Periodically, we get a glimpse into the financial lives of the ultrarich. A pro athlete signs a huge contract, a tech CEO sells a boatload of shares in their company, or a billionaire heir unloads a Manhattan penthouse. Based on these nuggets of information, the media speculates as to how much income the rich might bring in every year. But nobody actually knows.
The analysis also shows how much they paid in federal income taxes — and it demonstrates how the American tax system, which theoretically makes the highest earners pay the highest income tax rates, fails to do so for the people at the very top of the income pyramid.
The top 400 earners pay noticeably lower tax rates than the merely rich; and, if you include payroll taxes, a married couple making $200,000 a year could end up paying higher tax rates than a person making $200 million a year. (The full analysis is here; it includes selected names beyond the top 15.)
Names That Won’t Surprise You
Scan the names on the list of the top 15 income earners and you’re certain to recognize several names — or at least the names of the companies they founded. Bill Gates hasn’t been involved in the day-to-day operations of Microsoft for over a decade, yet he still earned the most during the years we studied, reporting an average yearly income of $2.85 billion — and an effective federal income tax rate of 18.4%. Steve Ballmer, his former colleague, is also a well-known public figure, both for his time as Microsoft CEO and his current ownership of the Los Angeles Clippers NBA team.
Ballmer’s average annual reported income of $1.05 billion landed him in the 10th spot on the list, and his effective federal income tax rate was 14.1%. The other side of the PC/Mac wars is represented here by Laurene Powell Jobs, widow of Apple founder Steve Jobs.
Her average reported income of $1.57 billion ranked fifth-highest; she paid an effective tax rate of 14.8%. (ProPublica sought comment from everyone mentioned in this article. Nobody disputed the numbers cited here. Unless otherwise noted, representatives for people named in this article either declined to comment, declined to comment on the record or did not respond to requests for comment.)
Another well-known billionaire sits just below Gates on the list: Media and tech mogul and former New York City mayor Michael Bloomberg, with an average reported income of just over $2 billion, paid an effective income tax rate of 4.1%, by far the lowest rate among the top 15. (A spokesperson told ProPublica for an earlier article that Bloomberg “pays the maximum tax rate on all federal, state, local and international taxable income as prescribed by law,” and cited Bloomberg’s philanthropic giving.)
The presence of Amazon founder Jeff Bezos — either the first- or second-wealthiest person in America, depending on the day — won’t shock most people, but Bezos’s annual reported income during these years of $832 million put him only at number 15. He paid an effective tax rate of 23.2%; as we’ve previously reported, Bezos had so little income in a couple of recent years that he was able to pay $0 in federal income taxes in those periods.
Who Are These Others and Why Are They Paying Higher Tax Rates?
Tech billionaires dominate the top 15, but hedge fund managers account for a full third of the names on this list, and some of their incomes were just as huge. Most of them paid relatively high effective tax rates, especially compared to most of the tech sector representatives. Hedge fund managers often make their money through short-term trades, which are taxed at a much higher rate than when tech titans cash in on long-term investments.
The highest-earning hedge funder is Ken Griffin, founder of the Chicago-based firm Citadel. From 2013 to 2018, he reported an average income of nearly $1.7 billion, putting him fourth on the list. Griffin paid a tax rate of 29.2% during these years. (A spokesperson for Griffin said the tax rates in the IRS data “significantly understate” what Griffin pays, because they were lowered by charitable contributions and do not reflect local and state taxes. He also said Griffin pays foreign taxes, which aren’t included in IRS calculations of effective tax rate.)
Israel Englander, co-founder of Millennium Management, paid at a 30.8% rate, while the co-founders of Two Sigma Investments, David Siegel and John Overdeck, paid tax rates of 31.6% and 34.2%, respectively.
Some of this variation in rates reflects how people structure their businesses under tax law. Income earned by publicly traded corporations is taxed at the company level. When it’s passed on to big shareholders, such as tech billionaires, it can come in the form of dividends, which are taxed at lower rates than ordinary income. By contrast, the income from some manufacturing companies and hedge funds flows directly to company owners, who pay taxes on it, resulting in higher effective tax rates on average.
Where Are the Heirs?
Lists of the world’s wealthiest individuals are always heavily populated by heirs, ranging from descendents of old money to scions of more recently minted fortunes. Dozens of heirs made ProPublica’s list of 400 biggest income earners. Descendents and relatives of Sam Walton, founder of Walmart, claim 11 spots.
The DeVos family, heirs to the Amway fortune, also have multiple members in the top 400. Perhaps the best known is Betsy DeVos, who served as U.S. secretary of education during the Donald Trump administration. With a reported annual income of $112 million, she was the 389th-highest earner in this period.
Much like the tech titans who top the list, most of these heirs get their income from dividends or long-term investments, which are taxed at a lower rate. Their effective tax rates ranged from as low as 10.6% for Betsy DeVos to a high of 23% paid by Walmart heirTom Walton.
Don’t Forget the Deductions
Another key way that some top earners reduced their tax liability was to claim significant deductions, often in the form of large charitable contributions. This is particularly true for wealthy investors who are able to make their donations with shares of stock. Thanks to a generous provision of the tax code, they can then deduct the full value of the stock at its current price — without having to first sell it and pay capital gains tax.
Michael Bloomberg achieved a tax rate of 4.1% from 2013 to 2018 by taking annual deductions of more than $1 billion, mostly through charitable contributions. From 2013 to 2017, he also wrote off an average of $400 million each year from what he’d paid in state and local taxes. The 2018 tax overhaul limited that deduction to $10,000 — but also introduced a huge new deduction for pass-through companies that Bloomberg benefited from.
Wait — What About the Celebrities?
The earnings of actors, musicians and sports stars are a subject of nonstop scrutiny in the media, yet few celebrities cracked the list of the top 400 earners, which would have required them to report annual incomes of at least $110 million.
ProPublica’s trove has data on many celebrities. One who came close to the top 400 is basketball superstar LeBron James, who averaged $96 million a year in reported income. Grammy-winning singer Taylor Swift also came within reach of the top 400, averaging $82 million in reported income during these years. Actor George Clooney would have had to double his average income of $55 million to crack the top 400.
The wealth-hoarding by ultrarich families would be equivalent to over four Build Back Better plans
Over the next few decades, the richest American families could avoid paying about $8.4 trillion in taxes, or more than four times the cost of the stalled Build Back Better package, according to a report released Wednesday.
“We can fix our broken estate and gift tax system… or we can trust our democracy to a handful of trillionaire trust fund babies.”
The new analysis details how loopholes have made the payment of estate, gift, and generation-skipping taxes—collectively called wealth-transfer taxes—effectively optional for the “ultrawealthy” and thereby accelerate the “accumulation of dynastic wealth.”
“Ultrarich families use dynasty trusts—the term for a variety of wealth-accumulating structures that remain in place for multiple generations—to ensure their fortunes cascade down to children, grandchildren, and beyond undiminished by wealth-transfer taxes,” the report explains.
Some U.S. states, such as South Dakota, have even changed their laws on dynasty trusts to attract wealthy residents, as Chuck Collins of the Institute for Policy highlighted last year.
The new report notes that U.S. lawmakers aren’t planning to address the issue, even if the Senate passes a version of a House-approved package:
The Build Back Better (BBB) legislation now before Congress—otherwise a vehicle for significant progressive tax reform—does nothing to directly reverse this toxic accumulation of dynastic wealth. Moreover, some dynasty trust reforms that were included in the bill passed by the House Ways and Means Committee in September 2021 were stripped out before the House voted on the measure in November.
The BBB bill needs full support from Senate Democrats to pass. Sen. Joe Manchin (D-W.Va.)—one of the primary reasons the legislation hasn’t reached President Joe Biden’s desk—said Tuesday that it is “dead.”
However, Americans for Tax Fairness still uses the whittled-down BBB package to illustrate just how much money wealthy Americans can hoard for their families in the years ahead thanks to the U.S. tax system.
“The tax savings for the richest families could be about $8.4 trillion over the next 24 years or so if the current 40% estate tax rate remains in place,” the report states. “That’s the equivalent of more than four Build Back Better plans costing $1.75 trillion each over 10 years.”
The report adds that “about half of the $8.4 trillion is equivalent to the cost of the expanded child tax credit, which was included in the House-passed BBB bill and is estimated to reduce childhood poverty by 40%, for 24 years at $160 billion a year.”
There's no denying our economy and democracy are rigged in favor of the ultra-wealthy.
When the richest 100 Americans have 60,000 times more political power than the bottom 90% of people— it's time to get dynastic wealth under control. https://t.co/U1s6HmY1XC
“This hoarding of wealth is inexcusable,” declared the report’s principal author, Bob Lord, who practiced estate law for 30 years before joining Americans for Tax Fairness as tax counsel.
“The BBB legislation now before the U.S. Senate should be amended to close loopholes in the three components of America’s wealth transfer tax system: the estate, gift, and generation-skipping tax,” he asserted. “Effective reforms have already been developed—all that’s needed is for Congress to recognize the urgency to act now.”
The group’s new analysis and call for action come after Americans for Tax Fairness estimated last month that the 10 wealthiest billionaires in the United States have become approximately $1 billion richer collectively every day of the Covid-19 pandemic.
Wednesday’s report contains a warning about that group of ultra-billionaires, mentioning by name Amazon’s Jeff Bezos, Facebook’s Mark Zuckerberg, and Elon Musk of Telsa and SpaceX.
“As much as familiar fortunes have blossomed in the low-regulation, low-tax, wealth-worshiping environment of the previous 40 years,” the report says, “the next 40 and beyond could see the rise of economic dynasties that will make the old money look small.”
Along with closing dynasty-trust tax loopholes, Americans for Tax Fairness urges reforms that would “curb the year-to-year accumulation of wealth in existing trusts.” Specifically, it calls for a new income-tax bracket “on undistributed trust income in excess of $250,000 that is five percentage points higher than the maximum income-tax bracket for individuals.”
Noting a proposal from Sen. Elizabeth Warren (D-Mass.), the group also encourages U.S. lawmakers to “impose an annual 2% wealth tax on the portion of a dynasty trust’s holdings that exceed $50 million, and an additional 1% on dynasty trust accumulations in excess of $1 billion.”
“The choice is clear,” according to the report. “We can fix our broken estate and gift tax system and stop the concentration of an ever-larger share of America’s wealth inside enormous dynasty trusts, or we can trust our democracy to a handful of trillionaire trust fund babies.”
“Fortunately, we know what needs to be done,” the report concludes. “The sole remaining challenge is to summon the courage to stand up to the holders of dynastic wealth and their enablers.”
Originally published on Common Dreams by JESSICA CORBETT and republished under a Creative Commons license (CC BY-NC-ND 3.0)
As a member of Congress, Jared Polis was one of the loudest Democrats demanding President Donald Trump release his tax returns.
At a rally in Denver in 2017, he warned the crowd that Trump “might have something to hide.” That same year, on the floor of the House, he introduced a resolution to force the president to release the records, calling them an “important baseline disclosure.”
But during Polis’ successful run for governor of Colorado in 2018, his calls for transparency faded. The dot-com tycoon turned investor broke with recent precedent and refused to disclose his returns, blaming his Republican opponent, who wasn’t disclosing his.
Polis may have had other reasons for denying requests to release the records.
Despite a net worth estimated to be in the hundreds of millions, Polis paid nothing in federal income taxes in 2013, 2014 and 2015. From 2010 to 2018, his overall rate was just 8.2% — less than half of the 19% paid by a worker making $45,000 in 2018.
The revelations about Polis are contained in a trove of tax information obtained by ProPublica covering thousands of the nation’s wealthiest people. The Colorado governor is one of several ultrarich politicians who, the data shows, have paid little or no federal income taxes in multiple years, exploited loopholes to dodge estate taxes or used their public offices to fight reforms that would increase their tax bills.
The records show that rich Democrats and Republicans alike have slashed their taxes using strategies unavailable to most of their constituents. Among them are governors, members of Congress and a cabinet secretary.
Richard Painter, the chief White House ethics lawyer during the George W. Bush administration, said the tax avoidance of these top politicians is “very, very worrisome” since both parties “spend like crazy” and depend on taxes to fund their priorities, from the military to Medicare to Social Security.
“They have the power to decide how much the rest of us pay and the power to spend the money, and then they’re not paying their fair share?” Painter said. “That should be troubling to voters, both conservative and liberal. It should be troubling for everyone.”
West Virginia Gov. Jim Justice, for example, is a Republican coal magnate who has made the Forbes list of wealthiest Americans. Yet he’s paid very little or no federal income taxes for almost every year since 2000.
California Rep. Darrell Issa, one of the richest people in Congress, was one of the few Republicans to break with his party during the 2017 tax overhaul to fight for a deduction that — unbeknownst to the public — helped him avoid millions in taxes.
And the tax records of Republican Sen. Rick Scott of Florida and Trump’s education secretary, Betsy DeVos, showed that both employed a loophole, which was accidentally created by Congress, to escape estate and gift taxes.
As ProPublica has revealed in a series of articles this year, these tactics, if sometimes aggressive, are completely legal. And they’re not universal among wealthy politicians. ProPublica reviewed tax data for a couple dozen wealthy current and former government officials. Their data shows that many of them paid relatively high tax rates while employing more modest use of the fairly standard deductions of the rich.
The politicians who paid little or exploited loopholes either defended their practices as completely proper or declined to comment.
“The Governor has paid every cent of taxes he owes, he has championed tax reform and tax fairness to fix this broken system for everybody, to report otherwise would be inaccurate,” Polis’ spokesperson wrote in an email.
During the late 1990s dot-com era, Polis earned a reputation as a boy wonder. He turned his parents’ small greeting card company into a website, bluemountain.com, which was among the first to enable users to send free virtual cards. He and his family sold the site in 1999 for $780 million.
With the windfall from the sale, Polis continued to start new ventures and invest, but he also began laying the groundwork for a career in politics. He landed in the governor’s office in 2019 when he was just 43.
One of his tools for raising his profile was philanthropy. His generous donations to charity became a theme of both his 2008 run for Congress and his 2018 run for Colorado’s highest office.
Philanthropy also helped keep his tax rate enviably low. In many years, the deductions he claimed for his charitable giving were large enough to wipe out half the income he would have owed taxes on. His giving allowed him, in essence, to take some of the money he would have paid into the public coffers and donate it instead to causes of his choosing.
But an examination of Polis’ philanthropy shows that while he has given to a wide variety of causes, some of his donations served to promote him, blurring the lines between charity and campaigning.
According to the tax filings of his charity, the Jared Polis Foundation, the organization spent more than $2 million from 2001 to 2008 on a semiannual mailer sent to “hundreds of thousands of households throughout Colorado” that was intended to build “on a foundation of familiarity with Jared Polis’ name and his support of public education.” It was one of the charity’s largest expenditures.
A 2005 edition of the mailer reviewed by ProPublica had the feel of a campaign ad. It was emblazoned with the title “Jared Polis Education Report,” included his name six times on the cover and featured photos of Polis, a former state board of education member, surrounded by smiling school children.
The newsletters were discontinued just as he was elected. Because the mailers did not explicitly advocate for his election, they would have been legally allowed as a charitable expenditure.
A decade later, when he ran for governor in a race that he personally poured more than $20 million into, Polis featured his philanthropy in his campaign. In one ad, he used testimonials from an employee and a graduate of a business training charity he founded for military veterans.
Polis’ spokesperson, Victoria Graham, defended the mailers, saying they were intended “to promote innovations and successful models in public education and to raise awareness for the challenges facing public education.” She also pointed to a range of other philanthropy Polis was involved in, from founding charter schools, which she noted were not named after him, to distributing computers to organizations in need.
“His philanthropy is not and has never been motivated by receiving a tax write-off, and to state otherwise is not only inaccurate but fabricating motives and intent and cynical in its view of charity,” Graham said.
While Polis’ charitable giving has helped keep the percentage of his income he pays in taxes low, he has also been able to keep his total taxable income relatively small by using another strategy common among the wealthy: investing in businesses that grow in value but produce minimal income.
It sounds counterintuitive, but it’s a basic principle of the U.S. tax system — one that typically benefits wealthy people who can afford not to take income. Investments only trigger income taxes when they produce “realized” gains, such as dividends from a stock holding, the sale of an asset or profits from a company. But an investment’s growth in value, while it makes its owner richer, is not taxable.
Polis acknowledged his use of the strategy in 2008 after he released tax information during his first run for Congress and faced criticism for paying so little in taxes. “I founded several high-growth companies, and we would manage those for growth rather than for profit,” he said. “When I make money, I pay taxes. When I don’t make money, I don’t.”
In one of the recent years Polis paid no income taxes, his losses were larger than his income. In two of the years, it was about a million dollars. From 2010 to 2018, when he paid an overall rate of just 8.2%, including payroll taxes, his income averaged $1.5 million.
During that period of low taxes and relatively low income, Polis’ estimated net worth rose sharply. Members of Congress only have to report the value of each of their assets in ranges, so assigning a precise number is impossible. But the nonprofit data site OpenSecrets, which makes estimates by taking the midpoint of the ranges, shows Polis’ wealth growing from $143 million in 2010 to $306 million in 2017, making him the third richest-member of the House at the time. (Graham said congressional disclosure forms are confusingly formatted, potentially causing certain assets to be counted more than once, “so these numbers are likely wildly off.” She did not provide alternative net worth figures.)
One of Polis’ primary vehicles for building his fortune, while avoiding taxable income, appears to have been a family office, Jovian Holdings. The board of directors included his father, sister and a rather surprising outsider: Arthur Laffer. The famed conservative economist’s Laffer Curve provided the Reagan administration with the intellectual basis for arguing that cutting taxes would increase tax revenue. (Polis’ sister is a ProPublica donor.)
The term family office has a mom-and-pop feel, but it is actually part of the infrastructure of protecting the fortunes of the ultrawealthy, from crafting investment and tax strategy to succession and estate planning to concierge services. Depending on how they’re organized, for instance as a business, their costs — the salaries of the staff, rent — can be deductible.
One of the executives at Polis’ family office, according to her LinkedIn profile, is a seasoned tax expert who specializes in “maximizing cost savings both operationally and with all taxing authorities.” She removed that detail around the time ProPublica approached Polis about his taxes.
Unlike ordinary investors, Polis was able to claim millions in deductions for some of the costs of his money management, specifically his family office, which contributed to lowering his tax burden. Ironically, the investment apparatus that helped Polis avoid taxable income became a tax break.
ProPublica discussed the scenario, without naming Polis, with Bob Lord, tax counsel for the advocacy group Americans for Tax Fairness. He said the public appears to be essentially subsidizing Polis’ investing while getting little in return. With a typical business, he said, you get the tax break but also relatively quickly make taxable income.
The costs of a family office are “being taken even though the income may be way out in the future. It’s just a giveaway,” Lord said. “What is the public getting from it? This really, really rich politician gets to shelter his income while his investments grow and doesn’t pay tax on it until he sells.”
Deferring paying taxes is a valuable perk. But the strategy, Lord said, may allow Polis an even more lucrative outcome. Now that Polis has made his fortune, he may be able to largely dodge the tax system forever. Should he die before selling his investments, his heirs would never owe income taxes on the growth.
Graham acknowledged that the tax system unfairly benefits the wealthy but said Polis is not purposely avoiding income that would result in taxes.
“The Governor has long championed tax reforms precisely because the income tax is inadequate and a mismatched way to tax most wealthy people who do not have a regular income but who make money in other ways and should be taxed,” she said. “Since 2006, Governor Polis has paid over $20 million in taxes on the money he earned on his gains and he has championed tax reforms that would lower the tax burden on middle-income earners and eliminate loopholes to ensure higher earners pay their share.”
ProPublica’s data shows that at least two federal officials have already taken steps to preserve their family fortunes for their heirs, exploiting loopholes that divert revenue from the federal government.
Scott, the Florida senator who ran one of the world’s largest health care companies, and DeVos, Trump’s education secretary and believed to be the richest member of his cabinet, have both stored assets in grantor retained annuity trusts — a form of trust used to avoid gift and estate taxes.
GRATs, as they’re commonly known, were accidentally created by Congress in 1990. Lawmakers were trying to close another estate tax loophole and in doing so unintentionally paved the way for another one. The lawyer who pioneered the trusts estimated in 2013 that they had cost the federal government about $100 billion over the prior 13 years.
To use this tax-avoidance technique, you put an asset, like stocks or real estate, into a trust assigned to your heirs. The trust pays you back the starting value of the asset (plus some interest). If the original asset rises in value, the gains can go to your heirs tax-free.
GRATs have become widely used among the superrich. A ProPublica investigation found that more than half of the nation’s richest individuals have employed them and other trusts to avoid estate taxes.
It’s unclear from ProPublica’s data how much DeVos, 63, and Scott, 68, were able to transfer tax-free.
DeVos and her husband employed a GRAT from at least 2000 to 2003. DeVos’ father was a wealthy industrialist. Her husband was the president of Amway, a multilevel marketing company that focuses on health, beauty and home products. Her family is believed to be worth billions.
Her causes both before and during her time in government depended on tax dollars. As a donor and fundraiser for Republican causes, she pushed for charter schools and government subsidies to allow parents to send their kids to private schools. As education secretary, she pushed to send millions of federal dollars intended for public schools to private and religious schools instead.
Scott, one of the wealthiest senators, with a net worth likely in the hundreds of millions, used a GRAT for much longer, from at least 2001 through 2009. His tax data shows the assets in the trust — stakes of a private investment fund and family partnership he and his wife created — receiving millions in income.
When he was in the private sector, Scott benefited from federal programs like Medicare, which are funded by taxes. He built and ran Columbia/HCA, a massive chain of for-profit hospitals. After a fraud investigation became public, he resigned and the company paid $1.7 billion to settle allegations it overbilled government health programs. Scott has previously emphasized that he was never charged, though he acknowledged the company made mistakes.
Scott declined to comment. Nick Wasmiller, a spokesman for DeVos, said she “pays her taxes in full as required by law. Your ‘reporting’ is not only factually wrong but also doubles-down on the criminal actions that underpin ProPublica’s political campaign to prop up the Biden Administration’s failing agenda.”
California Congressman Darrell Issa was one of a handful of Republicans who bucked his party in 2017 and voted against Trump’s tax overhaul.
Issa said he opposed the legislation because it all but eliminated the deduction taxpayers could take on their federal returns for state and local taxes. That provision was particularly contentious in high tax blue states like California, but most Republicans from his state still fell in line. The other GOP congressman in the San Diego area, for example, voted yes.
Limiting the write-off, known as the SALT deduction, was one of the few progressive changes in the Trump tax law. The deduction had long disproportionately benefited the wealthiest because they pay the most in state and local taxes. According to one projection, if the cap were removed from the deduction, households with income in the top 1% would reap the most benefit, paying $31,000 less a year on average — amounting to more than half of the total taxes avoided through the write-off. The top 25% of households would average less than $3,000 in savings a year, and the savings drop precipitously from there, with most households deriving no benefit.
In interviews and public statements, Issa said in fighting to preserve the deduction, he was defending the interests of middle-class taxpayers. “I didn’t come to Washington to raise taxes on my constituents,” he said at the time, “and I do not plan to start today.”
It’s true that more than 40% of taxpayers in Issa’s former district, a relatively affluent swath of Southern California, were able to make at least some use of the deduction.
But the 68-year-old congressman, who made a fortune in the car alarm business, was in the top echelon of its beneficiaries. Between 2003 and 2017, his tax data shows, Issa generally paid a relatively high tax rate but was able to claim more than $51 million in write-offs thanks to the SALT deduction, an average of more than $3 million a year.
By contrast, households in his district that made between $100,000 and $200,000 and took the SALT deduction claimed an average of $14,843 in 2017.
Issa’s spokesman, Jonathan Wilcox, declined to say if the SALT deduction’s impact on the congressman’s taxes factored into his decision to advocate for it.
“So much stupid,” Wilcox said. “Be sure to write back if you ever do better than trolling for garbage.”
Gov. Jim Justice is believed to be the richest person in West Virginia, controlling vast reserves of valuable steelmaking coal and owning The Greenbrier luxury resort. He made an appearance in 2014 on the Forbes list of 400 wealthiest Americans. Estimates of his net worth have ranged from the hundreds of millions to well over a billion.
Nonetheless, he’s paid little or no federal income taxes for almost every year between 2000 and 2018, ProPublica’s trove of tax records shows. In 12 of those years he paid nothing, and in all but two of those years, his rate didn’t exceed 4%.
His largest tax payment came in 2009, when his family sold off much of its mining holdings to a Russian company for more than half a billion dollars. That year, after deductions, his tax rate rose to a modest 13.4%.
In more recent years, Justice, 70, has reported tens of millions in losses each year. That not only helped him to minimize his federal income taxes, it also allowed him to apply those losses to his profits from previous years — and get refunds for the taxes he initially paid in those years.
Justice’s income was low enough in 2018 for his family to qualify for and receive a $2,400 coronavirus stimulus check, aid meant for low- and middle-income Americans.
The recent years of large losses reported on Justice’s tax returns have coincided with real signs of financial problems. The coal industry’s fortunes have rapidly declined. He’s been hounded for unpaid bills and loans. The Russian company that bought much of his coal empire sued him and got him to buy back the assets — at a much discounted price but attached to significant debt. Forbes knocked him off its wealth ranking, citing escalating battles with two major lenders over unpaid debt. Justice’s representatives have said he pays what he owes, and his business empire is in good shape.
But even before his empire began showing significant cracks, Justice was reporting losses or little income for a man so wealthy. From 1996 to 2008, Justice, who received a coal and farming fortune from his father, who died in 1993, either reported losses to the IRS or just a few hundred thousand dollars in income.
The disconnect could be explained by the generous deductions afforded to coal business owners.
For example, owners are allowed a depletion deduction, which allows them to take 10% of the revenue from coal they extract and write it off against their profit. This spin on depreciation can have outsized benefits because unlike normal depreciation — in which the write-offs are based on how much you paid for an asset — the write-off amount here faces no such limit, and can therefore exceed the initial investment. The deduction has been criticized by environmentalists and congressional Democrats as an overly generous giveaway.
Another benefit coal owners get is the ability to immediately expense much of their mine development costs on their taxes instead of being forced to stretch such deductions over a longer period of time. Justice has said that in the 15 years after his father’s death, he oversaw “a massive expansion of multiple businesses which included significant coal reserve expansion” — development that could have provided him with a significant stockpile of such write-offs. (ProPublica has previously reported on other generous write-offs. Sports team owners, for example, are allowed to deduct the value of their intangible assets — such as media deals and franchise rights — as wasting assets, even as they rise in value.)
Experts said this could explain how Justice could have reported negative income of $15 million in 2008, a year in which Mechel, the Russian company that subsequently bought much of his family’s coal empire, said that business alone produced about $94 million in EBITDA — a common measure of a business’ profitability before taxes and some other expenses.
Justice declined to answer a list of specific questions about his taxes. In a statement, his lawyer, Steve Ruby, said Justice “has paid millions upon millions of dollars in state and federal income taxes and has always followed the law. In many years, his businesses have suffered losses as the result of weak coal prices combined with substantial outlays to save jobs at local businesses that other companies were abandoning.
“When many other coal producers were filing for bankruptcy, the Justice companies persevered and refused to take the easy way out through a bankruptcy proceeding, a decision that contributed to those losses. Like any other taxpayer, Gov. Justice does not owe income taxes in years in which his income is negative,” the statement read.
Ruby confirmed that Justice received coronavirus stimulus checks but said he did not cash them.
Like Scott and DeVos, Justice has used GRATs to sidestep estate and gift taxes, his returns and court records suggest.
In 2008, the year before he sold much of his coal empire to the Russian company, two GRATs appeared on his returns for the first time. And when the Russian company sued Justice, it also sued him in his capacity as the trustee for those GRATs. Justice had placed at least some of the coal assets into the trusts before the sale, according to the lawsuit.
Ruby’s statement did not address Justice’s use of GRATs.
Above: Photo Collage /Lynxotic / Original Image by ICIJ
“This is the Panama Papers on steroids.”
In what’s being called the “biggest-ever leak of offshore data,” a cache of nearly 12 million documents published Sunday laid bare the hidden wealth, secret dealings, and corruption of hundreds of world leaders, billionaires, public officials, celebrities, and others.
The bombshell revelations—known as the Pandora Papers—were published by the International Consortium of Investigative Journalists (ICIJ) and include private emails, secret contracts, and other records obtained during a two-year investigation involving more than 600 journalists in 117 countries and territories.
“This is the Panama Papers on steroids,” said ICIJ director Gerard Ryle, referring to the 2016 exposé of the tax-evading secrets of the super-rich. “It’s broader, richer, and has more detail.”
NEW: #PandoraPapers reveals the inner workings of a shadow economy that benefits the wealthy and well-connected at the expense of everyone else.
Brought to you by ICIJ and 600+ journalists, the largest collaboration in journalism history. 🧵 https://t.co/qXMuUcqPc4
More than 100 billionaires feature in the leaked data, as well as celebrities, rock stars, and business leaders. Many use shell companies to hold luxury items such as property and yachts, as well as incognito bank accounts. There is even art ranging from looted Cambodian antiquities to paintings by Picasso and murals by Banksy.
“There’s never been anything on this scale and it shows the reality of what offshore companies can offer to help people hide dodgy cash or avoid tax,” said ICIJ’s Fergus Shiel, who added that the people in the files “are using those offshore accounts, those offshore trusts, to buy hundreds of millions of dollars of property in other countries, and to enrich their own families, at the expense of their citizens.”
The leaked documents reveal how some of the world’s wealthiest people avert the financial consequences of their misdeeds by using offshore entities. Dozens of current and former world leaders feature prominently in the files, including Russian President Vladimir Putin, Jordanian King Abdullah II, and former British Prime Minister Tony Blair.
While most of the richest Americans do not appear in the files, The Washington Postreports that “perhaps the most troubling revelations for the United States… center on its expanding complicity in the offshore economy.”
Why so few US names in Pandora Papers? Largely because US is itself a spectacularly corrupt tax haven. “Financial experts said the uber-rich in the United States tend to pay such low tax rates that they have less incentive to seek offshore havens.” https://t.co/YaUH86VBEE
Chuck Collins, author of The Wealth Hoarders: How https://bookshop.org/a/565/9781509543496Billionaires Pay Millions to Hide Trillions, and co-editor of Inequality.org at the Institute for Policy Studies, said in a statement that “the U.S. has become the weak link in stopping global crime and wealth hiding.”
“States like South Dakota and Delaware have morphed their laws to attract billions, sometimes illicitly obtained, from around the world,” he said. “We in the U.S. should be embarrassed that we’ve become a magnet for kleptocratic funds.”
Collins added that the Pandora Papers show “it is time for U.S. lawmakers to shut down the hidden wealth system that allows for such aggressive tax avoidance and the sequestering of wealth.”
ICIJ said Sunday that the “publication of Pandora Papers stories comes at a critical moment in a global debate over the fairness of the international tax system, the role of Western professionals in the shadow economy, and the failure of governments to stanch the flow of dirty money into hidden companies and trusts,” and that the documents “are expected to yield new revelations for years to come.”
Originally published on Common Dreams by BRETT WILKINS and republished under a Creative Commons license (CC BY-NC-ND 3.0).
Recent White House Study on Taxes Shows the Wealthy Pay a Lower Rate Than Everybody Else
A decade ago, in an essay for The New York Times, Warren Buffett disclosed that he had paid nearly $7 million in federal taxes in 2010. “That sounds like a lot of money,” he wrote. “But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.”
The words “taxable income” are doing a lot of work in that sentence.
Buffett owns a substantial number of shares in Berkshire Hathaway, the fabulously successful holding company he founded decades ago. As the company’s shares have soared nearly every year, his wealth has grown by billions. Under the U.S. tax code, none of that is taxed until he sells shares at a profit.
A little math shows that Buffett’s 17.4% rate meant he reported roughly $40.2 million in income in a year where Forbes said his wealth grew by $3 billion. His revelation made it possible to compare how much he was paying the government to the increase in the size of his fortune.
No one did so, and Buffett became something of a folk hero for calling for any increase in taxes.
When we obtained access to a trove of tax data on the richest Americans, it quickly became clear to our reporters that Buffett’s comparison of his own tax rate to his employees’ vastly understates the inequity of our tax system. Buffett is far from unique; the documents showed that the amount of money people like Michael Bloomberg, Jeff Bezos or Elon Musk reported to the IRS as income was infinitesimal when measured against their annual gains in wealth.
And so the first story in our “Secret IRS Files” series set out a new concept that makes more sense in our 21st century Gilded Age; we called it “the true tax rate.” We compared the annual taxes paid by the ultrarich to their wealth gains to give readers a sense of how the system really works.
From 2014 to 2018, we pointed out, Buffett paid $125 million in federal taxes. As he said, that sounds like a lot. But according to Forbes, his riches rose $24.3 billion during that period, making his true tax rate 0.1%. In a detailed written response, Buffett defended his practices but did not directly address ProPublica’s true tax rate calculation.
When we published this story, howls of rage rang out from the freewheeling corners of Twitter to the ornate offices on Wall Street. Some of the most irate critics wrote to me directly and demanded to know whether I was so @#$!@ stupid that I didn’t understand the meaning of the word “income tax.”
“This story, sadly, reeks with ‘class envy,’” one angry reader wrote. “If this was intended to get clicks, you made your money.” We’re a nonprofit and our revenue from advertising adds almost nothing to our annual budget, but I understand this reader’s larger point, which we noted in the story: The ultrarich are doing only what the current tax code invites them to do.
The debate intensified, and the White House-backed proposals on taxes advanced by congressional Democrats largely followed the traditional approach of raising rates on income. A separate bill introduced by Sens. Elizabeth Warren and Bernie Sanders to impose a 3% tax on all wealth above $1 billion is seen as having little chance of passing.
The reluctance to embrace a wealth tax is deeply rooted. The biggest donors to both parties would be hit hard by such a law. And as we pointed out in our initial story, the complexities of taxing wealth are not trivial. Several countries have tried and struggled to figure out a fair way to tax stock gains. Does an entrepreneur whose stock skyrockets in one year, and pays a big tax, deserve a rebate if his company’s shares plummet the next year?
All of that said, we took note when White House economists issued a study that used publicly available data to estimate “the average Federal individual income tax rate paid by the 400 wealthiest American families’ in recent years, determined using a more comprehensive measure of income.” Their methodology was similar to ours, and their findings — that those families gained $1.8 trillion from 2010 to 2018 and paid 8.2% in taxes — are in line with what we found in the tax data.
The authors say their findings are evidence in support of President Joe Biden’s plan for tweaking the existing system; the words “wealth tax” are not mentioned. They point to the administration’s proposal to impose higher tax rates on stock dividends and on capital gains, the profit an investor reaps when selling a stock whose value has risen.
(The Biden administration has proposed getting rid of a provision in the tax code that shields heirs who inherit stock from paying capital gains tax on the growth in value that occurred before the shares were transferred.)
None of the proposed changes come close to addressing the biggest hole in the system, which is that an ultrarich person can live comfortably off gains in wealth while never selling a single share. As our initial story pointed out, the Buffetts and Bezos of the world can borrow against the value of their considerable holdings and live comfortably without selling stock or receiving any income from dividends, which new companies like Tesla and Amazon don’t pay.
The strategy, known as “buy, borrow and die,” allows the wealthy to amass fast fortunes, pay no taxes on those gains and pass on much of the wealth to their descendants.
Herb and Marion Sandler, the founders of ProPublica, made it clear from the outset that they hoped our journalism would spur real-world change. They were not particularly interested in stories whose biggest effect was that they had “started a conversation.”
We still measure our success by tangible effects. But over the years, we have seen that the road to impact on very complex issues can begin by changing the conversation.
Lawmakers have said that some of the most egregious tax loopholes we’ve exposed, notably multibillion-dollar Roth IRA accounts, will be scrutinized as Congress takes up tax legislation in coming months.
There’s no telling where the larger conversation about taxing wealth will lead. As the White House paper suggests, a new way of thinking about equality and taxation has taken center stage. Whether that ultimately results in change remains very much an open question.
“We continue to bankroll the very fossil fuel companies responsible for the climate crisis, then wonder why our planet is on fire.”
A new report released Wednesday identifies $86 billion worth of offshore tax loopholes that a dozen U.S.-based oil and gas companies exploit each year as part of a “tax bonanza,” a finding that comes as climate justice advocates push Congress to eliminate subsidies to the fossil fuel industry.
“Our government cannot continue to bankroll climate destruction,” Friends of the Earth tweeted Wednesday.
NEW REPORT: Exxon Mobil currently relies on a tax loophole worth nearly one BILLION dollars. Enough is enough — time to gut all $121 billion in fossil fuel subsidies. Our government cannot continue to bankroll climate destruction.#EndFossilFuelSubsidieshttps://t.co/1gdN6oEgQt
The report (pdf), compiled by Friends of the Earth, Oxfam America, and BailoutWatch, reveals the consequences of “two esoteric provisions in the tax code worth tens of billions of dollars to Big Oil’s multinational majors,” including ExxonMobil, Chevron, ConocoPhillips, and other polluters most responsible for the climate emergency.
As a result of the GOP’s 2017 tax law, corporations that drill overseas benefit from special treatment under the Global Intangible Low-Tax (GILTI) framework, which covers Foreign Oil and Gas Extraction Income (FOGEI).
The Treasury Department estimates that repealing the Trump-era exemption for FOGEI would raise $84.8 billion in revenue from just 12 companies that are currently eligible for the carveout, the report notes.
“It is unfortunate but not surprising that the handful of companies benefitting from these loopholes are lobbying to protect their special treatment.” —Chrive Kuveke, BailoutWatch
Another corporate handout, the so-called dual capacity loophole, is “a longstanding gimmick” wherein fossil fuel giants “artificially inflat[e] their foreign tax bills” to evade U.S. taxes.
Although they are permitted to claim tax credits for taxes paid to foreign governments, U.S. companies are not allowed to do so for non-tax payments such as royalties.
“In practice, however, the categories often are commingled—particularly when companies make a single combined payment including both taxes and fees,” the report explains. “A foreign country may even try to disguise non-tax payments as a tax, knowing that in many cases a multinational company may receive a foreign tax credit from its home country. Existing regulation gives dual capacity taxpayers vast latitude to assert what portions of their payments are taxes eligible to offset U.S. tax bills.”
Eliminating the dual capacity loophole would raise at least an additional $1.4 billion, according to the Biden administration, while the Joint Committee on Taxation puts the figure somewhere between $5.6 billion and $13.1 billion. The report points out that “the estimates vary so widely in part because we have precious little visibility into Big Oil’s payments to governments—and that’s just how the companies want it.”
“As Democrats propose closing loopholes to help cover the cost of their $3.5 trillion reconciliation package,” the report states, “these obscure subsidies present a rare chance to act on climate, fund infrastructure, and promote tax fairness in a single stroke.”
While the House Ways and Means Committee’s markup of the Build Back Better Act includes a tax reform proposal that would reverse the FOGEI carveout and the dual capacity loophole, it would leave intact at least $35 billion in federal subsidies for domestic fossil fuel production—despite President Joe Biden’s call to phase out polluter giveaways over a decade.
House Democrats’ failure to stop showering Big Oil with public money—a move supported by a majority of people in the U.S. and many, though not all, Democratic lawmakers—has drawn progressives’ ire.
“The House bill made a decent start by targeting Big Oil’s international tax loopholes, but it went nowhere near far enough,” Lukas Ross, Climate and Energy Justice program manager at Friends of the Earth, said Wednesday in a statement.
Senate Majority Leader Chuck Schumer (D-N.Y.) “needs to lead on climate and ensure that all $121 billion in fossil fuel subsidies are repealed in the final package,” Ross added.
According to Daniel Mulé, policy lead for Oxfam’s Extractive Industries Tax and Transparency project, “U.S. Big Oil companies like Exxon and Chevron have fought tooth and nail to keep the payments they make to governments around the world a secret, while paying lip service to the global movement for payment transparency.”
“This secrecy,” said Mulé, “has a potential tax impact in the U.S. as well, as it makes it all the more difficult to discern if U.S. oil and gas companies are illegitimately inflating their foreign tax credits.”
The report draws attention to several legislative proposals that would do away with subsidies for domestic fossil fuel production as well as tax exemptions for foreign extraction, including:
The No Tax Breaks for Outsourcing Act from Sens. Chris Van Hollen (D-Md.), Sheldon Whitehouse (D-R.I.), and Dick Durbin (D-Ill.), and Rep. Lloyd Doggett (D-Texas);
The Corporate Tax Dodging Prevention Act from Sens. Van Hollen, Sanders, Whitehouse, Kirsten Gillibrand (D-N.Y.), and Jack Reed (D-R.I.), and Reps. Jimmy Gomez (D-Calif.) and Jan Schakowski (D-Ill.);
The End Oil and Gas Tax Subsidies Act from Reps. Earl Blumenauer (D-Ore.), Sean Casten (D-Ill.), Donald McEachin (D-Va.), and Katie Porter (D-Calif.).
The report was released the same day members of the Congressional Progressive Caucus urged House leaders to include a repeal of domestic fossil fuel subsidies in the Democrats’ Build Back Better Act.
“Instead of creating jobs,” the progressive lawmakers wrote, the subsidies “widen the profit margin of fossil fuel companies.”
We continue to bankroll the very fossil fuel companies responsible for the climate crisis, then wonder why our planet is on fire.
Thank you to the reps calling for an end to Big Oil’s $86 billion in offshore tax loopholes — as well as their $35 billion in domestic handouts! pic.twitter.com/hY0EVsOMK4
The report emphasizes that fossil fuel champions—including the Exxon lobbyist who was caught on camera discussing how the company benefits from offshore tax loopholes and intends to further undermine climate action—are fighting hard to preserve billions of dollars in taxpayer-funded handouts.
“Big Oil isn’t going quietly,” said Chrive Kuveke, an analyst at BailoutWatch. “Since Biden became president, it is unfortunate but not surprising that the handful of companies benefitting from these loopholes are lobbying to protect their special treatment.”
NYMag Article details this deceptive talking point endlessly repeated by the Right
It’s hard to trace the origin of the partially accurate, yet highly misleading, stat that has been so often used to refute the idea that the current tax burden in the U.S. is not falling enough on the richest 1% compared to the rest of society.
The stat, which under the very narrow definition of “taxes” as federal income tax, calculated separately from any other form of tax, is, in this narrow sense, basically true. This isolated and totally meaningless fact does not address the overall taxes paid by the “top 1%” (which itself is an arbitrary category).
The reality, when overall taxes paid are taken into account, as the NT Mag article points out, is actually much less dramatic and has completely different implications for any call to “tax the rich” which was made by Alexandria Ocasio-Cortez’s Dress, as an example.
First, the top 1% represent 21% of all income, which means, by the narrow definition of declared income for tax purposes, that they “earn” more than 20% of the total income declared.
Further, this does not include the loopholes that allow billionaires to have virtually no declarable income and still avoid capital gains taxes via Roth IRAs and other methods, even as the calculated net worth of theses individuals increases by billions.
Opinion: ultimately, rather than defending the current system as if it is already adequate and somehow fair, the facts show that, on so many levels it’s hard to delineate them all, the system is functioning in a way that is not only unfair, but so corrupt that change would need to be nearly total before it could even be accurate to say that it was functioning fairly for the majority.
According to the article, the actual stat, with the above dodges, that are universally used, still not taken into account, is that: “the richest one percent earn about 21 percent of the income and pay 24 percent of the taxes”.
Which is a far cry from the ubiquitous sound byte that “1% pays 40% of taxes”.
Ask almost any billionaire how they got so obscenely rich and , invariably, you will get the response: “I just did what the law allows” or some convoluted version of that idea. Tax laws, property and financial regulations and structures, corporate stock options, Roth IRA tricks, all the tried and true methods outlined in a slate of recent articles from ProPublica and others are rightfully given credit for the insanely massive windfalls.
Not that these arrogant, self-centered sociopaths don’t jump at the chance to take credit for their “miraculous” good fortune, or even write books and “let” others write books about all the “genius” ideas and methods they used to conquer the universe.
Jeff Bezos is the most ridiculous example of this, literally dozens of books exist only to extol the virtues and genius of this a-hole that basically used one simple trick: selling dollar bills for .75 cents and using the stock market to “monetize” a trillion in intentional losses and turn them into “wealth”, to amass his absurd mountain of “worth”, yet if you read these books the central concept of his fraud doesn’t even get a mention.
Of course, 25 years later, the FTC and Lina Khan are finally beginning to wake up to the simple fact that, not only is the entire scam something that “ought-a-be-illegal”, but literally is illegal and always was, yet this comes across, so far, as a somewhat pathetic attempt to put a band-aid on the world after a nuclear holocaust has already devastated the planet.
When we say “tax the rich,” we mean nesting-doll yacht rich. For-profit prison rich. Betsy DeVos, student-loan-shark rich.
AOC used her beauty and a cheeky dress to highlight the issue of income inequality
Above: Photo / Wikipedia
AOC at the Met Gala styled herself in a “Tax the Rich” gown. The look on her was beautiful. The subject matter being broached couldn’t be uglier. Tax the rich a not a bad idea, but the system is so screwed up, and so far from any semblance of “fair”, that a few little pin pricks on trillions in undeserved holdings is basically meaningless.
How can it be said that the system is that far gone? It’s in the numbers and the proportions of “wealth”. The extremes of unequal wealth distribution have risen to levels so incredible, that it’s as if they are turning into an economic ouroboros dragon that will expand and swallow itself until it has devoured all life.
The increases, during the pandemic, for example, in the “net-worth” (which is in itself an obscene concept for measuring humans) of the worlds richest animals was like the replication of the virus the rest of us were fighting to avoid, most with too few resources to have any hope of being rescued by medical intervention, if we got infected.
This idea and proof of a system vastly out of balance can be seen everywhere you look…
In a recent, excellent, NYT article on Afghanistan multiple examples were cited illustrating who really “won” that endless war, and points out that it wasn’t the just Taliban. It was locals entrepreneurs and politicians who, early on, saw the opportunity for what it really was, a way to build personal fortunes supplying the US military with support and comfort during the endless, directionless morass.
Several examples were of people who began the war as local american sympathizers and ended up with fortunes hundreds of millions of USD and more, virtually none of which trickled into the local populations which, ostensibly, the war was meant to give a chance for “democratic freedom”. And capitalism.
Here’s a couple of paragraphs from the NYT article in full :
”Consider the case of Hikmatullah Shadman, who was just a teenager when American Special Forces rolled into Kandahar on the heels of Sept. 11. They hired him as an interpreter, paying him up to $1,500 a month — 20 times the salary of a local police officer, according to a profile of him in The New Yorker. By his late 20s, he owned a trucking company that supplied U.S. military bases, earning him more than $160 million.”
“If a small fry like Shadman could get so rich off the war on terror, imagine how much Gul Agha Sherzai, a big-time warlord-turned-governor, has raked in since he helped the C.I.A. run the Taliban out of town. His large extended family supplied everything from gravel to furniture to the military base in Kandahar. His brother controlled the airport. Nobody knows how much he is worth, but it is clearly hundreds of millions — enough for him to talk about a $40,000 shopping spree in Germany as if he were spending pocket change”
New York Times
Redistribution will likely only happen after the entire system collapses of its own stupidity
Hubris and pride before the fall is the reason that, when you read this, you’ll think perhaps this writer has lost his marbles. But the system is unsustainable in its current unequal, and increasingly unjust, form.
Sources: March 18, 2020 data: Forbes, “Forbes Publishes 34th Annual List Of Global Billionaires,” accessed March 18, 2020. August 17, 2021 data: Forbes, “The World’s Real-Time Billionaires, Today’s Winners and Losers,” accessed August 17, 2021.
Just one more ballooning of the one tenth of one percent and the system will be so out of balance, that only a total and complete realignment of reality will allow any kind of improvement in the distribution of resources.
In fact, the opposite outcome is far more likely, where to increase in the imbalance will continue ‘till there are no options, but for the current system to be drowned in its own orgy of self-congratulations.
The solutions that are out there, many even championed ironically and paradoxically by the very billionaires that sit on top of this mountain of inequality, could work. But a “penny tax” or some kind of gratuitous show of “generosity” by those that have wealth that, if the system were designed with any form of equal distribution, they would not, and could not, have, is less than nothing.
Similar to the climate conundrum, things will have to get worse, it appears, to engage and enrage people, and wake enough people up, to set a fire under enough people, to build to a tipping point toward real change. Fortunately, if you accept that inverted and convoluted logic, that day is very near.
Senate Finance Committee Chairman Ron Wyden said on Thursday he is revisiting proposed legislation that would crack down on the giant tax-free retirement accounts amassed by the ultrawealthy after a ProPublica story exposed that billionaires were shielding fortunes inside them.
“I feel very strongly that the IRA was designed to provide retirement security to working people and their families, and not be yet another tax dodge that allows mega millionaires and billionaires to avoid paying taxes,” Wyden said in an interview.
ProPublica reported Thursday that the Roth IRA, a retirement vehicle originally intended to spur middle-class savings, was being hijacked by the ultrawealthy and used to create giant onshore tax shelters. Tax records obtained by ProPublica revealed that Peter Thiel, a co-founder of PayPal and an investor in Facebook, had a Roth IRA worth $5 billion as of 2019. Under the rules for the accounts, if he waits till he turns 59 and a half, he can withdraw money from the account tax-free.
The story is part of ProPublica’s ongoing series on how the country’s richest citizens sidestep the nation’s income tax system. ProPublica has obtained a trove of IRS tax return data on thousands of the wealthiest people in the U.S., covering more than 15 years. The records have allowed ProPublica to begin, this month, an unprecedented exploration of the tax-avoidance strategies available to the ultrawealthy, allowing them to avoid taxes in ways most Americans can’t.
Wyden said ProPublica’s stories have shifted the debate about taxes at the grassroots level, underscoring a “double standard” that would have a nurse in Medford, Oregon, dutifully paying taxes “with every single paycheck” while the wealthiest Americans “just defer, defer, defer paying their taxes almost until perpetuity.”
Wyden said, “Now, the American people are with us on the proposition that everybody ought to pay their fair share, and in that sense, the debate about taxes has really changed a lot.”
The focus on recouping lost tax revenue comes at a critical time, Wyden and others say, as lawmakers look for ways to fund President Joe Biden’s infrastructure plan and other domestic spending.
Wyden had worried for years that Roth IRAs were being abused by the ultrawealthy. In 2016, he put forth a proposal that would have reined in the amount of money that could be stowed inside them.
“If I had my way back in 2016, my bill would have passed, there would have been a crackdown on these massive Roth IRA accounts built on assets from sweetheart deals,” Wyden said.
The proposal was known as the Retirement Improvements and Savings Enhancements Act. It would have required owners of Roth accounts worth more than $5 million to take out money over time, capping the accounts’ growth. It also would have slammed shut a back door that allowed the wealthy to move fortunes into Roths from less favorable retirement accounts. This maneuver, known as a conversion, allows a taxpayer to transform a traditional IRA into a Roth after paying a one-time tax.
Ted Weschler, a deputy of Warren Buffett at Berkshire Hathaway, told ProPublica he supported reforms to rein in giant Roth IRAs like his. Weschler’s account hit the $264.4 million mark in 2018 after he converted a whopping $130 million and paid a one-time tax years earlier, according to tax records obtained by ProPublica.
In a statement to ProPublica earlier this week, Weschler didn’t address any specific reform plan but said: “Although I have been an enormous beneficiary of the IRA mechanism, I personally do not feel the tax shield afforded me by my IRA is necessarily good tax policy. To this end, I am openly supportive of modifying the benefit afforded to retirement accounts once they exceed a certain threshold.”
Wyden’s proposal also targeted the stuffing of undervalued assets into Roths, which congressional investigators had flagged as the foundation of many large accounts. Under the Wyden draft bill, purchasing an asset for less than fair market value would strip the tax benefits from the entire IRA.
ProPublica’s investigation showed that Thiel purchased founder’s shares of the company that would become PayPal at $0.001 per share in 1999. At that price, he was able to buy 1.7 million shares and still fall below the $2,000 maximum contribution limit Congress had set at the time for Roth IRAs. PayPal later disclosed in an SEC filing that those shares, and others issued that year, were sold at “below fair value.”
A spokesperson for Thiel accepted detailed questions on Thiel’s behalf last week, then never responded to phone calls or emails.
The RISE Act was never introduced because, Wyden said, Republicans controlled the Senate at the time and made clear they opposed the effort. The proposal was also heartily opposed by promoters of nontraditional retirement investments. One of them wrote, at the time: “Everything about the RISE Act Proposal is opposed to capitalism and economic freedom.”
Following ProPublica’s story on Roths, Sen. Elizabeth Warren, D-Mass., said the way to address the gargantuan accounts would be a wealth tax, which would impose an annual levy on households with a net worth over $50 million.
Warren tweeted a link to the story and wrote: “Yes, our tax system is rigged with loopholes and tax shelters for billionaires like Peter Thiel. And stories like this will keep popping up until we pass a simple #WealthTax on assets over $50 million to make these guys pay their fair share.”
Yes, our tax system is rigged with loopholes and tax shelters for billionaires like Peter Thiel. And stories like this will keep popping up until we pass a simple #WealthTax on assets over $50 million to make these guys pay their fair share. https://t.co/6aP6l8tG3A
Daniel Hemel, a tax law professor at the University of Chicago who has been researching large Roths, said that Congress should simply prohibit IRAs from purchasing assets that are not bought and sold on the public market.
“There’s no reason people should be able to be gambling their retirement assets on pre-IPO stocks,” Hemel said.
He added that lawmakers should go beyond reforms targeting the accounts directly and address a potential estate tax dodge related to Roths.
If the holder of a large Roth dies, the retirement account is considered part of the taxable estate, and a significant tax is due. But, Hemel said, there’s nothing to stop an American who has amassed a giant Roth from renouncing their citizenship and moving abroad to a country with no estate taxes. It’s rare, but not unheard of, for the ultrawealthy to renounce their U.S. citizenship to avoid taxes.
Under federal law, U.S. citizens who renounce their citizenship are taxed that day on assets that have risen in value but are not yet sold. But there’s an exception for certain kinds of assets, Hemel said, including Roth retirement accounts.
Thiel acquired citizenship in New Zealand in 2011. Unlike the United States, New Zealand has no estate tax. It’s not clear whether estate taxes figured into Thiel’s decision.
A spokesperson for Thiel did not immediately respond to questions on Friday about whether estate taxes factored into Thiel’s decision to become a New Zealand citizen.
In his application for citizenship, Thiel wrote to a government minister: “I have long admired the people, culture, business environment and government of New Zealand, as well as the encouragement which is given to investment, business and trade in New Zealand.”
Patching the hole in the expatriation law, Hemel said, “should be a top policy priority because we’re talking about, with Thiel alone, billions of dollars of taxes.”
by Justin Elliott, Patricia Callahan and James Bandler for ProPublica via Creative Commons.
ProPublica drops a second monumental article based on treasure trove of IRS, SEC & court data
Excellent reporting of tax injustices among the obscenely rich continues with a huge and revelatory piece on Peter Thiel and his “little” Roth IRA scheme. Going well beyond the previous article that detailed how Bezos, Musk, Buffet and others all use loans secured with share holdings to avoid income, and thus avoid paying tax the “Lord of the Roths” is even more explosive.
While the emphasis of the article on Thiel’s Roth IRA takes on the task of trying to somehow compare an “average” investor’s potential gains with the unimaginable magnitude of Thiel’s windfall, this is something that makes sense as a valid perspective, but the obscenity is nearly lost in the opaque fog of numbers beyond comprehension.
For example: your Peter is basically gifted 1.7 million shares by the company he was one of the founders of (along with Elon Musk and the rest of the so called “PayPal Mafia). That “purchase” costing less than $2000 based on the ridiculous price of $0.001 per share was used to found a Roth IRA.
The engineered numbers were no accident: at the time, in 1999, a Roth IRA account had a maximum allowable contribution amount of $2,000. Since the shares were “below fair value”, the fact of which was admitted by PayPal in an SEC filing from the time just before the company went public, the value increased massively, by 227,490% in the first year. Which increased the value of the paltry $2k up to $3.8 million.
Though obviously not enforced, regulations at the time forbade this kind of “stuffing”. Meaning, the initial trade that launched this scheme was possibly illegitimate, if not unlawful. Or, as ProPublica more kindly phrased it: “Investors aren’t allowed to buy assets for less than their true value through an IRA. “
As a matter of fact, according to the article, the “stuffing” was so successful that no further contributions were ever made into the account after that initial 1999 sum.
Since a Roth IRA allows a person to trade stocks within the account tax free, as long as no withdrawals are made, this large but still comprehensible sum was the start of a 20 year use of the tax statutes to build a fortune of over $5 billion without paying a single penny in tax.
Hitting $870 million in value by 2008, by 2019 the tax free enterprise, built on the less than $2000 initial contribution (stock “purchase”), ultimately ballooned to 96 sub-accounts with holdings of $5 billion.
Ok, so that’s the short summary of the mind blowing numbers. For a more detailed account, by all means visit the original article.
The numbers are outrageous, but the entitlement and arrogance is on a whole other level
The part of the story that should spark outrage is not in the numbers but begins where the almost inhuman greed, hubris and hypocrisy at this good fortune grows apace with the size of the tax free bonanza. Because Peter Tiel is not just any run-of-the-mill untaxed billionaire.
The endlessly expanding windfall he received, tax free, did not engender a mindset of charity or gratefulness at his miraculous providence.
Above: Photo Collage / Lynxotic
Instead Thiel, once the wealth lent him a position of power, preached and pushed the idea that the US government, the same one that he was able to avoid paying taxes to, was guilty of over-taxing people like him (and poor people too).
He spent millions of dollars in an effort to influence Republican politicians and groups that have anti-tax agendas, to change the laws in ways that would add even more advantages to his already preposterously privileged position. Then this: as per ProPublica: “In 2016, he became the rare Silicon Valley titan to endorse Donald Trump.”
And, in an arrogance that is as incomprehensible as the size his effortlessly expanding fortune, he espouses the belief that people like him are entitled to these kind of spoils because, after all, without him we might have to live without PayPal and….wait for it…. Facebook.
Yes, you heard that right. In 2004, Thiel used his IRA to buy $500,000 worth of shares in a, then private, company called Facebook, which was the first big outside investment in Zuckerberg’s soon to be massive monstrosity.
By using his IRA funds to buy shares of the start-up he was able to avoid tax on all the future gains of those shares. (ProPublica, in excellent investigative reporting, uncovered this tidbit by combing though Facebook court documents).
So, again, ostensibly, based on his well known statements, we are not only to congratulate him on his clever method of avoiding any taxation whatsoever on the first gambit with the PayPal shares, but we ought to effusively thank him for helping Facebook to become the dangerous purveyor of surveillance and phantom tollbooth Ponzi empire that is it today?
In perhaps one of the greatest illustrations of how power corrupts, this idea that because he was able to amass a fortune on such a massive scale without the burden of any tax whatsoever, he is somehow a hero to be emulated, is the real reason for us to be outraged.
That an average person might be lucky to turn $2000 into $250,000 over two decades, as was illustrated in detail in the article, while Thiel easily turned it into $5 billion, is outrageous, yes.
But the real “crime” is that it was done with zero benefit to anyone except him and other Silicon Valley insiders at companies like PayPal and Facebook.
Could it be argued that Facebook is a gift to humanity? Well, in 2021 that would be a tough argument to put forth without being laughed out of the room. And PayPal? It’s doubtful that Satoshi Nakamoto has to fear competition from any of the PayPal Mafia (including Mr. Musk) when the crown for greatest financial innovator of the century is awarded.
In a revelation that could have received more page inches, the article also exposes a second, possibly more plausible reason, regarding why Thiel went to great lengths to bankrupt Gawker Media, which he blamed for outing him as Gay. That politically convenient motivation could very well have covered up the real reason:
Again, as per ProPublica:
“In a story headlined, “Give Me Liberty or Give Me Taxpayer Money,” Gawker Media, citing anonymous sources, revealed that Thiel held his Facebook investment in a tax-free Roth.”
Companies built on greed and hubris create nothing and, in the end, die
Thiel believes he will live to be 120 years old. Based on his comments and writings he appears to believe that the world would benefit from that eventuality.
But when looking at the companies he helped to build, and the obscene fortune he was rewarded with for binging them into being, it seems like most of us, after accessing his life’s works and “accomplishments”, would be more thankful for the improbability of that dream coming true.
2087? That will be the year that either Utopia or Oblivion will have arrived for humanity and the planet earth. If by a miracle an earthly Utopia comes to be, it is highly unlikely that PayPal, Facebook or Mr. Thiel will have had any hand in bringing it about.
