Today, Propublica published the first in a series of blockbuster analyses of leaked tax data from America's richest billionaires - some of whom have lobbies for higher taxes on the rich! - showing that the true tax rate for billionaires is 3.4%.
Much has been made of the "K-shaped" recovery from the pandemic-driven economic collapse, where the rich got richer and the poor got poorer, but when it comes to the 0.001%, this is far more pronounced. America's billionaires got *$1.2 trillion* richer during the pandemic.
Much of this wealth accumulation is due to the fact that poor people pay high taxes, while rich people pay low taxes.
A household earning $70k pays about 14% in federal tax; In 2019, Michael Bloomberg made $2B and paid 1.3% of it in federal tax.
All this wealth-accumulation creates family dynasties, meaning that the rich stay rich, and the poor stay poor, and the only real social mobility is downward, as the middle class loses ground and slips down the ladder.
A quarter of America's richest people owe their fortune to the orifice they emerged from, not the work they did. These heirs - Waltons, Mars candy scions, Estee Lauder's kid - are the new permanent aristocracy, uplifted by the invisible hand by virtue of their "good blood."
The Propublica report - from Jesse Eisenger, Jeff Ernsthausen and Paul Kiel - is valuable not just for the names it names, but for the tax-evasion tactics it explains and the historical context it provides.
Here's how that works: the US only taxes capital gains (money you make from owning things, as opposed to doing things) when they are "realized" - that is, when you sell the asset that has appreciated in value. If you *never* sell your asset, you never pay tax on it.
So when an exec takes compensation in stock rather than cash, the exec pays no tax unless they sell the shares.
But execs don't have to sell *any* shares in order to get millions or billions of dollars to play with. Rather, they can stake those shares as collateral on loans.
If an exec sells their shares, they'll pay a 20% capital gains tax. If they borrow against the shares, they'll pay single-digit interest rates. What's more, loans aren't treated as income, so *no* tax is paid on the loan.
Even better, the *interest* on the loan can be treated as an *expense*, which you can apply to any money that comes in the door that you can't help but declare as income.
Working people borrow money because they can't afford to buy cars or houses or just close the gap between payday and an empty fridge. Rich people borrow because it lets them launder their income into tax-free loans.
When Propublica called billionaires for comment, they either got stonewalled (Elon Musk sent them a single "?" then ghosted), or heard bluster about "privacy invasions" or got responses like Warren Buffett's, about his plan to give away all his money.
That's more "good blood" nonsense: the idea that we should let people amass vast fortunes through monopoly and exploitation, so long as they - and not democratically accountable governments - then use it for social benefit.
Elite philanthropy is no substitute for democratic programs. It's primarily a means for the ultra-wealthy to launder their reputations.
Take the Sacklers - made richer than the Rockefellers through the opioid epidemic's corporate mass murders:
What's more, elite philanthropy is a vehicle for pushing "good blood" ideology. Bill Gates's foundation didn't just set out to eradicate malaria, but also public education.
It recycled the materials it used to lobby against letting South Africa make its own HIV medicine to lobby against a covid vaccine waiver:
This report is the first in a series based on the anonymous leaked data. Propublica says its source was motivated by their stellar reporting on the IRS, which revealed the intense lobbying to weaken the agency's power to audit the wealthy.
Instead, the IRS was perverted so that it primarily targeted poor people for audits, because they alone were weak enough not to resist the IRS's starved, resource-poor auditing division.
Propublica still has a lot of data to report out, but they're interested in hearing from other sources. In this supplemental article, they explain how IRS whistleblowers and others can securely leak more documents to them.
And if you don't have time to digest the excellent story with its great explainers and graphics, Propublica's got a 7-minute read version:
All of this leaves us with a question, though: what should we do about it? There's a Biden tax plan to raise taxes on the rich, but as Propublica points out, it will have virtually no effect on the "buy-borrow-die" mode of wealth accumulation.
Two other proposals *would* have an impact, though: Ron Wyden has proposed a capital gains tax on unrealized gains:
And both Bernie Sanders and Elizabeth Warren have proposed wealth taxes:
@pluralistic a 4th option exists... tax everyone less. In fact, get rid of "income tax" and move to a purely consumption based model. We currently tax money spent and money earned. money spent is much harder to avoid taxes on, especially when the tax is worked right into the cost of goods. Tax on money earned is easy for those with sufficient means to find ways to avoid.
@thatguyoverthere Consumption taxes are inherently regressive (impacting the poor more than the wealthy) for precisely the reasons outlined in Doctorow's thread above (and the source ProPublica articles): The rich spend proportionately less of their wealth.
It's axiomatic: spend less than you accumulate, grow wealth.
What needs to be taxed is WEALTH, rather than income. In most of the West, we're so inculcated in the notion of "income tax" or "sales tax" that the notion of a wealth tax is entirely alien. But a wealth tax is precisely the most efficient and progressive (weighing more heavily on the wealthy than the poor) tax, a point championed by Adam Smith, David Ricardo, Henry George, and Milton Friedman in their support of a land value tax, where land itself is a principle form of wealth.
@thatguyoverthere @pluralistic an income tax is already an economic activity tax; someone paying you for your labor and resources is not fundamentally different than you paying for the labor and resources in the price of goods
Tax on income is only easy to avoid for the wealthy because we've supplied a bunch of exceptions for wealthy folks to use. That's not a property inherent to an income tax
There are a number of arguments, most are too extensive to fit concisely in an HN comment. Pointers to some might be useful.
At the extreme you have the "utility monster" or "freedom monster" problem. Existential Comics explores both graphically and entertainingly:
Much of Adam Smith's Wealth of Nations actually addresses the issues of inequality and the dynamic between wealth and power: "Wealth, as Mr Hobbes says, is power." That's one of the shortest and most direct sentences in a book given to long and complex writing.
The Spirit Level is a book-length exploration of the problems of inequality and highly-unequal societies.
Thomas Picketty's works (Capital in the Twenty-First Century and Capital and Ideology) fit into this discussion.
Oxfam have a set of suggestions as well, notably Branko Milanovic's The Haves and the Have-Nots:
A huge part of the dynamic feeding the inequality engine is the abilty to leverage wealth to acquire loans used for expenditures:
If you own a company and take a huge salary, you'll pay 37% in income tax on the bulk of it. Sel stock and you'll pay 20% in capital gains tax --- and lose some control over your company. But take out a loan, and thesse days you'll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn't consider them income. Banks typically require collateral, but the wealthy have plenty of that.
(From ProPublica's article.)
(Loans can also be used to acquire more wealth, of course, too.)
This means that the low-interest, high-liquidity monetary policy regimes of the past 14 years, since the beginning of the 2007-8 Global Financial Crisis, are also feeding the inequality boom.
@pluralistic You know what happens when you ask the IRS to tackle the problem of US wealth getting hidden overseas? They don't attack the massive corporations, Microsoft I read put a stop to that, they attack working class people who are already paying taxes in their new countries.
Incidentally the US is now the new taxhaven for the rest of the world.
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