The IRS Is A Criminal Enterprise In Service Of The Progressive Cause
/As you may already have learned, on Tuesday a left-leaning website called ProPublica published an article announcing that it had obtained tax returns of “thousands of the nation’s wealthiest people, covering more than 15 years.” The headline of the piece is “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.”
If you were still harboring any doubts that the IRS is a criminal enterprise in service of the progressive cause, this should put an end to them.
It is highly doubtful that the IRS has ever really been an organization legitimately engaged in apolitical enforcement of the tax laws. As one major example from the earlier days, the use by FDR of the IRS as a “weapon of political retribution” against the likes of Huey Long and Andrew Mellon (and many others) is well-documented. More recently, you probably recall the Lois Lerner scandal of 2012-13. Lerner was the IRS Director of Exempt Organizations in 2012, during the run-up to the contest where Barack Obama got re-elected. In that role, she oversaw the holding up of routine tax-status approvals of dozens of conservative-leaning issue-advocacy groups, particularly TEA Party groups, thus effectively crippling their fundraising and preventing them from participating effectively in the election. Lerner was caught dead to rights, but was permitted to retire without consequence or penalty in September 2013. In that affair, neither the IRS Commissioner (Koskinen), the Treasury Secretary (Geithner) nor the President (Obama) ever had to answer as to their knowledge or involvement.
And now we have the latest scandal. If this is a leak from within the IRS, it is a crime of great proportions. Is there any other bona fide theory of how these tax confidential tax returns have been disclosed? I have seen only two other theories proposed, neither of which I find plausible: (1) a hack, and (2) a leak from a foreign government (the IRS has certain limited ability to share tax information with foreign governments in furtherance of its mission). To believe the “hack” theory, you would have to believe that the hackers took the time and effort to find and segregate out the tax returns of the “wealthiest people” while scrupulously maintaining the confidentiality of everyone else’s records. I don’t think that’s how hackers work. The foreign government theory would require that every one of the people whose tax returns got released had tax-significant dealings with the same foreign country. Again, that’s not too likely. So I’ll put about a 99% chance on this being a criminal leak from some one or a group of politically-motivated employees at the IRS.
The people at ProPublica make no effort to hide the political purpose of the leak. The disclosures come just as President Biden’s plans for major tax increases on high earners — to force “the rich” to pay “their fair share” — appear to be struggling, and perhaps dying, in the Senate. (However, expect these tax hikes to come back at some later point as part of the budget “reconciliation” process, exempt from the Senate filibuster.) In this first piece announcing the leak of the tax returns, ProPublica spins the story explicitly as a demonstration that the rich do not pay their fair share, or anything close to it:
Taken together, [this information] demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most. . . . America’s billionaires avail themselves of tax-avoidance strategies beyond the reach of ordinary people. Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell.
So it seems to be the view at ProPublica that the principal nefarious “tax-avoidance strategy” of these billionaires that is “beyond the reach of ordinary people” is holding on to assets and not selling them while their value appreciates. Good thing that the billionaires have armies of lawyers and accountants to advise them on that one. Actually, I though that around two-thirds or so of all Americans engage in that exact same “tax-avoidance” strategy, otherwise known as owning a home; and good chunk of the rest use the same nefarious strategy in the form of holding an IRA or 401(k) account for retirement.
To demonstrate that these rich are not paying anything like their fair share, PP selects four billionaires for its first foray: Warren Buffett, Jeff Bezos, Mike Bloomberg and Elon Musk. As much as I find the disclosure of this information to be despicable, it’s now out there, so I’m going to make a few comments. There is a chart presenting for each of those, and for the five-year interval 2014-18, information as to their (1) increase in net worth, (2) total income reported, (3) taxes paid, and (4) something ProPubica calls “true tax rate,” which is taxes paid divided by increase in net worth. I have not succeeded in copying the PP chart into this post, but here is the information portrayed:
Warren Buffett: wealth growth 2014-18 — $24.3 B; income reported — $125 M; taxes paid — $23.7 M; “true tax rate” — 0.10%
Jeff Bezos: wealth growth 2014-18 — $99.0 B; income reported — $4.2 B; taxes paid — $973 M; “true tax rate” — 0.98%
Michael Bloomberg: wealth growth 2014-18 — $22.5 B; income reported — $10.0 B; taxes paid — $292 M; “true tax rate” - 2.30%
Elon Musk: wealth growth 2014-18 — $13.9 B; income reported — $1.52 B; taxes paid — $455 M; “true tax rate” — 3.27%
First comment: the figures for “wealth growth” clearly do not come from the tax returns, which contain no information on this subject. And indeed, if you read the PP piece carefully, they admit that they got this information from the billionaire rankings compiled by Forbes. In the real world, “wealth growth” is not taxable, and holding on to assets is not some nefarious tax avoidance mechanism available only to billionaires.
My second comment is that with relatively limited knowledge of the tax system, you could have guessed the tax situation of these four people quite easily with a good deal of accuracy. For all of them, the “wealth growth” number reflects the growth in their ownership stake in their respective companies, which in all cases has gone up as the stock market went up. But of course this has nothing to do with taxes. Forbes compiles its numbers mostly from publicly available information. For the other pieces, I’ll take the billionaires in reverse order:
Musk apparently got paid about $300 M per year basically as ordinary income, since he paid close to a third of it in federal tax. That doesn’t seem to me like anything for the rest of us to complain about. Nor is it surprising that Musk would volunteer for such a tax hit. Tesla is an extremely risky business, highly dependent on government mandates and incentives, whose value could disappear overnight. The company may be flying high now, but Musk is getting his cash out while he can. The value of the company is highly dependent on people believing in its future, and if Musk started selling massive amounts of shares, the bubble could burst at any time. So ordinary income it is.
Bloomberg paid only $292 M in tax on $10 B in income — less than 3% compared to over 30% for Musk. How could that be? The answer very likely is that unlike the other companies involved here, Bloomberg LLP is a private company, and Mike Bloomberg pays tax on behalf of the company as a “pass through.” Unlike individual income taxes, corporate income taxes are where the tax code is riddled with loopholes, gimmicks and preferences — things like accelerated depreciation, investment tax credits, and incentives for “creating jobs.” Obviously, Mike Bloomberg and his company are aggressively maxing out on these things. Of course they are.
Bezos paid only $973 M of tax on over $4 B of income, a far lower rate than Musk. Nothing complicated here either. Amazon is a far larger and more stable business than Tesla, with vast revenues and real profits. Bezos can afford to sell the stock without risking a crisis of confidence, so he does, massively. (He just sold another $2 billion worth a few weeks ago.). Therefore, he almost entirely pays taxes at capital gains rather than ordinary income rates. His percentage ownership of the company goes down a little, but he owns so much that it barely makes a difference.
Buffett is the only one of this group who should come in for particular scorn. This is the guy who virtue-signals by taking a minimal salary (said to be $100,000 per year) and advocating for higher tax rates on wealthy people. To anybody who knows anything, the low salary is not magnanimous in any way, but just a method to avoid high ordinary income tax rates. And Buffett also maneuvers to take relatively few capital gains, and otherwise avoid taxable transactions almost entirely. In other words, the tax increases that he so sanctimoniously advocates won’t affect him in any meaningful way. It’s all a sham. Way back in 2015 I had a post pointing out that the so-called “Buffett Rule” was completely phony because Buffett does not pay any meaningful amount of tax on ordinary income: “The Buffett Rule? That's like the magician's trick, diverting your attention from the real issue.” The occasion for that post was that Hillary Clinton was advocating implementing the “Buffett Rule” so that “no millionaire pays a lower effective tax rate than their [sic] secretary.” Hillary may have been fooled by this, but nobody paying attention was fooled. ProPublica has now only confirmed what we all already knew.
Anyway, ProPublica promises much more to come from its trove of tax information. I don’t expect any great surprises, but I’m sure they will find ways to use the information to gin up anger and resentment to earn clicks.