Where Did Billionaires’ Billions Go?

The fallout from ProPublica’s bombshell report about billionaires’ tax bills is just beginning. The news outlet obtained tax records for the nation’s 25 richest people, which show that they paid $13.6 billion in federal income taxes between 2014 and 2018, or about 16 percent of their reported income over that period — and a very, very small sliver of their wealth.

What’s revelatory about the scoop is that it provides never-before-seen details of specific billionaires’ tax bills, or lack thereof. Some of the jaw-droppers in the report:

  • Jeff Bezos claimed a $4,000 tax credit for his children in 2011.

  • Warren Buffett, who has called for tougher tax rules for the wealthy, paid under $24 million in taxes between 2014 and 2018.

  • Mike Bloomberg paid $70.7 million in income tax in 2018, despite reporting $1.9 billion in net income, after claiming deductions, charitable donations and foreign tax offsets.

  • Carl Icahn and Elon Musk took advantage of rules regarding debt. Icahn deducted interest payments on his companies’ debt, helping him pay no federal income tax in 2016 and 2017. Musk regularly borrows tens of billions against his stock holdings: those loans aren’t taxed, and the interest paid can often be deducted. (He paid no federal income tax in 2018.)

  • George Soros paid no federal income tax between 2016 and 2018, after claiming investment losses.

Something to keep in mind about the numbers, as presented by ProPublica, is that comparing the billionaires’ tax bills with estimates of their wealth isn’t how the U.S. tax system works. (That is, in the absence of a wealth tax, proposed by Senators Elizabeth Warren and Bernie Sanders.) More pertinent to a public policy debate is to look at all the deductions against the billionaires’ incomes that reduce their tax liabilities to, in some cases, zero. The push to raise income tax rates, as President Biden has proposed, would not have a big effect on these fortunes, which generate large amounts of wealth but relatively modest amounts of income.

What can be done? There are changes to the tax code that could arguably capture a larger share of taxes from the ultrarich than a wealth tax, as DealBook has argued. These include:

  • Eliminating the “step-up” basis of assets in estates when they are transferred after someone dies, which effectively resets the value of assets for capital-gains purposes. This would also reduce the incentive for the wealthy to borrow against their assets — and there should probably be a greater limit on the deductions for interest expenses anyway.

  • Speaking of capital gains, higher rates for the wealthiest would capture more tax and would somewhat address the “carried interest” provision of the tax code that investment managers use to treat much of their pay as capital gains rather than income, which is one of the most egregious and persistent loopholes in its own right.

  • The “like-kind exchange” of properties allows real estate executives to depreciate the value of their investments for tax purposes, even when the actual value of a property appreciates. The Biden administration is looking at closing this loophole, which it says would raise nearly $20 billion over 10 years.

  • Is it acceptable for the wealthy to take deductions when they move money to their own philanthropic foundations? Perhaps the deduction should only happen when the money is spent.

The publication of personal tax records also poses a conundrum. Biden administration officials said they were investigating whether the disclosure of individuals’ tax information constituted a crime; Senator Ron Wyden, Democrat of Oregon, worried about the privacy implications even as he called for changes to the tax code. (A spokesman for Mike Bloomberg told ProPublica that he would “use all legal means” to find and punish those responsible for the leak.)

  • ProPublica argues that its report serves the public interest in understanding how the wealthy game the U.S. tax system and could influence lawmakers’ efforts to change it. The publication says that it does not know the identity of its source and did not solicit the information. It says it has vetted the information independently.

What others have to say: For billionaires, the federal income tax “has become a voluntary tax,” the economist Gabriel Zucman told David Leonhardt of our sister newsletter, The Morning. “The Real Tax Scandal Is What’s Legal,” reads the headline of a Times editorial. But Megan McArdle, a columnist at The Washington Post, was disappointed: “I genuinely thought the tax avoidance strategies would be something more than unrealized capital gains.”

President Biden breaks off infrastructure talks with Senate Republicans. The end of a weekslong effort to forge a bipartisan compromise came as G.O.P. lawmakers refused to make concessions on spending and taxation plans. The president will try to revive bipartisan talks with a different set of Republicans while Senate Democrats will explore passing portions of Biden’s plan along party lines.




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