With issues of wealth inequality and tax avoidance by the ultrarich front and center in Washington, a new analysis from ProPublica of more than 15 years of leaked confidential individual tax data shows how the wealthiest Americans pay very little—or, in some cases, nothing—in federal income tax.
KEY FACTS
ProPublica found that while the median American household earning roughly $70,000 per year paid 14% in federal taxes each year, the 25 richest Americans (by Forbes’ tally) paid a “true tax rate” of just 3.4% on wealth growth of $401 billion between 2014 and 2018.
ProPublica’s “true tax rate” is a novel and sure-to-be-controversial measure of how much taxes an individual paid each year compared to Forbes’ calculation of how much their wealth grew during the same time, meaning that ProPublica is counting unrealized capital gains, which are not taxed under the current U.S. Tax Code.
Amazon founder and CEO Jeff Bezos paid a true tax rate of 0.98% as his wealth grew by a staggering $99 billion between 2014 and 2018; he reported just $4.22 billion in reported income during the same period.
As Elon Musk, the billionaire CEO of Tesla, saw his wealth balloon by $13.9 billion between 2014 and 2018, he reported $1.52 billion in income and paid a true tax rate of 3.27%.
SUPRISING FACT
Bezos paid no federal income tax in 2007, ProPublica found, even though he added $3.8 billion to his fortune that year. That’s because he was able to offset the $46 million in income he reported with losses from investments and deductions on debts and other expenses, according to ProPublica’s analysis. ProPublica also found that Musk paid no income tax in 2018.
BIG NUMBER
$175 billion per year. That’s how much the top 1% of taxpayers contribute to the tax gap—the difference between federal taxes legally owed and those actually collected—each year, according to a March study. The study estimated that the top 1% of taxpayers don’t pay taxes on 20% of their income. Significantly, however, ProPublica’s report does not suggest those billionaires broke the law and calculates the “true tax” not on income, but on wealth, which for the very rich is a much bigger number, since unrealized gains aren’t taxed.
WHAT TO WATCH FOR
In order to pay for his $1.8 trillion American Families Plan, an ambitious spending proposal designed to dramatically increase investment in education, childcare and universal family and sick leave, President Biden has proposed a series of tax hikes on the wealthiest Americans and wants to funnel more money to the IRS so it can step up enforcement and audits of the wealthy. Biden’s proposed hikes include increasing the top ordinary income tax rate from 37% to 39.6% and taxing capital gains and dividends at the higher ordinary income rate for households making more than $1 million per year. Biden also wants to eliminate the “step-up” in basis for previously untaxed capital gains passed down to heirs above $1 million for individuals or $2 million per couple—-currently, step-up means that all the unrealized capital gains that accrued to a wealthy person who has just died are never taxed.
This article originally appeared on Forbes.
