According to IRS records, the wealthiest Americans, including Bezos and Musk, paid a small share of their wealth in income taxes.
According to Internal Revenue Service data obtained by ProPublica, the wealthiest Americans — including Warren Buffett, Elon Musk, and Jeff Bezos — paid little federal income taxes at times in recent years despite soaring fortunes.
The records' release sent shockwaves through Washington, with the federal government referring the unauthorized disclosure to investigators and some Democrats declaring that the revelations reaffirmed their long-held belief that the wealthiest Americans can avoid paying taxes on a large portion of their wealth.
The information published Tuesday demonstrates how billionaires can legally reduce their tax burden, illustrating how the American tax system can penalize average wage earners more than the country's wealthiest individuals. This is frequently because the wealthiest Americans invest in stocks and real estate, which allows them to avoid paying taxes on unrealized profits.
While some tax experts said the ProPublica report is consistent with previously documented criticisms of the US tax system, they were surprised by the publication of such detailed personal information about some of the country's wealthiest individuals and how they benefit from tax laws.
“I believe this is significant because it tells the story of wealth and how it is taxed in a way that everyone anticipated but did not anticipate,” said Philip Hackney, a former IRS official who teaches tax law at the University of Pittsburgh.
President Biden and other Democrats have complained that the United States' tax system is unfair and skewed in favor of corporations and the wealthy. For decades, Washington has been embroiled in a bitter debate over how much money the wealthy should pay in taxes, but little information about the tax payments of individual billionaires has been made public.
Jen Psaki, the White House press secretary, declined to directly comment on the ProPublica report, describing it as an improper disclosure of confidential information. She stated that the Treasury Department and the Internal Revenue Service referred the matter to at least two inspectors general, the FBI, and the United States Attorney's Office for the District of Columbia.
However, Psaki added, "Broadly speaking, we know that more needs to be done to ensure that corporations and the wealthiest individuals pay their fair share." As a result, it is included in the president's proposals. His budget and a portion of the financing he proposes for his ideas will proceed.”
ProPublica analyzed the data by focusing on the country's wealthiest individuals' recent fortunes and asserted that they were paying a "true tax rate" of just 3.4 percent. The news organization arrived at that rate by estimating the value of their stock portfolios and other assets and then determining their federal income tax liability. Normally, tax rates are not calculated in this manner.
For many of these billionaires, the central issue is how their income grows in comparison to their wealth. The United States' tax system is geared toward income, not so-called unrealized gains on unsold stocks, real estate, or other assets.
“These are widely known facts,” according to Jeff Hoopes, a tax expert and associate professor at the University of North Carolina at Chapel Hill. “You do not pay if you do not realize [the income].”
Hackney, the former IRS official, echoed that sentiment, pointing out that the current tax system disadvantages wage earners.
“Our structure is unequal,” Hackney stated. “If you're extremely wealthy, the basic game is to accumulate a large amount of wealth, let it appreciate in value, and then borrow money to support your lifestyle.”
That would remain unchanged under Biden's proposed changes to the US tax code. The president proposes to increase the top income tax bracket for Americans earning more than $400,000 per year from 37% to 39.6% and to raise taxes on the sale of certain assets — known as capital gains — from 20% to the top income tax rate.
Biden has opposed a so-called wealth tax, such as the one proposed by Sen. Elizabeth Warren (D-Mass.) during the presidential campaign, which would impose a tax on the ultrarich's unsold assets. Biden has also proposed raising taxes on corporations, many of which, according to some estimates, pay little or no corporate income taxes. Additionally, the president has pushed for a change in policy that would require wealthy individuals to pay taxes on all previously untaxed capital gains when they die.
Sen. Ron Wyden (D-Ore.) has proposed another method of taxing wealth: an annual tax on unrealized gains on stocks and bonds for wealthy individuals.
Warren said the new information about wealthy taxpayers bolstered her proposal for an annual tax on ultra-wealthy individuals' assets exceeding $50 million, rebutting criticism that valuing nonliquid investments would be too complicated. These individuals appear to have the majority of their wealth invested in publicly traded companies, which are relatively easy to value, she explained.
“What this demonstrates is that it is not difficult to value hundreds of billions of dollars of wealth and tax it annually,” Warren explained.
Even ProPublica is unaware of the source of the blockbuster 'Secret IRS Files.'
In 2017, the Trump administration and congressional Republicans slashed taxes across the board, and Republicans have vowed to block any attempt by the Biden administration to reverse those cuts. Their stance has posed a significant impediment to key components of Biden's agenda, including the White House's push to pass an infrastructure package.
There was already some data on the taxes paid by the wealthiest Americans, but not to the extent that ProPublica claimed.
The Internal Revenue Service publishes a report each year detailing the taxes paid by the top 400 taxpayers based on adjusted gross income. According to the most recent version, which relies on anonymous data, these wealthiest Americans paid an average federal income tax rate of 23.13 percent in 2014.
Individual IRS tax forms are closely guarded secrets that have loomed large in political battles in recent years after President Donald Trump refused to release his personal income tax returns in the run-up to and during his presidency, claiming they were being audited by the IRS.
ProPublica made no mention of how the records were obtained, other than to say they came from an anonymous source. Hoopes expressed surprise that someone would risk legal repercussions by disclosing them. Just last week, a former Treasury Department official pleaded guilty to leaking banks' suspicious activity reports to a BuzzFeed News reporter.
“Illegal disclosure of confidential government information,” Treasury Department spokeswoman Lily Adams said, adding that the matter has been referred to multiple agencies, including Treasury's inspector general for tax administration.
Biden has stated that he will not raise taxes on anyone earning less than $400,000.
However, the records indicate that Buffett, the chairman of Berkshire Hathaway, paid $23.7 million in federal income taxes on $125 million in total income from 2014 to 2018, implying a personal income tax rate of 19 percent. According to ProPublica, Buffett's wealth increased by $24.3 billion during that time period, implying that his "true tax rate" was 0.10 percent.
Buffett has previously advocated for stricter restrictions on the wealthy in order to prevent them from evading taxes.
Similarly, Musk, Tesla's CEO, paid $455 million in taxes on $1.52 billion in income during the same period, during which his wealth increased by $13.9 billion, resulting in a 3.27 percent "true tax rate," according to ProPublica.
Bezos, Amazon's CEO and owner of The Washington Post, paid $973 million in taxes on $4.22 billion in income as his wealth increased by $99 billion, resulting in a 0.98 percent "true tax rate."
According to ProPublica, Bezos filed a tax return in 2011 claiming he lost money due to bad investments, allowing him to claim and receive a $4,000 tax credit for his children.
Musk and Bezos's spokespeople did not respond to requests for comment.
Buffett told ProPublica that his company pays a significant amount of corporate income tax and that he has budgeted for taxes and philanthropy to account for more than 99 percent of his personal wealth.
“I believe the money will benefit society more if it is used philanthropically than if it is used to slightly reduce the United States' ever-growing debt,” Buffett wrote in the statement.
“However, that will be determined by Congress through changes to US tax policy,” he added.
Buffett has long argued that it is unjust for wealthy individuals like himself to pay a lower share of their income than average workers. This prompted President Barack Obama to propose "the Buffett rule" in 2011 — a tax plan requiring the wealthy to pay the same tax rate as the middle class. That concept failed to gain traction.
Carl Icahn, the activist investor who amassed his wealth through corporate takeovers, was another wealthy individual whose tax records ProPublica obtained. In 2016 and 2017, he paid no income taxes, in part because he was able to deduct interest expenses on loans from his adjusted gross income, according to ProPublica.
Icahn stated in an emailed statement to The Post that he earned no "income" during those two years after deducting interest. He stated that he paid all taxes due and made no attempt to evade taxes.
“I do not believe that investors, whether wealthy or not, should be condemned for taking calculated risks,” Icahn stated in the statement. “Quite the contrary, I believe that encouraging such activity contributes to the strength of our economy.”