article, in the years covered, Buffet paid taxes of about 20% of his actual income ($24M, tax on $125M income). The article claims a "true" tax rate of .1% based on his wealth growth, but again, wealth growth (value of assets not yet sold) is not income, and is not taxed, because we have an income tax, not a wealth tax.

Similarly, Bezos paid about 23% of his actual income in income tax (paying almost a billion on a bit over 4 billion in income).

Musk paid about 30% in income tax ($455M on $1.52B).

Bloomberg is the only outlier listed, managaing to get away with paying only about 3% of his actual income.

[aggiesal]

24. Do you not believe they are leveraging this wealth and avoiding taxes? ...

I'm sure they are borrowing the equity against this wealth and realizing the benefits without paying the taxes on a grander scale.

Let's say you own a home and your mortgage owed is $200,000. Then after covid, with real estate prices rising,
it is now worth $500,000.
You wouldn't leverage off that $300,000 in equity and borrow $200,000 against it?
You can buy a car or more real estate and you wouldn't have to pay a penny in taxes.
And when you sell your house for $500,000 and pay off the $400,000 loan, which portion do you pay the taxes on, the $300,000 from the original $200,000 loan or $100,000 from the refi cash out $400,000 loan?

Now multiply that by billions.

It is wealth, and we don't tax wealth, but they are using that money and realizing those benefits.

I'm not a tax person, so I really don't know exactly how any of this would be taxed.

[thesquanderer]

28. True. But the fundamental issue remains that that's only possible BECAUSE...

...we tax income, but we don't tax wealth. So again, that is the fundamental reason the rich don't pay much income tax.

[muriel_volestrangler]

38. That is a big part of it - section headed Buy, Borrow, Die: How America's Ultrawealthy Stay That Way

Last year Tesla reported that Musk had pledged some 92 million shares, which were worth about $57.7 billion as of May 29, 2021, as collateral for personal loans.

With the exception of one year when he exercised more than a billion dollars in stock options, Musk’s tax bills in no way reflect the fortune he has at his disposal. In 2015, he paid $68,000 in federal income tax. In 2017, it was $65,000, and in 2018 he paid no federal income tax. Between 2014 and 2018, he had a true tax rate of 3.27%.

The IRS records provide glimpses of other massive loans. In both 2016 and 2017, investor Carl Icahn, who ranks as the 40th-wealthiest American on the Forbes list, paid no federal income taxes despite reporting a total of $544 million in adjusted gross income (which the IRS defines as earnings minus items like student loan interest payments or alimony). Icahn had an outstanding loan of $1.2 billion with Bank of America among other loans, according to the IRS data. It was technically a mortgage because it was secured, at least in part, by Manhattan penthouse apartments and other properties.

Borrowing offers multiple benefits to Icahn: He gets huge tranches of cash to turbocharge his investment returns. Then he gets to deduct the interest from his taxes. In an interview, Icahn explained that he reports the profits and losses of his business empire on his personal taxes.

[aggiesal]

46. We can all do this with our increased real estate equity ...

I only borrow against my equity when I'm purchasing another property.
Never for luxury items, like cars or vacations.
I put it down on a rental and let the tenants pay for my mortgage on that rental.

The risk is that the real estate prices drop below what you owe on the new mortgage.
So we have to be judicious on how we pull money out of equity.

My brother in Phoenix is sitting on about $500,000 in equity. That's crazy.
He could easily pull out about $400,000 and purchase about
10 homes/condos with that money. Then allow those rentals to increase in value.

The practice is to clear about $200 per door (i.e. per tenant). This is known as pencilling.
With 10 homes, he could easily pull in $2000 per month and watch
the equity build while the tenants pay off the mortgage.

In 30 years after all are paid off, he could be pulling in $10,000 per month
if rent was $1000/mo. If rent is $2000/mo. he would pull in $20,000/mo.
Who would need Social Security with that haul of income?

[muriel_volestrangler]

48. You're relying on house prices increasing, or at the least staying steady, with that strategy

which has its risks. So not doing it isn't "crazy", just cautious.

In Britain, at least, you'd have to pay income tax on the net income from the rental properties. The ultra-rich can borrow to fund an extravagant lifestyle, pay no income tax on the money used for that spending (even at capital gains rates), and let it come out of their estate when they die (still with billions to give to family, if they want).

[aggiesal]

49. So I'm going to respond to some statements made ...

1) Not necessary relying on house prices increasing, just not decreasing when borrowing against the equity.
Yes that is a risk and I did mention that. But even if they come down, the tenants will pay it off, so I'm left with an asset that could produce some money on a monthly basis.

2) My example of my brother; Sitting on $500K and NOT doing anything with it is crazy.
Even if he only dipped into that for $200K, that's at least 2-5 houses/condos he could buy and even if the housing market doesn't go up, the tenants are still paying off the house for him. So eventually, 100% of the rent will be income especially in his senior years.

3) In the states we also have to pay income tax on the net income from the rental properties.
I believe in the UK you file & pay your taxes based on some estimate that you believe your income would be for the coming year.
While in the US, we pay on what we make during the year, and request a refund or pay additional, base on actuals after the year.

Thanks for the conversation.
Have a great day.

[whopis01]

19. No, you missed the point of the article.

This figure from the article really explains it well.



They all paid roughly between 20% and 30% of their income in taxes.

However, their growth in wealth was between 10x and 200x their reported income.

This is all about wealth and not about income. They are paying a relatively fair share of taxes on their income. I say relatively because the argument could be made that they should be paying more than 20%-30% on income. But that issue is vanishingly small compared to how much wealth they are accumulating without paying any taxes on it.

[BobTheSubgenius]

9. The fact that they are able to do it is enough for me.

I'll never be confronted by that situation, so knowing more about it is only going to piss me off. More.

[SoonerPride]

10. Love your user name btw

Church of the Subgenius was one of my favorite things in college. Way back when. Props to you.

SLACK

[BobTheSubgenius]

37. SLACK, dude!

Last edited Tue Jun 8, 2021, 08:23 PM - Edit history (1)

Glad to make the acquaintance of someone who understands some of the finer institutions of modern life.

[Warpy]

11. Warren's wealth tax would help for a while

until their tax avoidance lawyers managed to find ways to conceal their real wealth.

Something needs to be done, the existence of billionaires is incompatible with the existence of a democratic republic.

[monkeyman1]

13. election audit's my ass - time for rich bitch's audit's !

[bucolic_frolic]

14. 2652 pages in the tax code, time to start over

It's too complex, too many loopholes. No matter how much simpler they make it, it gets more complicated.

[fescuerescue]

16. Kind of surprised that he decided to start paying taxes again 2011.

Maybe someone told him that its a bad idea?

[rdking647]

18. one way to fix this

require billionaires to pay income tax based on mark to market value of their investments.

this is similar to what is done with commodity trading.
year 1: require billionaires to value to value their investments at the dec 31 value.
pay taxes based on the difference between purchase price and value
after year 1 require them to pay taxes on the change in value. if the value drops during the year they can carry forqard the loss into the next year

[multigraincracker]

21. Until they fear this.

Eat The Rich.

[FakeNoose]

30. K & R bookmarking

I'm going to read this a little later when I have the time.

Thanks for posting, friend!

[brooklynite]

31. Question: who here demanded that President Obama and the Democratic Congress address this?

This issue at hand is that Bezos was able to take advantage of existing tax laws. Democrats had an opportunity to change them if there was sufficient political pressure.

[Blue Owl]

32. The GOP's sole mission is to keep these fuckers free from paying their fair share

[Kaleva]

33. Income tax taxes income, not wealth.

[SoonerPride]

44. And they paid almost no income tax

[smirkymonkey]

36. +1000

[Shrek]

40. Doesn't fill me with confidence in the IRS

Not doing a great job at safeguarding information that's supposed to be confidential.

[Pinback]

41. I doubt seriously this resulted from an IRS hack.

ProPublica says they got the information from “an anonymous source.” I suspect it’s something more along the lines of the Panama Papers.

[Shrek]

43. I wasn't referring to cybersecurity

I'm worried about IRS personnel illegally disclosing tax information of private citizens.

[Deminpenn]

45. One of the ProPublica journalists was on with Chris Hayes

last night. His summary was that the very richest are actually outside the tax system exactly because they derive income from their wealth by borrowing against it.

If they cashed in some of their holdings, there would be capital gains taxes, but that's not what they do. They borrow instead. I can't recall which of the richest it was, but this person had a 10B line of credit at his disposal!

[Goodheart]

47. There was some consternation this morning about the privacy of those billionaires being violated

Consternation on the Michael Smerconish show, that is, including by Smerconish himself who agreed that the tax situation is outrageous, but that if the cost of exposing such outrageousness violates their privacy then it should not have been exposed.

To which I say BUNK.

Somebody explain to me why extreme incomes and wealth should be secrets? These people control our lives, they run the world, and we all know they're filthy rich, anyway. Why should it be a secret how much taxes they've paid? I think we're entitled to know, and the kicker is that there are thousands of people inside a certain government agency who DO know. It's not like this is a matter of national security.... or is it?

[fescuerescue]

50. Yes. We should be able to pierce of the privacy of anyone we don't like

It's not as if that power could ever be used against us, or against people we do like.

If there is one thing we have learned over the last 3 decades, our party will ALWAYS be in control.