The extremely rich in the US “pay hardly any income tax”

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The extremely rich in the US “pay hardly any income tax”

Details purporting to disclose the low income tax paid by US billionaires were leaked on a news site.

ProPublica claims to have seen the tax returns of some of the world’s wealthiest people, including Jeff Bezos, Elon Musk, and Warren Buffett.

The website claims that Mr Bezos of Amazon paid no tax in 2007 and 2011, while Mr Musk of Tesla paid nothing in 2018.

A White House spokesman called the leak “illegal” and the FBI and tax authorities are investigating.

ProPublica said it was analyzing what it called an “extensive set of Internal Revenue Service data” on billionaires’ taxes and would release more details in the coming weeks.

Although the BBC failed to substantiate the allegations, the alleged leak comes at a time of growing debate over the amount of taxes paid by the rich and growing inequality.

ProPublica said the 25 wealthiest Americans pay less tax – an average of 15.8% of adjusted gross income – than most traditional US workers.

Jesse Eisinger, senior journalist and editor of ProPublica, told the Today Program: “We were very surprised that you could reduce [taxes] to zero if you were a millionaire. In fact, paying zero taxes really blew us away Ultra -rich people can bypass the system in a perfectly legal way “.

“They have a tremendous ability to find deductions, find credits and take advantage of gaps in the system,” he said.

So while the value of their wealth grows tremendously by holding stock in their company, this is not recorded as income.

What’s more, he said: “They also take aggressive tax deductions, often because they borrowed to finance their lifestyle.”

He said U.S. billionaires buy an asset, build one or inherit a fortune, and then borrow against their wealth.

Because they don’t make any earnings or sell shares, they don’t take any income, which could be taxed.

“They then borrow from a bank at a relatively low interest rate, make a living from it, and can use the interest payments as a deduction on their income,” he said.

Biden Plans

The site claimed that “by using perfectly legal tax strategies, many of the wealthy are able to reduce their federal taxes to zero or near zero” even as their wealth has soared in recent years.

The rich, like many ordinary citizens, can reduce their income taxes through things like charitable donations and by taking money from investment income rather than wage income.

ProPublica, using data collected by Forbes magazine, said the wealth of the 25 wealthiest Americans combined increased $ 401 billion between 2014 and 2018 – but they paid $ 13.6 billion in income taxes in those years.

President Joe Biden has pledged to raise taxes on wealthier Americans as part of a mission to improve equality and raise funds for his massive infrastructure investment program.

He wants to raise the highest tax rate, double the tax on what they earn from investments, and change the inheritance tax.

However, ProPublica’s analysis concluded: “While some wealthy Americans, such as hedge fund managers, would pay more taxes under Biden’s current administration proposals, the vast majority of the top 25 would see little change.”

One of the quoted billionaires, philanthropist George Soros, would also have paid a minimum tax. His office did not respond to a BBC request for comment, but said in a statement to ProPublica that Mr Soros did not have to tax a few years due to investment losses.

The statement also highlighted the fact that he had long argued for higher taxes on America’s wealthiest people.

‘Illegal’

According to reports in the United States, Michael Bloomberg, the former mayor of New York whose tax details were among the documents, said the disclosure raised privacy concerns and that he would use “legal means” to reveal the source of the news leak.

ProPublica, an investigative website, has written several articles about how budget cuts by the U.S. Internal Revenue Service have hampered its ability to enforce tax rules on wealthy and large corporations. The news agency claimed that it had received the documents disclosed in response to these articles.

White House Press Secretary Jen Psaki said “any unauthorized disclosure of confidential government information” was unlawful.

Treasury Department spokeswoman Lily Adams said in an emailed statement to Reuters that the matter had been referred to the FBI, federal prosecutors and two Treasury Department in-house observers, “all of whom have authority that independent to investigate ”.

The Commissioner of the United States Internal Revenue Service, Charles Rettig, said, “I cannot speak to anything about specific taxpayers. I can confirm that there is an investigation, in relation to allegations that the source of the information in that article is from the Internal Revenue Service”. Revenue Agency. ”

What’s wrong here? Let’s do a very simple analysis. If the shares I own in the company I set up are worth £ 1 billion at the start of the tax year and rise to £ 2 billion by the end of the tax year, how much do I have to pay for income tax? Easy – zero. Because even though I was twice as wealthy, I got zero income.

On the other hand, if I have no assets and earn £ 30,000, I pay about £ 6,000 in income tax and national insurance. That’s why disclosures that some of the wealthiest Americans have paid little or no income tax may cause anger, but they should come as no surprise. It does not compare apples to apples.

This is not to say that these very wealthy people do not have the money to pay the sailing bills. A broad tactic used by the wealthy to borrow money protected against their vast wealth – which is not yet income – is loan proceeds and this is the (perfectly legal) part of taking cookies.

Interest on that loan can be deducted from any other income to further reduce income tax. Sounds great, but it’s legal.

Unsurprisingly, many politicians around the world (Elizabeth Warren in the US and Jeremy Corbyn / John McDonnell in the UK) and academics like Thomas Piketty have argued that we need a way to tax wealth, not income.

The billionaire in our example will pay the capital gain, currently 20% in the UK, by the time he sells those shares and makes a profit.

ONLY, that is, the profits have sunk into another business, the tax system as it is designed to encourage the promotion of economic growth and new jobs – jobs that will generate income and therefore taxes .

That, his advocates say, is capitalism at work – but as with the new global consensus on corporate taxation – the clamor for tax change is growing louder.

 

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