ProPublica scored quite a journalistic coup when somebody or bodies sent the organization many years’ worth of tax records of America’s wealthiest people. The whole report is here.
A couple of comments: the information in these documents raises two related but distinct issues:
(1) How much in the way of taxes do the Lords of Capital pay on their yearly income?
(2) How much tax do they pay on their increasing wealth?
Because our tax system has no mechanism for taxing what are categorized as “unrealized gains” — this means the increased value of capital that is held rather than sold during the period in question — the answer to (2) is pretty much “zero.” This leads to a bunch of eye-popping numbers in the report, such as the fact that Warren Buffett and Jeff Bezos paid an effective tax rate of less than 1% for the five years between 2014-2018, if we divide the increase in their net worth during these years by the total federal taxes they paid.
This is of course a massive economic and social problem, as unimaginably vast fortunes are going essentially untaxed all over America (With the elimination in many states of rules barring the creation of dynastic trusts, along with the ongoing attempt to eliminate the inheritance tax, it’s now possible that the overwhelming bulk of these fortunes will go untaxed for many generations). Wealth tax proposals such as that put forth by Elizabeth Warren are obviously absolutely essential, at least in theory, although I don’t have the expertise to judge how realistic they would be to enforce as a practical matter (Capital can generally flee much faster than jobs, which is a fundamental political and economic problem Thomas Piketty labors over in Capital in the 21st Century).
I’d like to flag a different problem, however — one that ought to be a lot more amenable to immediate reform: The absurdly low effective tax rates these people pay on their (acknowledged) income, rather than their skyrocketing wealth.
Take Mike Bloomberg: per these documents, he paid an effective tax rate of 2.92% on his income during these five years, “earning” $10 billion, and paying $292 million in federal taxes. Bloomberg is an extreme case, but all these people paid a far lower effective federal tax rate on their official income than the typical two-earner married couple pulling in $100,000 per year. Consider that each spouse in such a household pays 15.3% of his or her income in Social Security tax and Meditax alone, if you count the employer contribution, which you absolutely should, as in pragmatic economic terms it’s a straight pass through of part of the couple’s actual compensation directly to the IRS.
And here’s the thing: It didn’t always used to be this way. Right wingers love to talk about how supposedly there were so many loopholes and deductions back in the days of high putative marginal tax rates that the really rich didn’t actually end up paying more in taxes than they do today. Spoiler alert: This is complete bullshit.
Here is the average effective federal tax rate paid by the 267 highest-grossing tax returns filed during the Marxist-Leninist dictatorship of one Dwight D. Eisenhower, in 1955: 51.27%
The comparable figures for 1965 and 1975 (for the highest-grossing 646 and 1,124 returns respectively; I’m quoting the data at these various cut points because that’s how it was collected by the IRS at the time): 42.06% and 45.52%
Now lets fast forward to 2015 — the most recent year for which this particular analysis is available (Things of course have gotten a good deal worse since, with the passage of Trump’s Leave No Billionaire Behind tax package). In that year, the 1,412 highest grossing returns — a group whose average adjusted gross income in that year was $152,016,289 — paid an average effective federal tax rate of 23.93%. Again, that’s the rate they paid on their (reported) income, not on the combined hundreds of billions or quite possibly trillions of dollars of gains to their wealth, on which they paid nothing.
My own view is that all tax returns ought to be public, on the theory that this would produce a nice stimulus to sales of pitchforks and torches.
. . . UGH
Apparently this ranks ahead on his to-do list of things like looking into exactly what politicians organized and facilitated that unpleasantness at the Capitol last January.