IRS data shows: US billionaires’ true tax rate far lower than that of workers
On June 8, ProPublica published the first in a projected series of articles documenting the massive scale of legally sanctioned tax evasion carried out by America’s ever-expanding class of billionaires. The article, based on an exhaustive study of leaked Internal Revenue Service (IRS) documents, focuses on the period from 2014 through 2018. It demonstrates that in the course of those five years, the 25 richest Americans paid federal taxes on their increased wealth at a far lower rate than the typical US household.
The report also cites tax data on billionaire oligarchs such as Jeff Bezos, Warren Buffett, Elon Musk and Michael Bloomberg going back to the first decade of the current century, showing that they paid little or no taxes regardless of which big business party—Democrats or Republicans—occupied the White House. It explains as well that even were the Biden administration to carry out its promised increases in income tax rates for the rich, the impact on the vast fortunes of today’s robber barons would be minimal.
The authors state that in determining the increased wealth of America’s “top 0.001 percent,” they included not simply their salaries, which in many cases comprise only a small share of their actual income, but also “investments, stock trades, gambling winnings and even the results of audits.”
The result, they note, demolishes “the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.” They continue: “The IRS records show that the wealthiest can—perfectly legally—pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”
ProPublica’s revelations provide insight into how the capitalist system and its various state institutions and rigged legal system promote a parasitic financial aristocracy that lives in a world apart from the rest of humanity. Unlike workers, who depend on their wages to survive and pay the full income tax rate, the ultra-wealthy avoid taxes by obtaining massive loans from banks, borrowing against the value of their ever growing and artificially inflated assets, such as stocks and real estate, which are not taxable until they are sold.
In order to calculate what ProPublica terms the “true tax rate” of the 25 richest Americans, the report compares how much in taxes these individuals paid over a given period to how much their wealth grew, using wealth estimates published by Forbes magazine.
Between 2014 and 2018, Forbes estimated that these 25 people saw their wealth increase collectively by $401 billion. The documents obtained by ProPublica show that these same individuals collectively paid $13.6 billion in federal income taxes over the same time period, for a true tax rate of only 3.4 percent. By contrast, ProPublica found that between 2014 and 2018, a typical US worker in his or her 40s experienced a net wealth expansion of about $65,000. That same worker’s tax bills “were almost as much, nearly $62,000, over that five-year period.”
Over that same period, according to ProPublica, Warren Buffett’s wealth increased by $24.3 billion, but the Berkshire Hathaway mogul paid only $23.7 million in taxes, resulting in a true tax rate of 0.10 percent.
Amazon boss Jeff Bezos’ wealth soared by a staggering $99 billion, but he paid just $973 million in taxes, yielding a true tax rate of less than 1 percent.
Tesla CEO Elon Musk is another “pandemic profiteer.” He saw his wealth skyrocket this past year, in part by violating a state-ordered shutdown and illegally restarting production at the Fremont, California, Tesla factory, leading to hundreds of coronavirus infections. Between 2014 and 2018 his wealth grew by $13.9 billion, while he paid $455 million in taxes, resulting in a true tax rate of 3.27 percent.
The reporting confirms the Marxist analysis of the capitalist state, described in the Communist Manifesto as “… a committee for managing the common affairs of the whole bourgeoisie.” The various loopholes and tax avoidance schemes employed by the ruling class are legal, have been for decades, and will continue to be so under Biden or any other Democratic administration.
As then-candidate Joe Biden assured wealthy donors at a Manhattan campaign fundraising event in January 2019, should he become president, “no one’s standard of living will change, nothing would fundamentally change.” Nearly six months into his presidency, Biden has kept his promises to his wealthy benefactors, as evinced by his recent retreat from his proposal to raise corporate taxes by a few percentage points.
Among other facts included in the ProPublica report:
- Bezos, the world’s richest man, did not pay a penny in federal income taxes in 2007 and 2011. In 2011, despite his overall wealth holding steady at $18 billion, Bezos filed a tax return in which he claimed to have lost money. The IRS not only approved the billionaire’s tax return, it granted him a $4,000 tax credit for his children!
- Musk, now the second richest person in the world, did not pay any federal income taxes in 2018.
- Former New York City Mayor Michael Bloomberg, as well as billionaire investors Carl Icahn and George Soros, have also had years when they paid nothing in federal income taxes. Soros, worth an estimated $8.6 billion as of March 2021, paid no federal income taxes for three years in a row.
According to the ProPublica report, when the super-rich do pay something in income taxes, their true tax rate is far lower than that of the typical working class household, with a median income of $70,000. For instance, between 2006 and 2018, while Bezos’ wealth surged by over $120 billion, he paid, on average, $1.09 in taxes for every $100 in wealth growth. But over the same period, the median American household paid $160 in taxes for every $100 in wealth growth—paying more in taxes than it gained in wealth.
Overall, ProPublica found that the richest 25 Americans pay a far lower income tax rate, an average of 15.8 percent of adjusted gross income, than do many workers, once taxes for Social Security and Medicare are included. To highlight the point, ProPublica found that by the end of 2018, the 25 richest Americans were worth $1.1 trillion and collectively paid a federal tax bill of $1.9 billion.
The $1.1 trillion in collective wealth hoarded by 25 people equals the combined annual wages of roughly 14.3 million American workers, who in 2018 paid $143 billion in federal taxes, or over 75 times more than the billionaires.
On Tuesday, in response to a reporter’s question about the ProPublica report, White House Press Secretary Jen Psaki had nothing to say about its damning content. Instead, she threatened criminal prosecution of those who leaked the IRS documents to ProPublica.
“Any unauthorized disclosure of confidential government information by a person of access is illegal and we take this very seriously,” said Psaki. She added that the IRS commissioner has referred the matter to investigators and that the FBI and Justice Department would also be investigating.
Despite inflation, Fed will not pull back on present monetary policies
Fed chair Jerome Powell has again reassured financial markets that, despite the significant rise in US inflation, the central bank is not going to pull back its ultra-loose monetary policies that have seen Wall Street reach record highs.
Powell’s assurances came in his testimony to the House Financial Services Committee yesterday in the wake of inflation data which showed that prices had jumped at an annual rate of 5.4 percent in the year to June. The rise of 0.9 percent for last month was the highest since 2008.
Powell insisted that, while inflation had “increased notably” and the price rises were higher and more persistent than the Fed had anticipated, the rises were “transitory” and inflation would begin to decline.
However, he said, the Fed was prepared to “adjust monetary policy as appropriate if we saw signs that the path of inflation or longer-term inflation expectations were moving materially and persistently beyond levels consistent with our goal.”
In the face of comments from House representatives that price rises were becoming entrenched, Powell called on lawmakers to have “faith” in the Fed’s judgment that it was riskier to tighten monetary too early than too late.
“We really do believe and virtually all forecasters do believe that these things will come down of their own accord as the economy re-opens—it would be a mistake to act prematurely.”
There is always as element of shadow boxing on the issue of inflation. The central concern is not prices rises as such, but whether inflation is going to lead to an upsurge in the wages struggles of the working class.
This issue was touched on by David Scott, a Democrat representative from Georgia, who said a return to a more stable inflation rate would be advantageous. He pointed out that “wage increases will not keep pace” and price rises would create real hardship for low-income households as well as people on fixed incomes and retirees.
As Powell was giving his testimony, the Fed’s own Beige Book, an anecdotal survey of economic conditions, reported that inflationary pressures were increasing.
It stated that while some respondents “felt that pricing pressures were transitory, the majority expected further increases in input costs and selling prices in the coming months.”
Powell said the Fed policy of keeping interest rates at virtually zero and financial asset purchases at $120 billion a month—an amount of more than $1.4 trillion a year—would continue and the goal of “substantial further progress” in the economy was “still a ways off.”
The commitment brought a favourable response on Wall Street. Both the S&P 500 index and the Dow were up for the day, while the NASDAQ fell slightly. The yield on the benchmark 10-year Treasury bond fell, indicating the belief in financial markets that the Fed is not about to start “tapering” its asset purchases in the immediate future.
The Fed’s policies are pouring billions of dollars into the coffers of the banks as they take advantage of ultra-cheap money to fund financial market deals. Goldman Sachs reported that its total revenues for the second quarter were $15.4 billion, an increase of 16 percent from a year ago and well above forecasts by analysts of $12.4 billion.
The chief factor in Goldman’s revenue rise was its asset management business where its private equity investments are located. Revenues for this division were $5.1 billion, up 144 percent from a year ago, compared to forecasts of $2.8 billion. Goldman reported that it had generated record quarterly net revenues from its private equity investments.
Both Goldman and JP Morgan reported a sharp rise in fees from advising on corporate acquisitions and initial public offerings during the second quarter. JP Morgan announced record investment banking fees of $3.6 billion. Goldman’s revenue from fees was also $3.6 billion, only marginally below the record high of $3.7 billion in the first quarter.
Notwithstanding Powell’s firm adherence to the Fed’s present course, the issue is certain to be the subject of discussion, if not opposition, at the next meeting of its policy making body on July 27 –28. Some Fed officials have already indicated their support for a windback of asset purchases, possibly starting with the mortgage-backed securities.
The fear is that if the Fed continues with the present program and inflation “runs hot,” it will have to severely clamp down in the future, possibly leading to a collapse of the financial bubble its policies have created.
The same issues have emerged within the European Central Bank following the decision earlier this month to tolerate a temporary increase in inflation above its target rate of 2 percent.
The overturn of the target of “close to, but below, 2 percent” enables the ECB to maintain interest rates at historic lows for longer and allows for the continued flow of money into the financial system via its asset purchases.
This certain to bring opposition from northern European members of the ECB’s governing council, led by Germany. They have expressed the view that the ECB’s “crisis” measures, introduced at the start of the pandemic, should start to be wound back because the crisis has passed.
In an interview with the Financial Times last weekend, ECB president Christine Lagarde forecast that differences would be raised at the next meeting of the governing council later this month.
“I’m not under the illusion that every six weeks [at monetary policy meetings] we will have unanimous consent and universal acceptance because there will be some variations, some slightly different positioning. And that is fine.”
But Lagarde made clear she was not in favour of winding back the ECB’s measures even as inflation starts to show signs of rising in Europe. She said monetary policy had to be “especially forceful and persistent” when interest rates were at their lower limit as they are at present. She said “forceful” and “persistent” were “key words” that policy makers should not “undermine or underestimate.”
The issues are the same as in the US. Such is the dependence on the flow of money from the central bank, the fear is that any reduction could set off a financial crisis. In 2011, in the wake of the global financial crisis, the ECB raised rates. That decision is regarded as having contributed to the sovereign debt crisis of 2012 which only ended when the then ECB president Mario Draghi said the central bank would do “whatever it takes” to defend the euro.
Concerns continue to be voiced about where the present policies of the major central banks will end.
Commenting in the Financial Times earlier this week, analyst Mohamed El-Erian repeated his previous warnings that the longer the Fed continued its asset purchases “the more likely it will be forced into slamming the policy brakes on at some point.” This is under conditions where speculative excesses would have built up further and more unsustainable debt would have been incurred.
The critical question for the economy and the markets in the US and elsewhere, he wrote, was whether there is still “a possibility of an orderly exit from what has been a remarkably long period of uber-loose monetary policies?”
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