This week, ProPublica dropped a bombshell report looking at the tax returns of some of the wealthiest Americans. Among the most infuriating revelations was that in 2007, multibillionaire (and now the richest man in the world) Jeff Bezos paid $0 in federal income tax. Elon Musk managed this feat in 2018. As ProPublica itself says in no uncertain terms, their reporting “demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.”
Most likely, you already figured this. I certainly knew it to be true. From 2011 to 2019, I worked in America’s mortgage industry. Much of my job involved reviewing tax returns and calculating income, and that experience showed me one unassailable truth: the richer you are, the relative less tax you pay. It made me realize the need for a wealth tax, a point ProPublica’s reporting drives home in the starkest of terms.
By the end of 2018, the 25 people ProPublica profiles were worth a collective $1.1 trillion, as much as 14.3 million ordinary Americans. Let me put that another way: the 25 richest people in America are worth more than the population of Pennsylvania. But what is even more infuriating than that is that those 14.3 million ordinary Americans paid a collective $143 billion in taxes, while these 25 rich people paid only $1.9 billion.
According to ProPublica, the median American household makes about $70,000 per year and pays 14 percent of that in federal income taxes. Looking at the 25 wealthiest Americans, though, this tax rate falls to a measly 3.4 percent. Between 2014 and 2018, middle-class households saw their wealth grow by $65,000 after taxes, which ProPublica points out is mostly due to appreciating home values.
Most of that was paid back to the government in income taxes since the average American makes most of their money through salary. In that same period, however, the 25 richest American “taxpayers” — I’m using that word loosely here — saw their wealth increase by $401 billion.
None of this is a glitch. It’s a feature. It’s the feature.
The IRS allows self-employed individuals to deduct various expenses on their tax form, including supplies, rent, cost of labor, and even the business use of home. Ostensibly, this encourages entrepreneurship and promotes small businesses.
Yet what I saw in my line of work suggested that these “expenses” are often used to dodge paying tax altogether. The mortgage industry calculates self-employed income based off the most recent two years’ tax returns. Without paystubs, this is the best written documentation we can have for what a self-employed borrower actually made. I lost count of how many arguments I had with borrowers who swore to me they made much more than their tax returns showed, many admitting they filed that way — often at the behest of their accountants — to minimize their tax liability.
I was not dealing with the ultra-wealthy ProPublica exposes. Most of my borrowers made under $1 million a year, many of them well under it. Your average small-business owner is not a global oligarch. Yet ProPublica’s reporting shows they are using the same tricks to minimize their tax burden, robbing the American coffers of the money morally, if not legally, owed to the government.
“In 2011,” ProPublica reports, “a year in which his wealth held roughly steady at $18 billion, Bezos filed a tax return reporting he lost money — his income that year was more than offset by investment losses.” To add insult to injury, he claimed a $40,000 child tax credit. Between 2006 and 2018, Bezos’ wealth increased by $127 billion, yet he was able to report only $6.5 billion in income, paying 1.1 percent of that in tax.
The wealthy know what they’re doing, and they are shameless about it. In a statement to ProPublica, a spokesman for George Soros said that between 2016 and 2018 the billionaire lost money through investments, “therefore he did not owe federal income taxes in those years” before cheekily adding that Soros has “long supported higher taxes for wealthy Americans.” Just not himself, it seems.
Most Americans rely on their salary or hourly wage to survive. It is their primary — if not only — source of income. Bezos only makes $80,000 a year from Amazon, a middle-class income by most definitions. Following the late Steve Jobs’ example, Mark Zuckerberg, Larry Page, and Larry Ellison only take $1 in annual salary from their companies.
Yet, as ProPublica points out, “this is not the self-effacing gesture it appears to be.” Of the top 25 wealthiest Americans, wages account for only 1.1 percent of what they list on their tax returns, with the rest of their income coming from stocks and bonds and investments. These are taxed at a lower rate than your salary, meaning that people like Jeff Bezos are paying a lower rate of tax than you are on the vast majority of their income.
All of this is perfectly legal. The system is working as it was designed to work. The theory of trickle-down economics has been at the heart of our tax policy for 40 years, the belief being that capitalists will invest these profits back into the economy, creating new jobs for folks like you and me. But just like Santa Claus or the Easter Bunny, the benevolent oligarch is a myth. ProPublica’s reporting shows that trickle-down economics is not working. Rather than creating more wealth, the rich are simply hoarding it.
So, what can be done?
We need to rewrite our tax system to one that is fairer to all Americans. Senator Elizabeth Warren, a Democrat from Massachusetts, reiterated her call for a wealth tax following yesterday’s report. “Our tax system is rigged for billionaires who don’t make their fortunes through income, like working families do,” Warren tweeted. “The evidence is abundantly clear: it is time for a #WealthTax in America to make the ultra-rich finally pay their fair share.”
A wealth tax is just that: a tax on the wealth someone holds, not just their income. It isn’t an entirely novel idea. American homeowners already pay annual property taxes, which are used to fund everything from local school districts to police and fire departments. Unlike property taxes, a wealth tax would not affect most average Americans. It would, however, make it far more difficult for the ultra-wealthy to avoid paying tax.
Under Warren’s plan from her 2020 presidential campaign, the richest 100,000 families would have their wealth taxed. “A wealth tax would allow us to invest in the health and wellbeing of your workers,” Warren said earlier this year during a Senate Finance Subcommittee hearing on a wealth tax. “it would help us repair roads so it’s easier to get to work, it would help level the playing field for small businesses… It would allow us to build back better and make the American dream a reality for millions of families.”
She’s right. The tax system benefits the ultra-wealthy at the expense of the rest of us, and our nation is poorer for it. The 1 percent is not exploiting the tax system so much as they are using it exactly as it was designed to be used. To make sure that everyone, from you to Jeff Bezos, is paying what they should, we need to bring our tax code in line with reality.
A wealth tax is a step in the right direction. We may not be able to tax the rich until there are no billionaires, but we can sure as hell make them pay their fair share.