Why the rich get richer...while the poor get poorer!

cbc.ca/aih june 10,2021

ProPublica Rich Tax

Guest: Jeff Ernsthausen

CH: We've seen the stories during the pandemic: the world's richest got richer and richer, while so many around the world lost their jobs, got sick, and in some cases, died of COVID-19. And that dispiriting disparity is why a story by reporters at ProPublica is getting worldwide attention this week. The headline is: "The Secret IRS Files: Trove of Never-Before-Seen Records Reveals How the Wealthiest Avoid Income Tax." ProPublica said it made the findings about U-S tax filings after it obtained a "vast trove of IRS data" from an anonymous source. The White House has called the leak "illegal," and the IRS has said it's investigating. Jeff Ernsthausen is one of the ProPublica reporters who worked on the piece. We reached him in New York.

CO: Jeff, it's widely perceived that the mega-rich don't pay much in taxes, but you have the evidence, right? What does it show?

JEFF ERNSTHAUSEN: What we found for our story, it's a... sort of focussed on a very basic concept, right? And it's that you and I, or most people in the world, and certainly the United States, we earn wages or a salary. And every time we're paid, taxes are taken automatically out of that. For the ultra-wealthy, it doesn't work the same way. They're not in the tax system the same way. The bulk of what they bring in is in the form of growth in their stocks and other assets. So the bulk of their wealth grows outside the tax system until they decide to do something like sell it, at which point they would face a tax bill. And so what we found is that the ultra-wealthy have accrued, you know, vast wealth in recent years and paid relatively little in taxes on that.

CO: Can you give us some examples? There are some really stunning ones. Give us the names and the details, if you can?

JE: Yeah, I think people... certainly, we were surprised to see that Jeff Bezos paid no federal income taxes in 2007 and 2011. And Elon Musk, now the second richest man in the world, paid nothing in income taxes, federal income taxes in 2018.

CO: What number of people do you have data on?

JE: So we have records on thousands of the wealthiest individuals in the United States. We're talking the sort of top one per cent of the one per cent. That includes sort of household names like Warren Buffett and Jeff Bezos, Elon Musk, Michael Bloomberg.

CO: There's one particular paragraph that is really stunning about Jeff Bezos. In 2011, a year in which his wealth was steady at 18 billion dollars, he filed a tax return saying that he lost money, and that his... his kids got tax credits for 4,000 dollars each, right?

JE: Yeah, it's as a sort of as normal American household at that point. Although, normal American households typically can't get their bill all the way down to zero.

CO: Can you give us some other examples?

JE: Yeah, I think one of the sort of exemplars of what we've seen in our data would be Warren Buffett. Warren Buffett is the sort of synonymous with Berkshire Hathaway, a conglomerate that owns a lot of large companies, some household names like Geico. Famously, Berkshire doesn't pay a dividend, right? And so, Warren Buffett's wealth grew by over 20 billion dollars between 2014 and 2018. And his tax bill on that was just over 20 million dollars, which means that he paid .1 per cent in taxes on his wealth growth over that period by keeping his income really low. He's one of these folks who's joined the giving pledge. He plans to give away most of his wealth before he dies. And, you know, one interesting consequence of that is that, you know, those charities, they may do a lot of good. It also means that he... his fortune might never be taxed because it will pass tax-free into the charitable foundations.

CO: You say that the point of the article, major centrepiece of it, is to compare what happens with wage earners in the United States compared to those who are making their money from their assets, right? So those who earn money pay taxes, those who gain assets don't, right? So can you just give us… and with numbers, it's hard to hear on radio, but just give us... you have a bit of a comparison about the numbers of people it would take to actually make as much money as these top 25. And what the difference in the taxes they pay.

JE: The figures we came up with in our story, it would take 14.3 million typical American households, typical by... by wealth, working American households, to equal the combined wealth of the top 25 in 2018. That year, the top 25 paid 1.9 billion in taxes. If you look at the taxes that would be paid by a group of 14.3 million typical wage-earning households who paid about 14 per cent in taxes. They paid about 143 billion in that same period. So I think one thing that we try to point out in the article is that really, when you want to compare, how do the ultra-wealthy compare to the normal person? The ultra-wealthy, the vast majority of what they're bringing in, you know, 80 per cent is in sort of untaxed gains on their assets, right? And for the normal household, untaxed gains are a very small part. They might own a house, and it grows a little bit. So really, you want to look at their income tax rate. And the typical household's paying 14 per cent on that. Meanwhile, the ultra-wealthy are paying 3.4 per cent on what really matters for them, which is their wealth.

CO: Are they dodging taxes? Is anything of what the top 25... is what they're doing illegal?

JE: So our report focus entirely on... on what is legal. It's one of the points in our story is that you don't need necessarily illegal techniques to have a low tax bill. The system is set up in such a way that you kind of do it routinely. And there's an entire industry of experts that are out there that will help you do that.

CO: You gleaned all this from a vast trove of tax returns and records. We know that in the United States, like in Canada, people are very guarded. This is probably the best-guarded secrets in the world is people's taxes. And we know that from watching what happened with Donald Trump. How did you get all these records?

JE: I can't comment on how we got them. We don't actually know the identity, so I can't comment any further on that. What I can say is that we were very careful to verify that the information was authentic. We checked it with over 50 data points that we could find out in the world or that we're not out in the world related to the individuals that we're reporting on to verify that the data is, in fact, authentic.

CO: So you're not going to say how you got all the tax returns and all the personal data of these rich people?

JE: Oh, absolutely not.

CO: OK, but you've talked to everybody that you're reporting on. How did they react when you called them and said, hey, do you want to comment on this wealth you've got that you paid no taxes on?

JE: So, I mean, the general reaction was, look, we pay, what's legal. You know, we follow the law. We're careful to do so. And we pay the taxes that we owe. You know, we think this is... it's relevant what the wealthiest Americans, you know, who control over a trillion dollars in wealth, what they pay in taxes. We think it's relevant information as the country engages in debates about taxation and infrastructure spending and the kinds of things we can afford as a society.

CO: All right, Jeff, we'll leave it there. Thank you.

JE: Thanks for having me.

CH: Jeff Ernsthausen is a data reporter at ProPublica. He's in New York City.