That is a scandal in and of itself. As White House press secretary Jen Psaki said during her briefing on Tuesday, “Any unauthorized disclosure of confidential government information by a person with access is illegal, and we take this very seriously.” She continued, “The IRS commissioner said today that they are taking all appropriate measures, including referring the matter to investigators. And Treasury and the IRS are referring the matter to the Office of the Inspector General, the Treasury Inspector General for tax administration, the FBI, and the U.S. Attorney’s Office for the District of Columbia, all of whom have independent authority to investigate.” If and when the culprits are found, the full weight of the federal government should come down on them.
However, the bigger and more eye-catching news was what ProPublica found, or at least confirmed. Looking at the 25 richest Americans, whose collective worth rose by $401 billion between 2014 and 2018, the report found:
They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.It’s a completely different picture for middle-class Americans, for example, wage earners in their early 40s who have amassed a typical amount of wealth for people their age. From 2014 to 2018, such households saw their net worth expand by about $65,000 after taxes on average, mostly due to the rise in value of their homes. But because the vast bulk of their earnings were salaries, their tax bills were almost as much, nearly $62,000, over that five-year period.
Many of the super-rich pay no taxes or virtually no taxes. Buffett, who popularized the tax reform argument that he pays a lower rate than his secretary, was not exaggerating. To the contrary, he paid “a true tax rate of 0.1%, or less than 10 cents for every $100 he added to his wealth.”
Even more striking, the billionaires were getting richer — a lot richer — while Americans suffered from two economic recessions and a pandemic. They benefited both from the favorable tax treatment of capital gains income and from the vast reduction in corporate tax rates (which plunged to 21 percent under the last president).
Moreover, these super-wealthy people rode the boom in the markets and in the value of their own companies. Instead of realizing the gains and facing taxes, they borrowed lavishly. Loans are not taxable. It is quite a racket, albeit a legal one.
Congress should hold hearings on the subject of wealth accumulation, tax progressivity and income inequality. Republicans have been defending tax cuts for the rich and corporations for years. Americans should understand just how little the super-rich have paid as their wealth was soaring, and Republicans should be held accountable for and required to defend their handiwork in creating such dramatic, indefensible disparities.
Republicans can try to defend this system, but many Americans will no doubt agree with ProPublica: “Taken together, it demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most. 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.”
President Biden has proposed tinkering around the edges, raising the corporate tax rate to 28 percent (only part of the way back to 35 percent, where it had stood until 2017) and raising taxes for those making more than $400,000 to 39.6 percent while eliminating the differential between ordinary income and capital gains. But the data surely supports the argument that more dramatic change is in order.
Republicans claim to be the friend of working people, yet they resist even measures to increase funding for IRS audits. In the infrastructure debate, they have the nerve to suggest a hike in gas taxes — paid by ordinary Americans — rather than any change in the egregiously unfair tax system they helped create. Once upon a time, tax reform meant lowering the rate and broadening the base. Now, Republicans favor just the former, leading to massive hemorrhaging of revenue and skyrocketing inequality. They also effective killed the estate tax, allowing an accumulation of generational wealth that would make the robber barons of the late 19th century and early 20th century blush.
Democrats have floated all sorts of ideas, including a wealth tax to capture all those unrealized gains billionaires have racked up. Others have suggested a consumption tax, a value-added tax or a federal real estate tax.
At the risk of falling into the pattern of kicking hard questions to commissions, this might be an ideal topic for a group of diverse economists. Their charge: Come up with a system that requires the super wealthy to pay a lot more without harming economic growth and investment.
This is not about the deficit, per se. This is a matter of fundamental fairness and faith in democracy’s ability to deliver for ordinary people. We have created a paradise for billionaires without improving the lives of the rest of Americans. That has to end — or at least abate.
Jennifer Rubin is getting her own weekly live chat, where she’ll answer questions and respond to comments from readers on the news of the week every Friday at noon. Submit yours to her first chat, launching on June 11, here.