Consider This from NPR - ProPublica's 'Secret IRS Files' Unveil How Richest Americans Avoid Income Tax

Episode Date: June 11, 2021

The story made waves in Washington, D.C., this week: The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax. ProPublica obtained private tax data from America's 25 wealthiest individuals, which revealed exactly how those people manage, through legal means, to pay far less income tax than most Americans — and sometimes, none at all. ProPublica senior editor and reporter Jesse Eisinger explains how it works to NPR's Rachel Martin. After the story's publication, some lawmakers reacted with concern about the fairness of the tax code. Oregon Democrat Ron Wyden, who chairs the Senate Finance Committee, explains a proposal to make it more equitable. He spoke to NPR's Ailsa Chang. Additional reporting on the history of the income tax from NPR's daily economics podcast The Indicator and Steven Weisman's 2010 appearance on All Things Considered. In participating regions, you'll also hear a local news segment that will help you make sense of what's going on in your community.Email us at [e-mail] more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

One of the biggest debates in Washington, D.C. right now is about taxing the rich. I don't want to punish anybody. You're entitled to be a millionaire or a billionaire. Just pay your fair share. Just pay. President Biden wants to raise taxes on corporations and on wealthy individuals in order to pay for massive infrastructure investments. His plan would increase the top federal income tax rate from 37 percent to 39.6 percent, and that's for the top one percent of Americans. 37 percent is where Republicans set the top rate as part of their 2017 tax law, and that's where they want it to stay. That's our red line. The way forward on

infrastructure will not include revisiting the 2017 tax bill. That was Mitch McConnell at the White House last month. The Republican argument is that a top income tax rate of 37 percent is high enough. But some of America's richest people don't pay 37 percent. They don't pay 30 percent. They don't pay 25, 20 or even 15 percent. What we think of as their true tax rate, their tax rate on what essentially is their income, their wealth growth is 3.4 percent. Reporter Jesse Isinger and his colleagues at ProPublica published a stunning story this week based on private tax data they obtained from the nation's 25 richest people. Those people collectively are worth more than a trillion dollars,

and the tax they pay on their mounting wealth is effectively 3.4 percent. And it's even less for somebody like Jeff Bezos or Warren Buffett. They pay even less. I mean, the typical American will pay about 14 percent on income. And that is what we compare to this, what we're calling the true tax rate on wealth of 3.4 percent for the top 25 wealthiest. Consider this. America's wealthiest people pay a fraction of the income tax on their net worth that you do, and sometimes they pay nothing at all. It may not seem fair, but it is completely legal. From NPR, I'm Adi Cornish. It's Friday, June 11th. This message comes from WISE, the app for doing things in other currencies. Send, spend, or receive money internationally, and always get the real-time mid-market exchange

rate with no hidden fees. Download the WISE app today or visit WISE.com. T's and C's apply. An internal investigation found that a cop with the California Highway Patrol sexually harassed 21 women. But those findings were kept secret until a new state transparency law passed. We dug through hours of tapes to find out what happens to officers who cross the line. Listen to On Our Watch, a podcast from NPR and KQED. It's Consider This from NPR. Paying income tax used to be patriotic, or at least that was the idea during World Wars I and II.

This is an Irving Berlin song commissioned by the Treasury Department in the 1940s. World War II was when most American households started paying income tax. Here's how President Franklin Roosevelt justified it two days after the attack on Pearl Harbor. It is not a sacrifice for the industrialist or the wage earner, the farmer or the shopkeeper, the train man or the doctor, to pay more taxes, to buy more bonds, to forego extra profits, to work longer or harder at the task for which he is best fitted. Rather, is it a privilege? Obviously, not everyone felt that way. The income tax is never welcomed, but it's always accepted more at a time of war and sacrifice. Stephen Wiseman of the Peterson Institute for International Economics says income tax has always been unpopular, from the time it was first enacted by Abraham Lincoln during the Civil War

to when it was ruled unconstitutional by the Supreme Court in 1895. And the only way to get an income tax enacted was through a constitutional amendment. It became the 16th Amendment, and it was enacted on the eve of World War I in 1913. The top marginal tax rate went from 7% to 70%, an astonishingly high rate. It was very unpopular, but again, at a time of war, that tax was the patriotic duty of Americans. And here's a point in this story,

one spelled out in ProPublica's reporting, that explains exactly why today's richest Americans pay little or no income tax at all. In 1916, just three years after Congress enacted the income tax, a woman named Myrtle McComber received a dividend for some stock she owned. It was a stock in an oil company called Standard Oil of California. A dividend is basically your share of a company's earnings when you own some stock in that company. Thanks to the new income tax law, Myrtle McComer owed taxes on her dividend. But there was a catch.

The dividend didn't come in cash. It came in the form of an additional share of stock for every two she already owned, which means Myrtle McComber got a bit wealthier, but she hadn't technically made any income. So she brought a court challenge, arguing she shouldn't have to pay an income tax. And the Supreme Court agreed. It ruled that a person needed to sell an asset, a stock or building, and convert that asset into money before it could be taxed. And that's been true ever since. Which is why ultra-wealthy people, they often hold on to their assets and use them as collateral to borrow money from banks at low interest rates. That's how they get money to live on,

not necessarily from a salary like you or me. You and I pay income taxes. We work to live. We get a salary. We're in the tax system. The ultra-wealthy are not in the tax system. That's ProPublica's Jesse Isinger again. For ultra-wealthy people...

None of their wealth is taxed until something happens. They sell, they realize a gain. And so what happens is that they can accumulate vast, vast wealth, which is really the equivalent of income for us, and not pay taxes on it. Now, it's true that plenty of wealthy Americans do pay income tax. In fact, according to the Nonpartisan Tax Foundation, the top 1% of taxpayers pay a rate six times higher than taxpayers in the bottom 50%. But the tippy top of the top 1%, the top 25 richest people ProPublica looked at, well, they've long used tools to avoid tax on the money they make. And yeah, that's been an open secret for a really long time. Still, ProPublica's reporting reveals just how much the rich benefit with a level of detail from private IRS data we almost never get to see. Jesse Isinger spoke about that data with NPR's Rachel Martin. First off, how did you do this? How did

ProPublica get its hands on this tax data? We obtained it, but we're not commenting further about it. We verified it very carefully with over 50 individual records, public and private, and then with the principles in the article that are mentioned, and we're going to be doing stories about this all year, but we're not commenting further than that. And these are big names. I mean, these are names we would expect when you talk about the wealthiest Americans. We're talking about Jeff Bezos, Elon Musk, and others. We have records on thousands of the wealthiest individuals, tax information and tax returns covering more than 15 years. And almost all the household names, Warren Buffett, Bezos, Michael Bloomberg, Elon

Musk, the list goes on and on. We should say all this is legal though, right? This is entirely legal. And sort of one of the points of the story is that they don't need exotic, illegal, evasive techniques. This is not about tax evasion. It's about legal routine tax avoidance through regular means. And that's a kind of the system has been built up so that the ultra wealthy can easily avoid taxation. What are the implications of these findings for the overall U.S. economy and the culture of the society? The implications are that our federal budgets have been constrained for decades. Periodically, people are worried that Social Security and Medicare will go bankrupt.

Our roads and bridges are crumbling. And we have a group of the wealthiest individuals not paying their fair share. That should give everybody pause. Jesse Isingar, senior reporter and editor at ProPublica. And there's a link in our episode notes if you want to read their full story. A lot of lawmakers in Washington, D.C. did. For some, it raised concerns about fairness in the tax code. Others are worried about how ProPublica obtained

private tax information in the first place. These highly confidential personal documents were obtained illegally. Republican Senator Susan Collins of Maine in a Senate hearing on Wednesday, asked Attorney General Merrick Garland what he would do about that. Senator, I take this as seriously as you do. Garland said he only knew what he read in ProPublica's reporting and believed the IRS commissioner was looking into it. This is an extremely serious matter. People are entitled, obviously, to the great

privacy with respect to their tax returns. NPR asked another senator, Ron Wyden, about both of these issues, tax fairness and tax privacy. Wyden, a Democrat from Oregon, is the chair of the Senate Finance Committee, who said this week he'll introduce a plan to make the tax code more equitable. He spoke to NPR's Elsa Chang. We should point out, as ProPublica did, that there's nothing illegal happening here, right? So what's your plan? Yeah, the outrage is what is legal. And what my proposal will do is eliminate the double standard. For example, right now, if you have a nurse who is taking care of COVID patients, they will have to pay taxes with every single paycheck. What the billionaires are essentially doing, and this is what the data revealed, is they're using the tax laws to delay and defer and postpone paying.

That's wrong. They should have to pay their fair share. I'll have a proposal to change that. And what is the proposal exactly? How would you change the current state of affairs? My proposal will ensure that they have to pay taxes every year, just like those working people. And the fact is that wealth just gets treated differently than wages. And that's something I'm committed to changing because everybody

ought to have to pay their fair share. Let's talk about this leak from the IRS. Some of your colleagues like Republican Senator Michael Crapo of Idaho, as well as you, have expressed concerns about the privacy and security of people's tax records in light of this whole story by ProPublica. I mean, the IRS says an investigation is underway, but do you personally have any insight at all into how all this information could have been made public? The IRS has an important responsibility to protect taxpayer data. And IRS Commissioner Reddick made clear to me that he was determined to get to the bottom of this. My hope is that

Republicans will be as concerned about billionaires paying no taxes, as well as the disclosure. Well, the Biden administration is also pushing for a tax enforcement plan that would require banks to disclose more information about the money flowing in and out of accounts every year. Some Republicans have expressed concerns about that plan already. Do you think that this IRS leak will undermine efforts to get Biden's tax enforcement plan passed eventually? We believe that you can crack down on unauthorized leaks and also attack this question of the tax gap. They're not mutually exclusive. I also think when you have a trillion-dollar tax gap

and you have some of the wealthiest people in this country evading paying taxes, you ought to act. Senator Ron Wyden. It's Consider This from NPR. I'm Adi Cornish.