Beware the sleight of hand in ProPublica’s pitch to tax the wealthy
A sensational report arguing that the wealthy don't pay their fair share of income taxes starts to crumble when percentages are replaced with real money.
You might want to sit down for this one because there has been another blockbuster report that wealthy people have a lot of money and some people who aren’t rich want them to pay more taxes — a lot more, but exactly how much will never be clear.
In modern vernacular, the proper siren call is “paying their fair share,” which is something rich people apparently never do.
Even the affable Warren Buffett, a multibillionaire contradiction who likes to apologize for paying a lower tax rate than his own secretary, is being swept up in this latest whack at those greedy upper-crusters.
If you’re already filthy rich you don’t need to read this because you have a battalion of lawyers working non-stop forever to ensure you pay as little in taxes as possible. Sometimes, that amounts to as little as zero. Sometimes even less, depending on who is operating the calculator.
As a nowhere-near-rich person, I guess I understand the mood of folks who want more of what other people have and want the government to ramp up those redistribution efforts.
I don’t completely agree with it, but I do understand it because I’m well-acquainted with the way these arguments are formulated and presented.
That brings us back to the latest hubbub in the form of a creative project from an outfit known as ProPublica, which claims to have magically stumbled upon the personal tax information of a bunch of billionaires.
We’ll probably never know exactly how they wound up in possession of what appears to be leaked data from the Internal Revenue Service, but that’s not the point right now.
My issue as a journalist, taxpayer, and non-rich person able to recognize a hustle when I see one, is the way in which the enthusiastic gaggle at ProPublica twisted and massaged various data to fit the point they were determined to make.
For instance, according to simple math in their expose, the aforementioned Buffett paid a total of $23.7 million worth of income taxes from 2014 through 2018 on total reported income of $125 million.
Just looking at income and taxes, Buffett’s average tax rate over the period would have been about 19%.
While we can assume that tax rate is below that of Buffett’s secretary, it was apparently not low enough to make the desired point, which introduces the Oracle of Omaha’s $24.3 billion worth of “Wealth Growth,” one of several factors categorized by ProPublica in its report.
Calculating Buffett’s tax bill into his wealth growth generates a more sinister-looking 0.1% “True Tax Rate.” Mission accomplished.
The same gambit, using “Wealth Growth” data culled from a Forbes list of richest people was applied to the confidential IRS data on uber-richies Jeff Bezos, Michael Bloomberg, and Elon Musk with predictably similar results.
While Bezos’ taxes on income was 23%, his “True Tax Rate” was 0.98%, according to ProPublica. Bloomberg’s taxes on income added up to 3%, but his “True Tax Rate” drops to 1.3%. And Musk’s tax rate on income was 30% before ProPublica calculated it down to 3.27%.
A CONFUSED MESSAGE
None of this is to suggest that the world’s wealthiest people can’t afford to pay more in taxes, but conjuring up a denominator made of things like real estate, planes, boats, and cars that are already taxed to make a point is a disingenuous way to further confuse the message.
You don’t even have to be a billionaire to appreciate the ludicrousness of calculating income taxes against wealth growth. Anyone who owns a home or a car knows that in addition to the sales taxes, those assets are hit with annual property taxes.
Arguing for another layer of taxes by somehow counting unrealized appreciation as income might sound like a sweet deal for the U.S. Treasury until you think of the fast-appreciating value of your own house.
But, even if the campaign is limited for now to target the ultra-rich, one can’t help but consider the improbability of the IRS accurately valuing individual net worth annually.
Obviously, the “Wealth Growth” figure also includes mountains of capital gains, which are also taxed once they are realized, but not at rates high enough for those hitching their wagon to the “fair share” campaign.
While it can be fun to assemble formulas that produce eye-popping percentages to make a point, it is equally jarring to consider income taxes in simple dollar terms, which would be the glass jaw of the fair share argument if anyone were really paying attention.
For instance, even if you buy the “True Tax Rate” math that has Buffett, Bezos, Bloomberg, and Musk paying rates between 0.1% and 3.27%, they still combined to pay more than $120 million worth of income taxes in 2018.
Bloomberg topped the list by paying $71.9 million that year, which is 4,692 times more than the $15,322 that the average American paid in 2018.
Using the ProPublica reference to the $70,000 median household income in 2018, on which the IRS would have collected about $7,400, the Bloomberg payment is 9,716 times greater.
To be crystal clear, I’m not siding with anyone whose personal net worth is greater than the gross domestic product of at least 130 individual countries, but I also can’t see how someone paying 9,716 times more income taxes than the average American is somehow not paying their fair share.
You can’t really blame groups like ProPublica for being stuck in the rut of repackaging the reality that the tax code is fraught with loopholes allowing people and corporations to legally reduce their bills because when you’re a hammer, everything looks like a nail.
And keep in mind that many of the same people pushing for the elimination of tax loopholes are pushing just as hard to repeal the $10,000 cap on state and local tax deductions on federal tax returns.
With income inequality at such extremes everywhere you turn, it’s easy to understand the anger and frustration coming from the masses, but the message is lost when it becomes clear the argument is tailored to and driven by an end-justifies-the-means mentality.
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