The investigative journalism website ProPublica published “The Secret IRS Files,” which gleaned information from illegally leaked income tax records that showed some of the 25 wealthiest Americans paid no income tax for one or more years.
Such reporting raises the question: Do the rich fail to pay their “fair share” of income tax? Is this normal?
What does the ProPublica story say?
ProPublica found that billionaires often managed to employ tax loopholes to legally avoid paying any income tax. Elon Musk paid no income tax in 2018. Jeff Bezos, Michael Bloomberg, and Carl Icahn paid no income taxes in two of the last 15 years. George Soros paid no income taxes for three years. The story compares the growth of their “wealth” during this time with the amount of income taxes paid to calculate their “true tax rate.”
What’s the problem with the ProPublica story?
There are several issues with the ProPublica story:
- It misrepresents the fact that the highest-earning Americans overall pay the lion’s share of U.S. income taxes, while the bottom half of income earners pay less than 3% of all income taxes. (See below.)
- It ignores the many kinds of other taxes paid by the wealthy, such as sales tax on their purchases.
- It compares apples and oranges: Income is not the same as wealth. Your wealth includes the value of your home or car, but you don’t actually see any of that money unless you sell them. Neither do billionaires who own stocks, the price of which could crash tomorrow.
- The fact that the story published illegally obtained documents from an unknown source raises ethical questions, although doing so clearly served a public interest.
What percentage of income taxes do the wealthiest Americans pay?
The nonpartisan Tax Foundation analyzed U.S. income tax records for the year 2018, the latest year on record, and found that the amount of income earned by the top 1% fell, while their share of income taxes rose, and that the top 1% of earners paid more income taxes than the bottom 90%:
- The share of reported income earned by the top 1 percent of taxpayers fell slightly, to 20.9 percent in 2018 from 21 percent in 2017. Their share of federal individual income taxes rose by 1.6 percentage points to 40.1 percent.
- Since 2001, the share of federal income taxes paid by the top 1 percent increased from 33.2 percent to a new high of 40.1 percent in 2018.
- In 2018, the top 50 percent of all taxpayers paid 97.1 percent of all individual income taxes, while the bottom 50 percent paid the remaining 2.9 percent.
- The top 1 percent paid a greater share of individual income taxes (40.1 percent) than the bottom 90 percent combined (28.6 percent).
- The top 1 percent of taxpayers paid a 25.4 percent average individual income tax rate, which is more than seven times higher than taxpayers in the bottom 50 percent (3.4 percent).
At the same time, the number of Americans who paid zero federal income tax rose from 28% in 1950 to 33.4% of Americans in 2016, the Tax Foundation found. As tax rates have become less “progressive,” the composition of people who are paying the taxes has become more progressive.
Why is this story controversial?
The ProPublica story about the wealthy paying taxes is controversial because leaking a private individual’s income tax records is illegal. Attorney General Merrick Garland noted that the documents were “obtained illegally,” while IRS commissioner Charles Rettig promised to oversee an investigation into the leak. Despite the fact that it is based on illegally obtained documents, social media platforms took no action to censor the story or limit ProPublica’s access to its account, as they did with the New York Post’s Hunter Biden exposé.
What’s the context driving this story?
This revelation comes as the Biden-Harris administration is pushing a tax hike aimed at those who make more than $400,000 a year, although critics say their plan will also increase the burden on the middle class.
“We know that there is more to be done to ensure that corporations (and) individuals who are at the highest income are paying more of their fair share,” said White House spokesperson Jen Psaki. Sen. Elizabeth Warren (D-MA) cited the documents to promote her proposed wealth tax.
“The story arrives amid the Biden [a]dministration’s effort to pass the largest tax increase as a share of the economy since 1968. The main Democratic argument for a tax hike is that the rich should pay their ‘fair share.’ The ProPublica story is a long argument that somehow the rich don’t pay enough. The timing here is no coincidence, comrade,” wrote The Wall Street Journal on Tuesday.
How should we think of this story?
One or more actors stole or hacked private tax documents from the IRS and fed them to ProPublica, as the Biden administration readies a tax hike to make wealthier Americans “pay their fair share.” While the ultra-wealthy may exploit tax loopholes to minimize their personal income tax, they pay a panoply of other taxes — and, overall, America’s highest earners pay well more than an equitable portion of the nation’s income taxes. A low, flat tax like the one proposed by then-Louisiana Governor Bobby Jindal would go a long way toward eliminating those loopholes and assuring that everyone shoulders the burden of ever-increasing government spending. It might also streamline the duties of IRS investigators — who may have leaked these documents to the media in the first place.
The views expressed in this piece are the author’s own and do not necessarily represent those of The Daily Wire.