Jeff Bezos arrives at the Statue Of Liberty Museum Opening Celebration at Battery Park – New York, NY – May 15, 2019 (Shutterstock)
Details claiming to reveal how little income tax US billionaires pay have been leaked to a news website.
ProPublica says it has seen the tax returns of some of the world’s richest people, including Jeff Bezos, Elon Musk and Warren Buffett.
The website alleges Amazon’s Mr Bezos paid no tax in 2007 and 2011, while Tesla’s Mr Musk paid nothing in 2018.
A White House spokeswoman called the leak “illegal”, and the FBI and tax authorities are investigating.
ProPublica said it was analysing what it called a “vast trove of Internal Revenue Service data” on the taxes of the billionaires, and would release further details over coming weeks.
While the BBC has not been able to confirm the claims, the alleged leak comes at a time of growing debate about the amount of tax paid by the wealthy and widening inequality.
Jesse Eisinger, senior reporter and editor at ProPublica, told the Today Programme: “We were pretty astonished that you could get [tax] down to zero if you were a multi-billionaire. Actually paying zero in tax really floored us. Ultra-wealthy people can sidestep the system in an entirely legal way.”
“They have enormous ability to find deductions, find credits and exploit loopholes in the system,” he said.
So while the value of their wealth grows enormously through their ownership of shares in their company, that’s not recorded as income.
But there’s more than that, he said: “They also take aggressive tax deductions, often because they have borrowed to fund their lifestyle.”
He said US billionaires buy an asset, build one or inherit a fortune, and then borrow against their wealth.
Because they don’t realise any gains or sell any stock, they’re not taking any income, which could be taxed.
“They then borrow from a bank at a relatively low interest rate, live off that and can use the interest expenses as deductions on their income,” he said.
The website said that “using perfectly legal tax strategies, many of the uber-rich are able to shrink their federal tax bills to nothing or close to it” even as their wealth soared over the past few years.
The wealthy, as with many ordinary citizens, are able to reduce their income tax bills via such things as charitable donations and drawing money from investment income rather than wage income.
ProPublica, using data collected by Forbes magazine, said the wealth of the 25 richest Americans collectively jumped by $401bn from 2014 to 2018 – but they paid $13.6bn in income tax over those years.
President Joe Biden has vowed to increase tax on the richest Americans as part of a mission to improve equality and raise money for his massive infrastructure investment programme.
He wants to raise the top rate of tax, double the tax on what high earners make from investments, and change inheritance tax.
However, ProPublica’s analysis concluded: “While some wealthy Americans, such as hedge fund managers, would pay more taxes under the current Biden administration proposals, the vast majority of the top 25 would see little change.”
One of the billionaires mentioned, the philanthropist George Soros, is also alleged to have paid minimal tax. His office had not replied to a BBC request for comment, but said in a statement to ProPublica that Mr Soros did not owe tax some years because of losses on investments.
The statement also pointed out that he had long supported higher taxes on America’s wealthiest people.
According to reports in the US, Michael Bloomberg, a former mayor of New York whose tax details were among the documents, said the disclosure raised privacy concerns and he would use “legal means” to uncover the source of the leak.
ProPublica, an investigative website, has written several articles about how budget cuts at the US Internal Revenue Service have hampered its ability to enforce tax rules on the wealthy and large corporations. The news organisation said it received the leaked documents in response to these articles.
White House Press Secretary Jen Psaki said that “any unauthorised disclosure of confidential government information” is illegal.
Treasury Department spokeswoman Lily Adams said in an emailed statement to Reuters that the matter has been referred to the FBI, federal prosecutors and two internal Treasury Department watchdogs, “all of whom have independent authority to investigate”.
US Internal Revenue Service Commissioner Charles Rettig said: “I can’t speak to anything with respect to specific taxpayers. I can confirm that there is an investigation, with respect to the allegations that the source of the information in that article came from the Internal Revenue Service.”
What’s going wrong here? Let’s take a very simplified analysis. If the shares I own in the company I founded are worth £1bn at the beginning of the tax year and rise to a value of £2bn by the end of the tax year – how much income tax do I owe? Easy – zero. Because while I am twice as rich, I received zero income.
On the other hand, if I have zero assets, and I make £30,000 in income, I will pay roughly £6,000 in income tax and national insurance. That’s why the revelations that some of the richest Americans paid little or no income tax may provoke outrage but should not come as a surprise. It’s not comparing apples with apples.
That’s not to say these super rich folks have no money coming in to pay their yacht bills. There is a widespread tactic employed by the rich to borrow cash secured against their vast wealth – which again is not income – it’s proceeds of a loan and here’s the (perfectly legal) biscuit-taking bit.
The interest on that loan can be deducted from any other income to further reduce income tax liability. It sounds egregious – but it’s legal.
Small wonder that many politicians around the world (Elizabeth Warren in the US and Jeremy Corbyn/John McDonnell in the UK) and academics such as Thomas Piketty have argued that we need a way to tax wealth, not income.
The billionaire in our example WILL pay capital gains, currently 20% in UK, the moment he or she sells those shares and realises a profit
UNLESS, that is, the profit is sunk into another business, which the tax system as it stands is designed to encourage to promote economic growth and new jobs – jobs that will produce income and therefore tax.
That, say its defenders, is capitalism at work – but as with the new global consensus on taxing multinationals – the clamour for tax change is getting louder.