Factually! with Adam Conover - How The Wealthiest Avoid Income Tax with Jesse Eisinger

Episode Date: July 21, 2021

Journalist Jesse Eisinger joins Adam to explain how he and his colleagues at ProPublica exposed how little billionaires pay in taxes – often, nothing at all – and the underhanded techniques they use to do it. Learn more about your ad choices. Visit megaphone.fm/adchoices See Privacy Policy at https://art19.com/privacy and California Privacy Notice at https://art19.com/privacy#do-not-sell-my-info.

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So if all of that sounds good, if you want a big box of delicious snacks like this for yourself, use the code factually for $15 off your first order at Bokksu.com. That's code factually for $15 off your first order on Bokksu.com. I don't know the way. I don't know what to think. I don't know what to say. Yeah, but that's alright. Yeah, that's okay. I don't know anything. Hello, everyone. Welcome to Factually. I'm Adam Conover. Thank you once again for joining us on the show. You know, I would record this show even if I weren't doing it for a podcast, because on this show, I get to talk to some of the most fascinating experts from around the world. I get to learn all the incredible things that they know that I don't know. I get to broaden my own horizons. And as a bonus, I get to have all you listen to and make a little money because we record some ads. I mean, this show is so wonderful to do, and I can't thank you enough for supporting it. And just to remind you, if you want to support it even more, you can buy

books at our custom bookshop at factuallypod.com slash books. And when you do, you'll be supporting not just this show, but your local bookstore, Or you could sign up for a Stitcher Premium account. That supports us as well. And we got some brand new ways to support the show that we're working on that maybe we'll be able to announce very shortly. But let's jump into this show. You know, if I told you that rich people don't pay their fair share of taxes in America, I'd be willing to bet you would not fall out of your

chair. I think we all sort of take it for granted that rich people aren't able to get out of paying the same amount that we do. And, you know, maybe that goes to show how fucked up our entire economy is. The fact that none of us are as angry as maybe we should be. But here's the thing. We all know it's happening. But until now, we haven't really had a sense of to what degree. We haven't known the exact figures. And now we do because the nonprofit newsroom ProPublica in recent weeks has blown the lid off of the tax secrets of the ultra wealthy. Here's what happened. They received a trove of documents detailing the tax history of some of the wealthiest individuals in America. And they were able to determine that those people in many cases paid literally no federal income taxes at all for years. We are

talking about straight up billionaires who paid nothing to support the roads, schools, or any of the other important things that make civilization function and that helped them earn all their billions in the first place. And by the way, all of it somehow was entirely legal. Well, most of it was. These stories are really bizarre. Let me give you one example. Peter Thiel, the founder of PayPal, a major Trump supporter, Elon Musk's best buddy, this dude, this billionaire abused his Roth IRA. This is a consumer retirement savings vehicle. This is something that, you know, you're supposed to use to squirrel away a couple extra grand for retirement. He abused his to the tune of $5 billion in tax-free venture capital. Previously, we didn't even know this kind of thing even existed.

I explained the scheme to my accountant. He was legit impressed. This story is incredible proof of how important journalism is, because without the journalists at ProPublica, we would have no clue any of this ever happened. And now that we do know it, we can call into question the structure of our economy, of our tax code. We can ask if we really want those who benefit the most from America to pay the least back into the system. Well, look, let's cut to the chase. I am so honored to say that on the show today, we have Jesse Isinger, one of the pro-public

reporters who broke this story, one of the biggest stories of the year. He's also the author of the book, The Chicken Chick Club, Why the Justice Department Fails to Prosecute Executives. Without further ado, please welcome Jesse Isinger. Jesse, thank you so much for being here. Yeah, thanks for having me. So you at ProPublica, which by the way, I have such enormous respect for what you folks do at ProPublica. In my own role as a comedian who distills important information into short, somewhat stupid comedy sketches, we have based so many of our pieces on the work that you folks have done at ProPublica because you turn up important stories that nobody else does.

I'd love for you to walk us through these blockbuster revelations that you have uncovered recently about taxes, about how the wealthiest Americans have been avoiding taxes and the tricks they've been using to do it. Yeah, well, thanks. That's wonderful to hear because we often feel like we should trademark the slogan, world's most depressing news organization. So I'm glad that you found it useful. Somehow you guys make it fun. I don't know why.

You know, you read the New York Times, kind of ponderous, blah, blah, blah, blah, blah. And ProPublica, here's what I think it is, is that behind your very excellent journalistic writing, I can tell you're a little pissed. I can tell that the folks at ProPublica are like, the whole premise of the news organization is like, what the fuck is this shit? Like, you know, you know what these people are doing? You're going to lose it when you find out about this.

And that makes it so much fun to read. And I did lose it when I read this information. So, so good. Yeah, I, we, we all have very, very, um, high outrage quotients and just walk, uh, wake up in the morning, pissed off. So we, um, ProPublica obtained a enormous trove of, uh, very sensitive tax information on the wealthiest individuals. And we're talking, um, tax returns for thousands of the wealthiest individuals. And we're talking tax returns for thousands of the wealthiest Americans. You know, we're not, this is not plumbers and maids and waiters and teachers.

This is really the 1% of the 1%, very thin slice. And we have years and years of data going back over 15 years. And so we've been culling it for information in the public interest about how our tax system works. And our first story, the story that I did with two brilliant colleagues, Paul Keel and Jeff Rinstausen, took a look at the top 25 richest American taxpayers. This is Jeff Bezos and Elon Musk and Michael Bloomberg and these guys, household names. And what we found is that they occupy a world outside of the tax system. They're basically in an entirely different universe. And we pay taxes. Most of the listeners pay taxes because they get a salary and they get a paycheck and the taxes gets extracted from the paycheck. And if you make a middle class income like 60 or $70,000, you're going to get 14% taken out of that paycheck for federal income taxes.

And these guys, they are outside of the system. They don't really need income. We can explain that because that's going to be a difficult concept when you first hear it. But because they don't really need income, they don't really pay taxes. And so what we did was we compared the taxes that they paid, which no one had ever seen before, to the way their wealth grew, the growth in their wealth, the many billions that their wealth grew. And what we found is from 2014 to 2018, they paid 3.4% in taxes compared to their wealth growth. So 3.4% for the ultra wealthy versus 14% for you and me. Well, I don't know about you because you're a rich comedian, but me, my fellow normal people.

I mean, I have a pretty standard tax rate as well. I'm a contractor in the entertainment industry, and so I have somewhat of a weird structure. But I know that I'm paying more than 3% of taxes. Um, and I mean, I'm looking at, I'm looking at some of these, uh, on your, in your piece that like Warren Buffett, one of the richest people in the world and one of the most like revered billionaires and that people seem to love Warren Buffett. Um, he paid what you call a two, a true tax rate of 0.1% from 2014 to 2018. That's 0.1%. Yeah, that's 10 cents for every $100 their wealth grew, his wealth grew. So the reason why we're calling this the true tax rate is the traditional rate on taxes is you compare the income tax paid to the income that

came in. But Warren Buffett is the perfect example of this, the essence of this, because no one has avoided more tax for as long as Warren Buffett, as you say, the sort of grandfatherly guy who is regarded as extraordinarily patriotic and makes perfect sense when he talks. He's one of the ones people say he's one of the he's one of the good billionaires. Exactly. He's even made a lot of press because I think he famously said, what, my tax rate should be higher than my secretary's tax rate is a quote. I think I remember getting a lot of play from him. He has argued for higher tax rates. He's the one who

liberals especially will be like, oh, yeah, he's one of the he's one of the good guys. Soros is one of those two. Exactly. And they point to him because it sounds like he's advocating against his own interests by saying that tax rates should be higher. But the really fascinating thing about Warren Buffett is that it's true, he pays a very low tax rate on a traditional tax rate compared to his secretary. But that's not the real story at all. The real story is that he avoids taking income almost entirely. So in 2014 to 2018, his wealth grew by $24 billion, 24 billion with a B, but he only had 125 million of that in income. The rest was appreciated stock. And most of his stock is in Berkshire and he lets it grow and he doesn't sell. And because he took so little income, he paid so little taxes. So he

ended up only paying $24 million in taxes. And that's where you get the 10 cents for every $100 his wealth grew. Now, average Americans, again, they pay about $14 for every $100 they take in versus 10 cents for Warren Buffett. But even when you're comparing their growth in their wealth, it's much, much more that you pay in taxes if you're an average person compared to your wealth growth than the ultra wealthy like Warren Buffett. Okay, so let's really clarify what we're talking about here. When we say wealth growing, Warren Buffett's wealth growing or my or your wealth growing, we're talking about, hey, maybe you own some stock, maybe you own a home. In Warren Buffett's case, you own a lot of stock, you own many companies. You own all these other things. And the value of that goes up in the market,

but you have not necessarily sold it yet and realized that value, right? Or it's not yet hitting your personal tax return because you haven't taken the money yet. Your stock is still sitting in your stock portfolio. Your house is still sitting around. Income is like, that's what you would get as a salary. And that would be the moment putatively that Warren Buffett, I suppose, would pay himself. So I get what you're saying, that the tax rate, the true tax rate is like, well, he's making all of this money on all these investments and he's not paying any taxes on it. Right. And so it's a very simple concept and a fundamental concept that we tax income, not wealth in this country and have done for about 100 years. And in fact, when people criticize our series, they say, you idiots, we tax income, not wealth. So you're not really saying anything particularly insightful.

But in fact, we did understand that basic concept and we explained why this evolved the way it did and why it's important to think about wealth growth for the ultra wealthy. And the reason is that everything stems from their wealth growth. All their power, their economic power, their political power, and then also their lifestyles all flow from their wealth growth, not their income. They are able to fund their lifestyles, but they don't fund it with income. Instead, often they fund it with borrowing. And so the catchphrase for the way the ultra wealthy work, which is completely different, and this is why we sort of say they're outside of the tax system and they occupy a different universe, is the catchphrase is buy, borrow, die, which is you buy your asset or you build it like Jeff Bezos builds Amazon or Buffett builds Berkshire Hathaway, or you inherit it like the Waltons. Three of the Waltons are in the top 25 richest Americans, but they

inherited their wealth from Walmart. The Walmart fortune, the Mars family is in the top wealthiest people. We have a lot of dynastic wealth in this country. So you buy, borrow, you borrow against your assets. And when you're borrowing, you're paying a very low interest rate. In fact, you don't actually often have to pay the interest rate because the bank has the ability to call your stock. So it's essentially you're getting it for free or almost for free. You don't really have to pay it back. So you're getting this borrowing to fund your lifestyle. And some of these guys have very lavish lifestyles, like Larry Ellison, the founder of Oracle. He at one point had $10 billion in bank loans. And he uses that to

fund the lifestyle. So he had an America's Cup sailing team. He had a bunch of mansions. He's got this giant estate that's modeled on a Japanese feudal village. And he owns a Hawaiian island, and the entirety of a Hawaiian island. And you get that often, these guys get that through borrowing rather than actually spending cash on the barrelhead. And then they die. Even these guys have to die, most of them. So they try to avoid it, but even they do that. And when they do, they can avoid estate tax. And when they do, they can avoid estate tax.

And so they essentially accumulate these spectacular fortunes that really remain essentially untaxed. Wow. So, OK, I'm starting to get it because because when I was reading the piece, I did have this question. I was like, well, hold on a second. We don't tax investment gains in America until you sell. Like, you know, I got a, I got a Vanguard account. I have some, you know, like a bunch of index funds in my Vanguard account that I'm saving for retirement. Some of it's in a retirement account, but some of it's in a taxable account. And, uh, you know, that, that goes up and I'm not taxed on that until I sell it and I need the money. Right. And I guess we can talk about whether or not that's a good tax system, but you know, that's how it works for the average person but you're so i need to correct you okay this is the way

this is a weird thing about being a normal human being as opposed to an ultra wealthy person which is that um when you have a mutual fund the mutual fund buys and sells within the given year and you actually pay taxes on that when oh okay selling. So in fact, when you get your Vanguard account, and if you've got some mutual funds in stock funds or even bond funds, and they've taken some gains, which they do over the year, you've been taxed on that. These guys are not taxed, you're taxed. All right. No. So I'm already being taxed in ways I don't appreciate. But I understand that general principle. But what these guys are able to do is the investments that they have,

that's not just a mutual fund. Their investment is like a whole company or like all of these VAT real estate, all these vast things that they own. So first of all, they can use those to enhance their lifestyle. They can fly around in the company private jet or whatever it is like that.

And as you say, it gives them power, you know, because they own Berkshire Hathaway or Bezos owns Amazon. He gets to, you know, be invited to speak at things and he like gets talked to politicians, all those sorts of things. But then also because they're able to borrow against it, that gives them another huge source of income that is not taxed as income essentially. And that's

something that only wealthy people can do. We can't do that with our investments. Only they can. Right. I mean, the bank isn't going to give you that much money. The investment bank isn't going to give you that. And you can't get in the door to a wealth advisory firm that's going to do that. And the vast majority of Americans actually don't have wealth in the stock market or any substantial amount of wealth in the stock market. The vast majority of Americans have wealth in their homes. And you can't, you know, some people can sort of tap your home a little bit too, but that gets dangerous. You know, you get a home equity line of credit

and things like that. And again, this is something where normal people are in a different universe than the ultra wealthy because the ultra wealthy have assets that are appreciating and are untaxed. Normal people's wealth to the extent that they have it, is in homes, and they have a wealth tax. Your listeners may be aware of people like Bernie Sanders and Elizabeth Warren who have advocated for a wealth tax in America, which would potentially solve this problem of the ultra-wealthy being outside the tax system, because we would say, okay, you are worth a billion dollars, so we're going to take 2% off of your billion dollars every year. So, but average Americans, we don't have that, obviously that law for wealth tax in America, but average Americans

pay a wealth tax in the form of property taxes at the local level. And so again, the ultra wealthy are not taxed on their wealth, but average Americans are taxed not just on their income, but on their wealth. That's wild. But okay, I always want to get into another common counter argument about this is people will say, well, hold on a second. They're just taking advantage of the tax law, right? Like I, for instance, again, I have an accountant. My accountant says, hey, here's a deduction we could take. If you arrange your finances a little bit differently, here's another deduction you could take. And that's, again,

I'm a contractor as a comedian. I have a lot of business expenses. You know, my accountant says, hey, you could take this as a business expense, which you didn't do last year, but we could actually do it and you'll save some money. Right. And of course, I'm going to do that. And what is different between me doing that and Warren Buffett saying presumably he has a very well-paid tax guy. I hope that I hope is the person is very well paid. He's helping him avoid this much tax. And this person says, hey, Warren, if you do X, Y, Z, you won't have to pay as much taxes. And that's what everybody wants to everyone. Everyone wants to avoid paying taxes. So what's the difference?

Well, so that is the essence of this, the point of our article, in fact, which is that this is perfectly legal. This is the system that we have chosen that has evolved. And it's actually not, they're not illegally evading taxes. They're not using exotic strategies. They're using routine strategies, things that are, you know, just a kind of daily common sense things and completely outside the system. And the net result of that is what we consider quite shocking. So the richest person in the world, Jeff Bezos, in 2011 and 2007, he paid zero dollars in federal taxes. And Michael Bloomberg in 2010 paid zero. And George Soros in three recent years paid zero.

And George Soros in three recent years paid zero. And Elon Musk in 2018 paid zero in taxes. And so it's legal, this system that we have. But the question is whether that is right, whether it's fair, whether it makes sense to people when they understand it. it makes sense to people when they understand it. People did not know that the wealthiest person in the world who is now worth something close to $200 billion could actually pay zero in federal taxes. And we considered that pretty shocking. And we thought that people should understand it and understand that it's just because it is legal and it is the system that we have. It was not sent down by Yahweh from Mount Sinai. This was not written in the Hammurabi Code. This is a system that has evolved over time with political considerations and is relatively

recent and is not necessarily the system that we have to have for all eternity. So, yeah, I mean, do you feel, or does your reporting take a position on whether what these folks are doing is wrong, like on an individual level, or is it really for you about, hey, this is, we need to talk about the system that we have that allows such behavior. Cause I can see it both ways, right? I can see that I'm, I'm a big fan of the systemic argument, right. But I'm also aware these people have so much power. They create the system to an extent. Well, so just to be clear to your listeners, we were just reporters. We're at a news organization. We believe in fairness and accuracy and facts. And we do not, we're prohibited from taking policy positions. We're not taking policy positions. story, I would say that I don't think that any individual that we wrote about was doing something that was wrong in a kind of deeply immoral sense or, you know, and clearly not, we did not raise

any questions of legality. In subsequent stories, we have raised some questions that approach the line. So in a subsequent story by my colleagues, Justin Elliott and Trish Callahan and James Bandler, we wrote about how Peter Thiel, among others, had accumulated, Peter Thiel accumulated a Roth IRA, which is a very basic, boring, middle-class retirement vehicle to allow the middle class to sort of scrape together a little bit of retirement money. and you watch Suzy Orman or whatever, and they tell you, get a Roth IRA, and you put $5,000 in it every year. And then by the time you retire, maybe it'll be worth a couple hundred thousand, and you'll be able to supplement your social security benefits with that.

And it has some tax benefits. Right, and there are two things about the Roth IRA. One is that you're not allowed to put above a certain amount of money in. Now it's $6,000. Originally, it was $2,000 a year. And the other is that once you reach a certain income level, you're no longer eligible for a Roth. And the great thing about the Roth is it's post-tax money, but then you put it in the Roth and you never have to pay taxes on it again. So that's the benefit from it. But what Peter Thiel did was he put, they didn't just put cash into it.

He put founder stock in this company called PayPal, which everybody knows from the late 1990s. Okay. Now, I don't mean to be explaining too much. No, no, no, no, no. I think you're foreshadowing a little bit what a big deal this turned out to be. He got a Roth IRA. And instead of buying a mutual fund like most people do, instead of buying a target retirement, I'm going to retire in 2050 kind of fund. He's like, oh, my Roth IRA, I'll buy a whole shitload of extremely cheap stocks of my own little old company called PayPal, right? Right. The company that I control, right. And the thing about the lots and lots of stock

question is, well, how did he put lots and lots of stock into a Roth IRA if the limit was, at that point, I think it was $2,000? How did he do that? How did you put lots of stock in? And what you did was you called the value of the stock, literally fractions of pennies. Each share was literally fractions of pennies. And then you could put lots and lots and lots of fractions of pennies into your Roth IRA and be below the threshold. And that year he made sure, or he happened to not make a lot of income. And both those things allowed him to put that money into the Roth IRA. And now his Roth IRA is worth, and we had this number and no one else had. And we revealed it, $5 billion. And this was a secret because Forbes had estimated his wealth at like $2 billion.

So nobody really knew that he had this giant, giant secret investment that he will never, secret investment that he will never, if he doesn't pull any money out until he's almost 60 in like a few years, he'll never have to pay any taxes on that again. And so that was a question, we raised questions about whether that was entirely on the up and up. So the first story was about legal tax avoidance and routine strategies. This was not routine at all. It was Baroque and elaborate and planned. And I think we raised questions about whether that was strictly within the letter. Well, it's certainly a flagrant abuse of the, of the purpose of the Roth IRA, which is again, I mean, I, I have a, I have a Roth IRA. I think there's like $20,000 in it that I put in over a couple, you know what I mean? Over a couple of years, if I'm very lucky again, it's invested in like a mutual fund. If I'm, if I'm lucky in the stock market continues to go up

when I retire, that'll be, that's what it's for. Right. He, on the other hand, instead of buying a mutual fund buys tons and tons of shares of his own company with which he's able to do, because as the founder, what, he can basically set the stock price to some extent. He can decide that the stocks I'm buying are extremely cheap. Therefore I can buy a whole lot of them. Well, not, not exactly. I mean, he's supposed to have external experts say this valuation is fair and proper because when you're at a startup company,

you, at the very, very beginning on day one, no startup is worth anything, of course, but at a certain point, it does become worth something. And what he managed to do is get it sort of blessed by outsiders as being valid that these shares were worth fractions of a penny. Then in a matter of weeks, they got 4.5, if I'm going correctly, $4.5 million investment from other companies, from banks into the company, literally in weeks. And so that raises questions about whether those valuations at a fraction of a penny actually fare properly. Yeah.

So he buys tons of shares of his own company. He says, this is just my little company. I don't know if it's going to turn into anything. It's like, we're not PayPal. What is this? I don't know. I came up with this yesterday. And then, I don't know.

Then he buys an incredible number of them because they cost 0.00001 cents or whatever. And then the company immediately gets a huge investment, obviously takes off like a rocket. Now he's got $5 billion in a Roth IRA that will never be taxed and that he can use to invest in other things. It's basically like my Roth IRA, if anybody is listening who has one, it's like a nice little investment vehicle to help you save for retirement, supplement your income in retirement. For him, it's now a permanent

tax-free venture capital fund almost. Oh, yeah. And he moved some of that PayPal to Facebook, you know, and watched that balloon from the Facebook investment. So that's his investment view. It's a pretty nice gig if you can get it. Now, I posted about that Peter Thiel story because I was I was shocked by it on Twitter. Someone replied to me, hey, tell me how this fucks up your day. You know, hey, Adam, what do you care if Peter Thiel didn't?

So the guy didn't pay some taxes. Oh, you're jealous, right? You wish that you didn't have to pay taxes. Peter Thiel is smarter than you. That's why you're so rich. We have heard that critique. smarter than you. That's why he's so rich. We have heard that critique. And, you know, one distillation of this idea is when Hillary Clinton raised that Donald Trump had not paid any taxes, speculated that he hadn't paid taxes. And he said, that means I'm smart. There is a strain of thinking in American society that not paying taxes is smart. But what do we pay taxes for? Well, there are two reasons we pay

taxes. One is to fund roads and bridges and basic science. And when people get a vaccine to save them from a mortal illness, or they drive to work, or they fly in an airplane that doesn't crash. They owe the federal government, and the federal government needs to be funded for basic services to keep us safe and healthy and keep society functioning. And the government depends on taxes. So that's the first reason. Everything stems from that. And we periodically are convulsed in fears that Social Security will go bankrupt, that Medicare will go bankrupt. The federal government has been starved of funds, and we've been stripping the regulators of the ability to keep unsafe chemicals out of circulation and keep our food safe and things like that. So that's what the government does, and it needs money from tax

dollars. The other big issue is that there is a fundamental agreement that we have in society, which essentially says, you know, we're all in it together and we're going to pay our fair share. And our system is based on the idea that the wealthy don't just pay more because they make more money, but that they pay a higher percentage of their income. We have, it's so what's called a progressive system. And that's the theory. And it's that we have a shared sense of common good. And the reality is that that society is inverted. We have a system on its head where average people pay significant amounts of taxes and the wealthy do not.

They pay less. It's a regressive system, not a progressive system. And so it sort of inverts the basic sense of fairness in our society. And once you have done that and you rupture that sense of fairness and democracy, then you really risk, I think, a kind of erosion of societal norms and a belief in our sort of shared system. Yeah, absolutely. Well, look, we got to take a really quick break. I have so many more questions for you about this, though. But we'll be right back with more Jesse Isinger. I don't know anything Okay, we're back with Jesse Isinger.

So you've used this incredible trove of tax information that you've received to really blow the lid off of what turns out to be, I always thought we had a progressive tax system. Turns out we have the opposite. Turns out that poor folks are paying more in taxes than the wealthiest Americans are. That's important information to have. But there was also a big brouhaha around this reporting that maybe it was, you know, violated people's privacy to, you know, reveal this information about their taxes. I know you talk about that in the reporting, but could you tell us a little bit about, you know, your feeling about it as reporters? I mean,

if you're Warren Buffett, you got to be there going, hey, this is my private information here. Yeah. And some people have objected to us publishing their private information. Michael Bloomberg, in particular, who your listeners might know, runs one of the biggest media organizations in the world, objected to his private information being public and kind of made rumblings about how he wanted to find the perpetrator of the leaker, if there is one, and, you know, chase them to the ends of the earth. We were cognizant, of course, of the privacy concerns, and we believe that this information, our stories, are in the public interest. And so, just to back up and walk your readers through So just to back up and walk your readers through what happened here is that we received this huge trove of information.

And we are not discussing how we received it or from whom we received it. The source or sources we believe need to be protected. we believe need to be protected. We don't know a lot about the information from the source of sources, about the identity of it. But there are things we do know that we're not discussing. We're not discussing it, as I say, because we want to protect the source of sources. But we are not publishing every scrap of information that we receive. What we're doing is using the information to write stories that we believe are in the public interest. And I really defy anybody to, with a kind of honest, you know, an intellectually honest argument that's not made in bad faith, say that it's not newsworthy that the wealthiest person in the world

can pay zero in federal income tax, that the second wealthiest person in the world can pay zero in federal income tax, or that one of the most powerful and wealthy donors to political groups, Peter Thiel, Donald Trump, could secretly accumulate $5 billion in a tax-free way in a vehicle that is meant for middle-class retirees. And so we are culling the information and treating it very responsibly. We're trying to be responsible stewards of it. And we're going to continue to do that because we believe that this is in the public interest. And there's a long history in journalism of important stories being based on leaked information or information of, you know, that the Pentagon Papers and whatnot, you know,

we don't need to run through all of that. No, but it's a very good point. It's a cornerstone of investigative reporting to take secrets and in responsible ways, reveal them to the public. And in almost every case, we're taking private information that people didn't want us to have and didn't want us to know and don't want the public to know. So yes, that's what we do. We take private information, we make it public, but we only do that when we think that the private information is worthy of being public. you know, and just spraying it out, you're going through these documents and writing stories based on them, using your judgment as journalists about what is newsworthy and, you know, what does the public need to know? And I presume you're doing your best to verify all the information that you've been given. Well, that's a very good point too. And I should have raised it earlier, which

is that the most important thing for us is to figure out whether the information was true or not. And then so when you receive information, what we don't I don't really care. I'm very agnostic about the provenance of the information. I don't care if it comes from a Republican, a Democrat, a disgruntled employee, a crazy person, an enemy of the United States. What I care about is, one, whether the information is true and verifiable. And then, two, the most important thing, whether it's newsworthy. And so the most important thing we did was when we first got this was try to figure out whether this was true or not. And we verified it through lots of careful steps.

We ultimately verified information on around probably over 50 individuals before we even started to report on the people who we were going to report on. And then, of course, what we did was we took the things that we were going to report directly to the people that we were going to report. And there's a basic rule in good journalism that you're a no surprises journalist, which means that you run everything that is about a certain person that's going to be in a story that you're planning to write in a story by that person ahead of time and ask a lot of questions. And the other requirements, they can't look into your heart and know this, but you have to be intellectually honest. You have to be open to being persuaded that the information is either incorrect or, more importantly, that the context is wrong and that you, because you can

get a lot of facts right, but actually get the overall picture wrong. And you need to be open to being persuaded that you could be wrong. And some people engaged with us. And we had a long discussion with Carl Icahn, who made an argument that it was legitimate that he didn't pay taxes. And Warren Buffett sent us a long letter, and then some didn't engage at all. You know, Bloomberg gave that sort of bail threat, and Bezos' people didn't even respond to our emails and declined to receive the information. But that is an extraordinarily important point of it. And when we did that, no one disputed the veracity of the data. So the data are real and valid. And then, as you say, we're not willy nilly, yes, laying it all out on the

internet. We're going through it very carefully just for the things that we think are relevant. Yeah. And you have, I mean, it certainly seems that the information is true if you've got the billionaires themselves saying, well, I don't think this should be made public. That would seem to imply that the information is accurate. But I mean, the release of this was a bit of a bomb going off. I mean, I know at the IRS itself, like if you're working at the IRS, you're like, oh, my God, this is a this is a big leak. This is like heads need to roll because, you know, this information is supposed to be private. Like it is, does seem like we should have the presumption of privacy at the IRS. Like, even though it's a complicated thing, I'm happy the information is out. I agree with you that it's newsworthy. I think it's important that the public needs to know it, especially because these are, this is information that we simply did not have before. But at the same time, from the IRS's perspective, they're like, oh, no.

Well, yeah, the IRS presumably is not happy about this. And this is this is probably the biggest disclosure of private IRS information by orders of magnitude in the history of the U.S. government, and actually one of the biggest disclosures of private government information, period, in history. And again, you know, and it makes people whose taxes we have uncomfortable, And it makes people whose taxes we have uncomfortable. And I'm sorry about that, or I'm a little sorry about that. But this isn't displaying every single average American. This is displaying the relevant information about people who are really effectively public figures. When you become the richest man in the world. I think you are effectively a public figure.

And it's important to understand what kind of taxes you pay, I think. And taxes are not private everywhere and always and have been for eternity. In fact, there was a disclosure requirement after the Civil War. During the Civil War, we passed our first income tax. And as part of the income tax, there was a disclosure requirement. And so the New York Times printed in its pages in 1865, the income and the taxes paid for Cornelius Vanderbilt and Astor and all the wealthy people at the time. That was public. And in Wisconsin, you can get public records requests to find out what everyone in the state, anyone in the state has paid in state income taxes. And we have disclosed income taxes for individuals in the past,

and other countries do it. So Sweden and other Scandinavian countries disclose the income taxes that are paid by everybody. So it's a matter of dispute or at least debate whether this should always be private. One of the bizarre things is that corporations, which only Mitt Romney thinks are as people, they're actually pieces of paper. They're entities. They're entities that are construct constructs of the U.S. government and are subject to the rule of law. They keep their taxes private. And there's no really great argument for why corporations should keep their taxes. So so the privacy argument only goes so far. Yeah, I mean, look, even if we have this presumption that taxes should be private,

which I think we can have a debate on whether or not they should. I mean, there's lots of financial information that's not private home ownership, for instance, property ownership is not private. You can go down to your local, you know, city hall records and see, you know, who owns what building and how much they paid for it in most jurisdictions. But even if we were to say that's private, well, there's a I think the ethical argument for in some cases, private information should be made public for the good of the public good. This is clearly one of those. In my view, it's just a very interesting case to think about whether or not that's the case. And it's something that we need to to think about whether or not that's the case. And it's

something we need to discuss when we're talking about this. But so one question I have, though, is that just to come back to this point about whether or not we should be wagging our fingers at these billionaires or if this is a systemic problem, is a systemic problem. To what degree are these folks in charge of, you know, responsible for creating the system that they're taking advantage of? You know, when we look at the why we have the tax system that we do in America and who it benefits, like, you know, how much how much are they influencing their own ability to make use of these loopholes? Obviously, people like Mike Bloomberg have incredible power over American public policy. Well, I think that these billionaires do have personal responsibility for

their approach to taxation. And there's really a spectrum. So you take Warren Buffett, and there are two things that are questionable about Buffett's approach. One is that when he says, I pay a lower tax rate than my secretary, he's only really talking about tax rates, rates on his income, and he gets capital gains income rather than ordinary income, which is taxed at higher rates. But, of course, he takes variable income. So he's essentially talking about something that's basically irrelevant to him. They should be taking 50 percent of my zero dollars, not 15 percent of my zero dollars. So, you know, and does he understand all the dynamics at play here?

Of course, he's one of the most brilliant financial wizards of our time. So there's a little bit of hypocrisy there. The other thing is that what he said in response to us was, look, I'm going to give a lot of my money. I'm going to give over 99% of my money to charity. And I think that's better use of my money than to go have it go to the government and say, pay down our debt to China. And like, I would like to allocate my tax dollar the way I want. I'm sure you have the things that you like that our government does and things that you don't like that our government does. And I think we all think that we could do a better job than those idiots in Washington. But that's not the way our democratic system is arrayed. But billionaires get to be out of the tax system and then allocate their tax dollars in ways that are untaxed. They're dollars

that they don't get taxed and they get to allocate them for their own policy preferences and hobbies and obsessions and influence, and then live on for generations. And then the final point I would make is that you take people like the Kochs and the Mars family, people like that, and they have actively influenced our political system, funded our political system for decades to reduce their tax burden, to cut the estate tax, get rid of the estate tax, to lower taxes on corporate taxes, to lower income taxes, to lower capital gains taxes. That has been one of the most aggressive campaigns from the ultra wealthy over the last four decades, and it's been enormously successful.

In fact, the Republican Party is almost built entirely around the idea of lowering taxes. And so they have influenced the political system that we have. They have built the system that we have had through their political, the people that they've supported politically. The Mars family, the M&M people, when I buy the peanut M&Ms, this is what I'm supporting? It's shocking, isn't it? Sweet on the outside, but not on the inside. Well, and speaking of charities, not only do they get to direct it towards whatever they feel like, rather than, you know, say schools in their area, public housing, like things that other

people need, they get to say, oh, I want to I want to support the opera or whatever the fuck it is that they that they're interested in. They also use those charitable contributions as a tax dodge themselves. Like when, you know, Mark Zuckerberg made headlines years ago, oh, he's going to donate his whole fortune to charity. Well, what he was actually donating it to was a charity that he solely controlled the Chan Zuckerberg initiative that he is then able to use for the purposes of more furthering, more political power for himself and that he can pass on to his descendants should he so choose. Like there are literally people who, you know, the fucking Rockefeller Foundation, like, you know, the folks in control of that are still very powerful because now they control a giant charitable foundation. It doesn't mean they're giving it to, you know, just they're giving it to anti-malarial drugs or whatever. They're holding on to it in a new form. Absolutely. You're absolutely right.

And I hate to correct you, but Zuckerberg didn't give it to a charity. That was the entire point. He gave it to an LLC, a for-profit entity, and some of it does charitable giving, and some of it is investments that they deem to be socially worthy, but could be for-profit investments that they would actually make money on. So when he said that he was going to give his entirety of his fortune to charity, he didn't give the entirety of his fortune and he didn't give to charity. Other than that, it was a perfectly true statement. And you're absolutely right that what philanthropy does is not often the kind of bread and butter, unglamorous work of government. Charities do not hire inspectors to go into condo buildings to look to see whether

their foundation is going to last for more than 40 years. That's what government does. And so charities are glamorous. Charities are trendy. Charities do, as you say, the opera, but they also do things that will burnish people's reputation. And Rockefeller invented modern philanthropy in order to take his reputation from being one of the most vilified robber barons of his time to one of the kind of most glorious and beloved names in American society. And that sort of worked for him. And whether that system is the way we want to design our society is something that we should all be thinking hard about. Yeah. I mean, if I could make one more point on this, and I'm sorry to harp on it, but, you know, Bill Gates is doing the same thing today. He got his

own Netflix series about how great and charitable he is based on doing this. And, you know, I'll admit some of the work is good. Maybe, you know, Bill Gates can actually use his money to make a dent in malaria in Africa. That's a, that might be a good thing to do. But at the same time, Bill Gates has his fortune because of the work of millions of people that fed into it. Microsoft has this many employees. All those people drive on public roads. Their kids go to public schools. There's all of this public resource that is funneling together into Microsoft and then into Bill Gates's hand. You know, the billions that he has is like made by America as a nation, not just him personally. And when you're the recipient of that amount of concentrated public good, you should have to pay back to the public

good. You should have to pay for the fucking roads like everybody else. You should have to pay for your share of the public roads, which is your share is a lot higher than everybody else's. Sorry, I feel like now I'm sounding like I'm giving a speech. I apologize. I couldn't say that better myself. So I don't have a response. Drop mic. To what degree is this the result of lax enforcement on the IRS?

I know the IRS has had its budget cut over the over last decades. And, you know, the the to the degree that they're not able to effectively audit the wealthy anymore is what I have read in my own, you know, little dicking around on the Internet. You as a journalist, is that a component that you've seen in this story? Yes. Well, in fact, Paul Keel and I did a big series of stories on the gutting of the IRS, which is probably possibly why we got this trove of information, because people were concerned about the wealthy avoiding taxes and gave us the information after we wrote that series of stories. And that is an extraordinary story that accelerated

in 2010 when Republicans took aim at the IRS and slashed its budget by billions of dollars. And what that has meant is that tens of thousands of employees have left the IRS, and among them, the most skillful auditors, the ones that could audit the biggest corporations and audit the ultra wealthy. And so now today, the IRS has fewer auditors than we did in 1950, under 10,000 recently, which is lower than at any time since Eisenhower was president and the year that Stalin died. We had a lot more people than we did back then and also a lot more ultra-wealthy people. The economy was a seventh of the size and the population was half. And we have had, as you just said, an extraordinary explosion of income inequality and wealth inequality. an extraordinary explosion of income inequality and wealth inequality. So now we have wealth inequality that is greater than at any time since the Gilded Age in America, and the wealthy are

audited at collapsing rates. And in fact, your chances of being audited now, if you are a member of the working poor, are higher than if you make over $600,000 a year. Wow. And the ultra, ultra wealthy are audited at slightly higher rates than the working poor. You can rest assured that the audits have actually gotten much worse and thinner and less aggressive. and less aggressive. But the working poor, which are disproportionately black, get audited at higher rates than people making $500,000 and $600,000 a year. And the reason for that is that they get the earned income tax credit. And Republicans have said, if people are getting the earned income tax credit, they're probably cheating and we really need to verify that. And so there are high levels of cheating, there are high levels to verify that. And so there are high levels

of cheating, there are high levels of fraud there. And so that needs to be audited. And so the most audited county in America, Paul Keel wrote, was a county in Mississippi. Really? I mean, just as like a usage of resources, if I was trying to, you know, I'm in charge of the IRS, where should we spend our auditing dollars? I think we should probably spend them on the people who are, you know, earn the most, the people who have the most wealth, the people who avoid taxes at the highest rate, the people who you go for the whales, not for the little fish. If you're trying to, you know, solve a, solve a problem like that. I mean, obviously, you know, you, you want to spread out and get, get everybody have to be that kind of system where nobody wants to, you know, cheat on their taxes because everyone knows that they could, that, that, you know, someone could come ring their doorbell, but you know, you don't want to enforce the people who don't have any money to give you. You would think.

Well, we asked the IRS about that. The IRS wouldn't really talk to us. But when the head of the IRS was hauled in front of Congress and asked about our stories and asked about the audit rates, they admitted that the reason they do it is that it's easier. It's easier to audit the poor than it is to audit the rich. Wow. And with fewer resources, they go to the easier thing. And so there was a SWAT team that they created in 2010 to audit the ultra rich.

And then that's another story that we wrote. That also got completely gutted and basically was completely unsuccessful and has since been unwound. So the IRS is a shadow of its former self. And in fact, Biden has tried to revive the IRS and proposed a big budget increase so that we could audit the wealthy and get dollars that are owed. Literally billions and billions of dollars are owed from people who don't file their taxes and owe taxes. These are non-filers. And we know that they owe taxes and we can't collect them, even though there are millionaires who owe taxes who we know about, but we don't collect on their unpaid taxes. This is not actually changing the taxes at all.

We'd just be simply collecting the taxes that we know are owed and out there that people have. But we can't do it because we've got the IRS so significant. I mean, this is basic stuff. If you want a government to work well, you need to like I, the degree to which it demonstrates the degree to which there are folks who are in charge of running our government, whose goal appears to be to make it run as poorly as possible so they can get, then blame it for running poorly and then make it, use that as an excuse to make it run even worse. It's a, it's self-defeating. It's a vicious cycle. Yeah. I was going to say that the premise of your question is if you want the government to work. And that's our our elected leaders are certainly not operating from that premise.

Often you wrote a book. I want to finish with this. You wrote a book called The Chicken Shit Club. What an incredible title for a book to not. And this proves that you don't back down because I can imagine the number of people at your publisher who must have said, we can't call the book The Chicken Shit Club. And you're like, no, fuck you. That's the title of the book. That's what we're calling it, because that's what these people are. Tell me about this book. And and and yeah, tell me about it. Yeah. Well, amazingly enough, Simon Schuster, which published it, was supportive of the title. It comes from a Jim Comey line when he was the U.S. attorney for the Southern District of New York in the early 2000s, gathered all his prosecutors together and said, they're real hot shots, they all shot up their hands because they were so proud of their undefeated record. And he looked around the room and said, you guys are the chicken shit club. And what he meant was, you're taking on easy cases. You're just taking on slam dunks and you're not actually doing justice. You're not taking on the difficult

cases. And my argument is that the American legal system has become the chicken shit club writ large. We do not punish and prosecute powerful wrongdoers. The most powerful, wealthiest people in American society have impunity to commit crimes. And the poor, disproportionately people of color, they're the ones who are punished. And we live in a two-tiered justice system, just like we live in a two-tiered tax system. It's sort of, the tax stuff is a continuation of my work on the justice system. And so what I wrote about is like, everybody knows why that no banker went to prison in the wake of the financial crisis in 2008. I tried to explain that. And I said, this is a much more significant problem. And it isn't just about the banks.

It covers almost every corporation and really whole swaths of the economy, like commercial real estate and political lobbying and taxes, all the stuff that Donald Trump's administration revealed about how under-policed and lack of policing there is among the super wealthy. Yeah. Well, how do we, do you have any idea about how we go about changing any of this? Are there any promising steps that you think could be taken? Or is that outside of the realm of your, you know, what you do? No, no, no.

I mean, I had a million proposals about prosecuting the ultra wealthy. But this isn't a happy story with a nice ending with like a bunch of, you know, policy suggestions that then get adopted when the wealthy and powerful have disproportionate power in our country. They want impunity and they don't want to pay their fair share. And that's the system we have. So, you know, like you can imagine a better system, but unless people are really working for it in effective ways, we're not going to get there. It's almost, sometimes it seems to me to be a law of nature. The rich get richer, the poor get poorer is a law of nature to a

certain extent, because when you're rich, you have power and you can use the power to bring more riches to yourself. I always thought about it in terms of, this is a dumb analogy, but in terms of when I used to get stage time as a comic, when I was starting up, it was very hard for me to get stage time and I needed it to get better. You know, I had to go to open mics. I had to beg to get on shows and stuff like that. Now that I, you know, it's been over 10 years later and I've found some success as a comedian. It's very easy for me to get stage time. I can show up to a show. They'll just throw me up. And when that started happening, I was like, that's backwards. Right. I shouldn't be that way. I needed it more than the people who need it more should have an easier time getting it.

It should be harder for me because I already have all the advantages. Right. You're absolutely right that this is a system that is self-perpetuating. But I guess I don't want to breed in the listeners a sense of such deep cynicism that this is a law of nature. It is not. And we have had a different system and we've had a different system in recent times. In the 1950s, we had a system that was where prosperity was shared more broadly, obviously not shared by black people or women. But economic inequality was much, much lessened. And unionization out, you know, there were powerful institutions that counterbalanced the wealthy's power. And in other societies, in Scandinavian societies, there's shared prosperity.

And people live healthier, happier lives in many ways. So I don't think it is impossible to imagine a different future and to build a different society that is more equitable, but it takes work. It takes time and it does take imagination, but you need to, but it is possible. Thank you. That's what I needed to hear. A better world is possible. Well, look, that's our time. Jesse, I got to thank you so much for being here and thank you so much for this incredibly impactful reporting and for the work that you do. And I can't thank you enough for coming on to talk to us about it. I hope you'll come back again sometime next time you blow the lid off of an entire structural emergency in our society.

Yes. Next, next blue moon. Well, thanks so much for having me. I really appreciate it. Well, thank you once again to Jesse for coming on the show. If you want to check out his book, The Chicken Shit Club, once again, you can get it at factuallypod.com slash books. That's factuallypod.com slash books. I want to thank our producers, Chelsea Jacobson and Sam Roudman,

Ryan Conner, our engineer, the fine folks at Falcon Northwest for building me the incredible custom gaming PC that I am recording this very episode for you on. You can find me online at adamconover.net or at Adam Conover, wherever you get your social media. And by the way, if you have a suggestion for a topic you would like to hear covered on the show, or if you just want to send me a note, you can send it to factually at adamconover.net. That's factually at adamconover.net. Until next week, thank you so much for listening.

I've been Adam Conover we'll see you next week on Factually That was a HeadGum Podcast