Tag: taxes
Why Ordinary Americans Pay Taxes — But Billionaires Don’t

Why Ordinary Americans Pay Taxes — But Billionaires Don’t

After a year of reporting on the tax machinations of the ultrawealthy, ProPublica spotlights the top tax-avoidance techniques that provide massive benefits to billionaires.

Last June, drawing on the largest trove of confidential American tax data that’s ever been obtained, ProPublica launched a series of stories documenting the key ways the ultrawealthy avoid taxes, strategies that are largely unavailable to most taxpayers. To mark the first anniversary of the launch, we decided to assemble a quick summary of the techniques — all of which can generate tax savings on a massive scale — revealed in the series.

1. The Ultra Wealth Effect

Our first story unraveled how billionaires like Elon Musk, Warren Buffett and Jeff Bezos were able to amass some of the largest fortunes in history while paying remarkably little tax relative to their immense wealth. They did it in part by avoiding selling off their vast holdings of stock. The U.S. system taxes income. Selling stock generates income, so they avoid income as the system defines it. Meanwhile, billionaires can tap into their wealth by borrowing against it. And borrowing isn’t taxable. (Buffett said he followed the law and preferred that his wealth go to charity; the others didn’t comment beyond a “?” from Musk.)

2. The $5 Billion IRA

Other billionaires used less conventional ways to avoid income, we found. Tech mogul Peter Thiel amassed a $5 billion Roth IRA, a type of account that shields income from taxes and is intended to help low- and middle-class savers prepare for retirement. Back in 1999, Thiel stuffed low-valued shares of the company that would become PayPal into the account, a maneuver tax lawyers said risked running afoul of IRS rules. (It’s not clear if the government ever challenged the move.) He set himself up to reap billions in untaxed gains. (Thiel did not respond to questions for the original article.)


3. The $1 Billion Parlor Trick: Turning High-Tax-Rate Trading into Low-Tax-Rate Income

Even when tech billionaires do show income on their tax return, they tend to pay relatively low income tax rates. That’s because of the type of income they have: Gains from long-term investments, such as from stock sales, are taxed at a lower rate. But what do you do if you’re making over $1 billion every year, and it’s largely from short-term trading? Do you just accept that you’ll pay the higher rate on all that income? As we reported this week, Jeff Yass, head of one of the most profitable firms on Wall Street, did not meekly accept this fate. Instead, his firm, Susquehanna International Group, found creative ways to transform the wrong sort of income into the right kind, generating tax savings that exceeded $1 billion over just six years. (Susquehanna declined to comment but in a court case that centered on similar allegations, it maintained that it complies with the law.)

4: The Magic of Sports Ownership: Make Money While (Legally) Reporting Losses

The tax code offers business owners a slew of methods to erase income through deductions, none more awesome than buying a sports team, as former Microsoft CEO Steve Ballmer did with the Los Angeles Clippers. It doesn’t matter whether the team is actually profitable and growing in value. It can still be a write-off. (In some cases, we found, owners could effectively deduct a given player’s contract not once, but twice. They’re allowed to take deductions comparable to those for factory equipment that loses value as it ages, even as teams almost inevitably gain in value.) That’s one reason owners tend to pay far lower tax rates than the athletes they employ, or even the people serving beer in the team’s stadium. In our story, we found a Clippers arena worker who made $45,000 a year and paid a higher tax rate than the billionaire Ballmer. (Ballmer said he pays the taxes he owes.)

5. Build, Drill and Save: The Real Estate and Oil Businesses Can Both Be Tax Havens

In certain industries, like real estate or oil and gas, the tax breaks are so plentiful that billionaires can erase their income entirely even as they grow richer. That’s how real estate developer Stephen Ross (who also happens to own the Miami Dolphins) went 10 years without paying any income tax. Ross said that he followed the law. Another mogul, this one in the oil business, managed to tap a near bottomless well of write-offs via one of the biggest oil spills in history. (The mogul’s representatives did not respond to requests for comment.)

6. Even a Billionaire’s Hobbies Can Pay Off at Tax Time

Deductions from hobbies and side projects, which the ultrawealthy can structure as businesses, are another fun option. For some billionaires, it’s race horses: We found that six owners of thoroughbreds at the 2021 Kentucky Derby had taken a combined $600 million in tax write-offs on their horse racing operations. For others, like Beanie Babies founder Ty Warner, it’s luxury hotels. The billionaire splurged on a couple of landmark Four Seasons locations and then went 12 years without paying any income tax. (Representatives for Warner did not respond to requests for comment.)

7. Think Your Taxes are Too High? Change the Tax Laws

Sometimes, it pays to fight for a new tax break. For the billionaires who contributed millions to Republican politicians, the payoff came in the form of Trump’s “big, beautiful tax cut” for passthrough businesses. We found the change sent $1 billion in tax savings in a single year to just 82 ultrawealthy households. Some business owners also boosted their savings with a trick: They slashed their own salaries and categorized the money instead as passthrough income.

8. Why Tech Billionaires Pay Less Than Hedge-Fund Managers

With so many options to reduce taxes, the richest Americans often manage low income tax rates. We analyzed the incomes and taxes of the country’s top 400 earners, those averaging over $110 million in income per year. Overall, the group paid relatively low rates, but certain segments (tech billionaires, heirs, private equity executives) stood out even within this elite population because they were able to draw on the sorts of techniques detailed above. (Also drawing on these techniques were wealthy politicians, like the governors of Colorado and West Virginia.)

9. Brother, Can You Spare a Stimulus Check?

But the real standouts were the billionaires who reported such low incomes that they qualified for government assistance. At least 18 billionaires received stimulus checks in 2020, because their tax returns placed them below the income cutoff ($150,000 for a married couple).

10. Trust This: How Wealthy Families Pass Billions to Heirs While Avoiding Taxes

The holes in the estate tax, we found, are even more remarkable. There are well-worn ways to make sure Uncle Sam doesn’t get his cut of a fortune being passed on to heirs, and the most common is through a trust. How common no one can say, but we found evidence that at least half of the nation’s 100 richest individuals had used estate-tax-dodging trusts. In another story,we followed three century-old dynasties down through the generations, showing how they used trusts to avoid taxes, so that a fortune could pass all the way from the original early 20th century tycoon to, for example, the great-great-granddaughter who recently collected $210 million before her 19th birthday.

Reprinted with permission from Propublica.

Details Leaked On GOP Plan To Raise Taxes  On Working Class, Gut Social Security

Details Leaked On GOP Plan To Raise Taxes  On Working Class, Gut Social Security

They’re at it again: Republicans want to raise taxes on poor and working-class Americans, end Social Security and Medicare, jack up pollution and corporate profits, all while continuing to pamper their billionaire donor base.

This time it’s the guy in charge of getting Republican senators elected and re-elected, Florida’s Senator Rick Scott.

You may remember him as the guy who ran the company convicted of the largest Medicare fraud in the history of America, who then took his money and ran for Governor of Florida, where he prevented the state from expanding Medicaid for low-income Floridians for all the years he ran the state.

Now he’s the second-richest guy in the senate and, IMHO, the leading candidate for the GOP nomination for president in 2024. And, true to form, he’s echoing the sentiments of the richest guy in the Senate, Mitt Romney, the last guy before Trump to have that nomination.

“There are 47 percent who are with him,” Romney said of Obama voters back in 2012, “who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you name it. These are people who pay no income tax.”

Low income working people in America generally pay a higher percentage of their income as taxes than do most of our billionaires and multi-multi-millionaires. They pay Social Security taxes, Medicare taxes, property taxes, sales taxes, taxes in the form of fees for everything from a driver’s license to road tolls to annual car inspections.

As Romney pointed out, though, about 47 percent of Americans in 2012 made so little money that, after applying the standard deduction, they paid no income tax.

This doesn’t just reveal how few people pay taxes, though. To the contrary, it reveals how many Americans are living in or on the edge of poverty.

The simple reality is if you want more people to pay income taxes, all you have to do is raise working people’s pay. We saw this in a big way between 1950 and 1980, when Keynesian economics reigned and labor unions helped wages — and the taxes they paid — steadily rise for working people.

But Republicans don’t like the idea of what they call “wage inflation.” They’d rather just squeeze working people harder, while continuing their subsidies of the lifestyles of the morbidly rich “donor class.”

More than half of Americans make so little money from their employment that they can’t deal with an unexpected $1000 expense like a car accident or medical bill. And it’s these very people who Rick Scott and the GOP believe need to be further taxed so they’ll have what Scott calls “skin in the game.”

In the early years of the Reagan administration, before his neoliberal “trickle down” and “supply side” policies started to really bite Americans, only 18 percent of Americans were so poor that their income didn’t qualify to be taxed.

As “Right to Work for Less” laws spread across America and Republicans on the Supreme Court made it harder for unions to function, more and more working people fell below the tax threshold.

Today it takes two working adults to maintain the same lifestyle that one worker could provide in 1980, so an estimated 61 percent of working Americans this year will make so little pay that their income isn’t subject to taxation.

Rick Scott and the GOP’s solution to this situation isn’t to raise the income of working-class people. Quite to the contrary, they’re suggesting that low-income people should be hit with their very own income tax — in addition to the dozens of other taxes they’re already paying — all so multimillionaires and billionaires like Scott and his friends can hope to see their own taxes go down a tiny bit.

Doing his best imitation of Newt Gingrich, Scott has rolled out his 11-point-plan to soak the American middle class, lock down elections, destroy consumer protections, increase pollution and climate change, and squeeze a few more dollars out of every family, no matter how tight their budgets may already be.

Scott calls that “rescuing America.” And it may be true, if you’re morbidly rich and made your money spewing pollution or hustling opioids.

His plan not only calls for a 50 percent cut in the IRS workforce, presumably to end all audits of rich people like Scott, but also demands all federal legislation to “sunset” within five years. That would almost certainly end Social Security and Medicare, programs that have been in the crosshairs of Republicans since Reagan’s day.

Realizing how “raising taxes on 60% of American voters” will play in campaign ads, Mitch McConnell has backed away from Scott’s bizarre proposal. But Fox “News” is all over it, inviting Scott on repeatedly to hawk his plan and prepare the ground for his candidacy. After all, billionaires like Rupert Murdoch and his family need their tax breaks!

As Sean Hannity told Scott during a recent appearance, “I want to applaud you. I'd like to see the House and the Senate come together on these issues, make these promises to the American people, get elected and then fulfill those promises.”

No doubt multi-millionaire Hannity was speaking his own truth. But for the majority of Americans who are so poor they barely have to pay income taxes, Scott’s plan is just the latest in a 40-year barrage of assaults and insults coming from the GOP.

Reprinted with permission from Alternet

Sen. Tommy Tuberville

WATCH: Hilarious Video Of Confused Sen. Tuberville Talking Taxes And Regulations

Reprinted with permission from American Independent

Sen. Tommy Tuberville (R-AL) argued on Tuesday that taxes on corporations cannot be increased because "we can't put laws on private companies." Increasing the corporate tax rate to fund social services, Tuberville said, would also cause companies to leave the United States.

Tuberville made his comments during an appearance on Fox Business' Mornings with Maria to promote his Prohibiting TSP Investment in China Act, which would prohibit the federal Thrift Savings Plan pension fund from investing "in any security of an entity based in China or in a subsidiary that is owned or operated by a Chinese company," as he said in an opinion piece published by the Wall Street Journal on May 17.

While arguing that "something has to be done" about the investments, Tuberville said, "The one thing that can't be done is we can't raise the corporate income tax."

"We raise that, surely, we're going to lose them to other countries, not just China," he added.

The Biden administration has proposed an increase in corporate taxes to pay for infrastructure and jobs.

Tuberville said, "We can't tax them to death, because if we do they're going to leave."

"We can't put laws on private companies," he noted, before continuing to discuss his proposed law regulating investments in private companies.

From the May 18 edition of Fox Business' "Mornings with Maria":

TOMMY TUBERVILLE: Now private companies, something has to be done with that, but the one thing that can't be done is we can't raise the corporate income tax. We raise that, surely, we're going to lose them to other countries, not just China.
But we've got to take care of our own companies in the United States. We've got to keep their headquarters here, we can't use the inversion process, we've got to keep them here, we've got to make sure we take care of them, but we can't tax them to death, because if we do they're going to leave. And you can't blame them.
But we can't put laws on private companies. We just need to let them understand what they're doing, how it's going to affect them in the future. The bottom line today might not be the bottom line tomorrow in some of these corporations if we continue to invest in China.

Published with permission of The American Independent Foundation.

Winning The Fight To Expand Social Security

Winning The Fight To Expand Social Security

Reprinted with permission from DC Report

Out of sight from most Americans, powerful, organized and determined monied interests have waged a more than three-decade-long, billionaire-funded campaign to dismantle Social Security. That campaign has enjoyed some success. And it is with us still.

It is not hard to see the successes of that campaign. Many Americans have been persuaded that Social Security is unaffordable, in crisis and must, at the very least, be scaled back. But while the campaign has succeeded in undermining confidence in the future of Social Security, it has failed to scale back Social Security's modest, but vital benefits, or, worse, radically transform Social Security, ending it as we know it. The good news is that over the last few years, the movement to expand, not cut, Social Security has been growing.

It is no accident that so many in the news media and political elite have bought the lies. The campaign is backed by hundreds of millions of dollars and a cottage industry of academics who have built their careers on criticizing Social Security. Together, those forces brought a veneer of respectability to claims that Social Security is unaffordable, in crisis, and spawning competition and conflict between generations.

Trudy Lieberman, a noted media critic and former New York University journalism professor, has observed that most media outlets have been reporting "only one side of this story using 'facts' that are misleading or flat-out wrong while ignoring others."

The machinations of the anti-Social Security campaign largely explain why media elites and both political parties lost an understanding of the conceptual underpinnings that have led to Social Security's popularity. Indeed, Social Security is often described as a problem rather than the solution that it is.

An Earned Right

Rather than define Social Security as an earned right to insurance purchased with our work and contributions, the critics imply that it is a government handout. The media and politicians use words and phrases like "entitlement," "makers versus takers," "deficit crisis" and "safety net" to spread and reinforce the message. The campaign's messaging, repeated over and over again, falsely asserts that Social Security was and remains a cause of federal deficits, even though Social Security does not add even a penny to the federal debt.

The truth is that Social Security has a $2.9 trillion surplus, which it invests. By law, it can only invest in Treasury bonds and other federal instruments backed by the full faith and credit of our government. It is a creditor to our federal government. That means Social Security has loaned our federal government $2.9 trillion. In turn, that means that our government has to borrow less from foreign governments and other investors to finance budget shortfalls. Even so, the false claim that Social Security is a government giveaway and a drain on the nation's resources has become a standard talking point of those who would dismantle the program.

The winds are shifting, however. President Joe Biden explicitly ran on expanding Social Security, as did Hillary Clinton in 2016. Expanding Social Security was a plank in both the 2016 and 2020 Democratic platforms.

That position is in line with what surveys show the overwhelming majority of voters support—Republicans, independents, and Democrats alike. But that doesn't mean that any of us who want to see Social Security expanded, not cut, can let down our guard. Quite the opposite. The anti-Social Security campaigners know how to adjust their tactics to changing situations, how to fade away, how to blend in, and how and when to attack. If those of us who favor expanding, not cutting, Social Security are to be successful, we must remain vigilant and active. The billionaire campaign remains well-funded, well-organized, active, and strategic.

Going forward, we can expand Social Security, even in the face of distortions, misunderstandings, and outright lies promoted by moneyed interests. All of us who care about the economic security of our families have a stake in this cause. Everyone who cares about what kind of nation we leave for our children and grandchildren has a stake.

How To Win

How do we successfully build on the legacy that has been bequeathed to us, leaving it even better for the generations that follow? In short, how do we get our elected officials—who, after all, work for us—to vote to expand Social Security?

We already have some very dedicated leaders championing the cause of expansion, but we need more of them if expansion is to pass the Senate and get signed into law. Getting those now in office who disagree with us to change their minds and getting people elected who already do agree is tricky. All politicians these days claim to support Social Security. All say that their goal is to strengthen or save it. We cannot be satisfied with platitudes. We must demand clear support for expansion, with no cuts whatsoever.

Electing more champions and convincing others to change their minds won't be done without knowledge, commitment, perseverance and action. It won't be done without a vision backed by values that we all share.

It won't be done behind closed doors, without politics and policies that involve the American people and puts us first.

And, it won't be done without a fight. Nor will the fight be an easy one. There is too much money on the side of those who want to dismantle our Social Security system.

Broad Support

Fortunately, the American people—across demographics and the political spectrum—are unified in their opposition to cutting benefits and favor benefit expansions. They appropriately have a sense of contributing toward their own retirement and feel good about receiving Social Security benefits. They understand the importance of providing disability protection for themselves and their families, and the importance of protecting children and other family members if they die. Having witnessed losses in their extended families from unforeseen events—for example, the terrorist attacks of Sept. 11, 2001, the devastation in the wake of Hurricane Katrina and now today's pandemic—they understand how quickly and efficiently Social Security responds to community and personal crises. They understand that benefits are not based on need, but rather have been earned through labor and contributions from salaries and wages. They understand how important Social Security is to their own and their family's economic security.

It is imperative to recognize that Social Security didn't just happen. Past generations of politicians and citizens created, improved, fought for and defended our Social Security system. They protected it, safeguarded it, expanded it and passed it forward, stronger than before, as a legacy to all of us, young and old alike. Now it is our turn.

The debate over the future of Social Security is most fundamentally a debate about decency and fairness. It is a debate about our values. In the words of President Franklin Roosevelt, it's not about "the creation of new and strange values," but, as he explained 86 years ago: "It is rather the finding of the way once more to known, but to some degree forgotten, ideals and values. If the means and details are in some instances new, the objectives are as permanent as human nature. Among our objectives I place the security of the men, women, and children of the Nation first."

American Values

Among these values that now underlie the fight over Social Security is compassion for and responsibility to care for our families, our neighbors and ourselves. The recognition that Social Security is part of our compensation for our hard work and contributions is another value this fight over Social Security is about.

Still another value the fight is about is recognition of Social Security's conservative, prudent management of our money. Of all federal programs, Social Security and Medicare are the most closely monitored. Social Security is extremely conservatively financed and must balance its budget without any borrowing whatsoever. Yet this important value is disregarded by our politicians, who tend to lump it together with all other federal spending.

This is not a time for compromising the economic well-being of the middle class and poor, not when income and wealth inequality are higher than they have ever been in the past 50 years. Not when the worldwide pandemic has exacerbated that income and wealth inequality.

This is not a time to accept cuts to our Social Security as "reasonable compromise," as little "tweaks" that will do no lasting harm. Rather, this is the time for our elected leaders to expand Social Security, as the overwhelming majority of Americans who elected them want.

It is a time to successfully build on the legacy that has been bequeathed to us, leaving it even better for the generations that follow. At base, this is about the kind of nation we want for ourselves, our children, and their children. Although couched largely in terms of economics, the debate over the future of Social Security is most fundamentally a debate about the role of government, about all of us working together, and about the societal values the nation seeks to achieve through Social Security for today's and tomorrow's generations.

Nancy Altman, a lawyer, and Eric Kingson, a Syracuse University professor of social work, co-founded Social Security Works, a non-profit organization working to protect and expand Social Security. This article is adapted from their new book Social Security Works for Everyone!, published by The New Press, with a foreword by David Cay Johnston, DCReport editor-in-chief.