The 25 richest Americans paid little to no federal income tax, according to a report released Tuesday by the nonprofit news organization ProPublica, a claim that has reignited debate over the tax code and sparked an IRS investigation into the leakage of private tax documents.
NBC News has not independently verified the documents, and ProPublica declined to disclose how it gained access to what it called a “huge treasury of Internal Revenue Service data on the tax returns of thousands of the nation’s richest people, who represent more than 15 people.” span years.”
The report does not detail any illegality by the people whose tax documents it reviewed, including many of the wealthiest people in the US, such as Jeff Bezos and Elon Musk. The White House is push a plan that would tax capital gains as income for those who earn more than $1 million annually.
IRS Commissioner Charles Rettig said in a previously scheduled hearing before the Senate Finance Committee Wednesday morning that the agency is investigating the leaks of the documents.
“I can confirm that the allegations are under investigation that the source of the information in that article came from the Internal Revenue Service,” he said. “After reading the article, the right contacts have been made and the researchers will investigate.”
Committee chairman Ron Wyden, D-Ore., took advantage of the revelations to underscore his point, now echoed by the Biden administration, that the wealthiest people use tactics that most Americans don’t.
“The IRS has a responsibility to protect taxpayer data and you have confirmed that this matter is under investigation,” Wyden said.
“The big picture is that this data shows that the richest in the country, who have benefited immensely during the pandemic, have not paid their fair share,” he added.
The article illustrates the vast differences between how the extremely wealthy pay taxes compared to most salaried Americans and how they do it using a simple three-pronged approach known in tax circles as “buy, borrow, die.”
The strategy focuses on making money from investments and capital, which are taxed only when the assets are sold, also known as “realization” or “realized profit.” Typically, investors pay a drastically lower effective tax rate compared to people earning a similar amount in wages.
Lilian Faulhaber, a professor of tax law at Georgetown University, said current tax laws provide benefits for those who increase their wealth primarily through investment and therefore pay little income tax.
“But if you look at the inequality in our society, it has real consequences,” she said.
Samuel Brunson, a tax law professor at Loyola University of Chicago, said the rich are unlikely to pay more taxes if the current system is preserved.
“Due to the realization requirement, as long as rich people keep their wealth, they will not pay taxes on their increase in their wealth,” he said in an email. “As the article says, it goes back about a century. It’s not entirely clear if the realization requirement is a constitutional requirement, but it is what we have. As long as they don’t sell their upgrading assets, they don’t pay taxes on the profit.”
The article focuses on a handful of people, including Amazon CEO Bezos. ProPublica said it examined Bezos’ tax records from 2006 to 2018.
“According to Forbes, Bezos’ net worth is up $127 billion, but he reported a total of $6.5 billion in revenue,” the article says. “The $1.4 billion he paid in personal federal taxes is a huge number, but it adds up to a real tax rate of 1.1% on the increase in his fortune.”
The tax, an independent nonprofit tax policy group, found that the average individual income tax rate is 14.6 percent.
A Bezos representative did not respond to a request for comment.
However, the mega-rich also use a second strategy: borrowing money at a “single interest and no tax,” ProPublica reported.
For example, Carl Icahn, who is listed by Forbes as the 40th richest American, has a $1.2 billion loan outstanding with Bank of America, according to ProPublica. That means he is able to “turbocharge his investment returns” and then “deduct the interest from his taxes.”
When asked whether it was appropriate that he pay no income tax at all — as he did in 2016 and 2017 — Icahn objected.
“Do you think a rich person should pay taxes no matter what? I don’t think it’s relevant,” he told ProPublica. “How can you ask me that question?”
ProPublica has also detailed the last part of the “buy, hold, die” strategy – vast sums of wealth that can be passed from one generation to the next largely tax-free.
In tax circles this is called the ‘step-up in the basics’. Investments and assets transferred to one’s heirs are not subject to capital gains tax if they are sold once received.
Abolishing the “step-up foundation” rule, or as President Joe Biden put it, the “maze in the trust fund,” could be one way to increase federal tax revenues to pay for many of the sweeping social security contributions. programs he would like to introduce .
“We must make a choice to eliminate the loophole,” Biden said last month. If “a person dies leaving stock to his son or daughter, [they] don’t have to pay anything on that multimillion-dollar profit when they sell those stocks.”