Ultrarich Americans Pay Shockingly Little Income Tax: Report

Ultrarich Americans Pay Shockingly Little Income Tax: Report

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Plus, Biden ends infrastructure talks with Capito
Tuesday, June 8, 2021

Biden Ends Stalled Infrastructure Talks With Capito

President Joe Biden on Tuesday cut off stalled infrastructure talks with Senate Republicans after the two sides failed to reach agreement on the appropriate size of a spending package or how to pay for it. The White House said the Biden would shift his focus to ongoing negotiations among a separate, bipartisan group of 20 senators — and have congressional Democrats prepare to move infrastructure legislation on their own.

“The president is committed to moving his economic legislation through Congress this summer, and is pursuing multiple paths to get this done,” White House Press Secretary Jen Psaki said in a statement.

Capito talks crumble:
The writing has long been on the wall: The talks between the White House and Republicans led by Sen. Shelley Moore Capito (R-WV) were never likely to reach a deal, and the two sides never really got close. They were hundreds of billions of dollars apart on proposed new spending and failed to find much common ground on how to pay for any package, with Republicans rejecting Biden’s calls for tax increases.

Biden spoke briefly with Capito on Tuesday and reportedly decided to cut off talks after the Republican and her Senate GOP colleagues rejected to increase the level of new spending in their plan or specify ways to pay for it.

“He informed Senator Capito today that the latest offer from her group did not, in his view, meet the essential needs of our country to restore our roads and bridges, prepare us for our clean energy future, and create jobs,” Psaki said. “He offered his gratitude to her for her efforts and good faith conversations, but expressed his disappointment that, while he was willing to reduce his plan by more than $1 trillion, the Republican group had increased their proposed new investments by only $150 billion.”

Capito said she was disappointed by Biden’s decision. “Despite the progress we made in our negotiations, the president continued to respond with offers that included tax increases as his pay for, instead of several practical options that would have not been harmful to individuals, families, and small businesses,” she said in a statement. “While I appreciate President Biden’s willingness to devote so much time and effort to these negotiations, he ultimately chose not to accept the very robust and targeted infrastructure package, and instead, end our discussions.”

Plan B for Bipartisanship: Psaki said that Biden had also spoken with Sens. Bill Cassidy (R-LA), Joe Manchin (D-WV) and Kyrsten Sinema (D-AZ) on Tuesday and urged them to continue developing their bipartisan infrastructure proposal. Biden said he will talk to members of the group working on an infrastructure plan while on his week-long trip to Europe and he designated administration officials to meet with the group.

The group of 20 senators reportedly has yet to agree on a proposal, but some members, led by Sinema and Sen. Mitt Romney (R-UT), have reportedly agreed on a spending level and how to pay for it. “One senator in the group said that it has agreed to more than $900 billion over eight years,” Bloomberg News reports.

Plan C:
Biden is also laying the groundwork for Democrats to try to pass an infrastructure package on their own. Psaki said that Biden spoke with House Speaker Nancy Pelosi (D-CA) about moving legislation through the House this month — and talked with Senate Majority Leader Chuck Schumer (D-NY) about the need to start the budget resolution process that would enable Democrats to pass a package on their own. “We’re pursuing two tracks: one bipartisan and one reconciliation,” Schumer said, according to Bloomberg.

Ultrarich Americans Pay Shockingly Little Income Tax, Leaked IRS Documents Show: Report

Amazon founder Jeff Bezos was worth about $18 billion in 2011, but he paid no federal income taxes that year. Investment losses exceeded whatever income he received, leaving him with an income tax bill of zero. At the same time, his lack of net income made him eligible for child tax credit payments. Bezos claimed and received $4,000 from the IRS to help offset the cost of raising his children.

Those details are part of an investigative report released Tuesday by ProPublica, which showed that Bezos is not alone in paying little or no income taxes despite staggering wealth. Tesla CEO Elon Musk paid no federal income taxes in 2018, the report says, while financier George Soros paid no income taxes for three years running starting in 2016. Fellow billionaires Michael Bloomberg and Carl Icahn have also recorded years in which they have paid no income tax whatsoever.

The ProPublica report is based on an analysis of data leaked from the IRS on thousands of the wealthiest people in the U.S. over a period of 15 years. Overall, the data show that the wealthiest Americans pay little in income taxes relative to their great wealth. In an analysis of the 25 wealthiest people as determined by Forbes, ProPublica found that their wealth increased by $401 billion from 2014 to 2018, but they paid $13.6 billion in federal income taxes — just 3.4% of their overall increase in wealth.

“Taken together, [the report] demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most,” ProPublica’s Jesse Eisinger, Jeff Ernsthausen and Paul Kiel write. “The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.”

Income vs wealth: The report highlights the different ways income and wealth are treated by the tax code. In general, wealth is taxed only when capital gains are realized, which means that executives like Bezos can be worth billions of dollars and yet pay little or no income tax as long as they hold onto their assets.

But that isn’t the whole story. ProPublica says that even looking at just income and ignoring wealth, the richest Americans pay a lower tax rate than many middle-class people. Those 25 wealthiest Americans paid $13.6 billion in income taxes between 2014 and 2018 — but reported about $86 billion in adjusted gross income, which means their income tax rate was just 15.8%. “That’s lower than the rate a single worker making $45,000 a year might pay if you include Medicare and Social Security taxes,” the report’s authors say.

Sophisticated strategies: The superrich have the finest financial advisers money can buy, and they’ve developed a variety of techniques to sharply reduce or eliminate the taxes they pay. According to ProPublica, the overall strategy comes down to a simple phrase: buy, borrow, die.

Instead of taking income or selling assets, both of which involve paying taxes, the very rich can simply borrow against their wealth, with the only expense being the interest rate — which, depending on how the loans are structured, can sometimes be deducted as an expense.

These loans can be hard to detect since they don’t have to be reported to the IRS, but ProPublica found disclosures that showed that Tesla’s Musk used 92 million shares worth more than $57 billion to secure personal loans last year. Yet Musk’s income tax bills are on a very different scale, totaling just $65,000 in 2017 and zero in 2018.

The final part of the tax-avoidance strategy involves passing on enormous wealth at death, without paying taxes on the underlying increases in asset values. Heirs can receive millions or even billions in wealth without paying any capital gains taxes at all, thanks to the “step-up in basis” rule that makes those gains disappear at death. And even the estate tax, which tops out at a hefty 40%, can be gamed through the use of trusts and other loopholes.

New focus on a wealth tax: The ProPublica report spurred some lawmakers to renew their calls for a wealth tax. “Our tax system is rigged for billionaires who don’t make their fortunes through income, like working families do,” tweeted Sen. Elizabeth Warren. “The evidence is abundantly clear: it is time for a #WealthTax in America to make the ultra-rich finally pay their fair share.”

At a hearing Tuesday with IRS Commissioner Charles Rettig, Senate Finance Chair Ron Wyden (D-OR) said that he was working on a proposal to increase taxes on wealth. “What this data reveals is that the country’s wealthiest — who profited immensely during the pandemic — have not been paying their fair share,” he said. “I’ll have a proposal to change that.”

Wyden released the outline of a wealth tax in 2019, which included an annual tax on capital gains, but he has not released legislative text. “I'll have it ready to go here shortly,” Wyden said after the hearing. “And today, this article from ProPublica highlights — I've had senators already ask me about it, you know, since then — highlights the need for the reform that I'll be offering.”

The Biden administration, however, has not embraced the idea of a wealth tax. Earlier this year, Treasury Secretary Janet Yellen said that such a tax is “something that has very difficult implementation problems,” and the president’s proposals have focused on taxing wealthy estates more aggressively.

Still, the ProPublica report is bringing more attention to the issue of low taxes paid by the rich, at a time when the Biden administration is proposing ways to raise more revenues to help pay for the president’s ambitious spending plans. “I think this is big because it tells the story of wealth and the way it is taxed in a way everybody kind of expected but didn’t know,” Philip Hackney, a former IRS official, told The Washington Post.

Privacy concerns: The White House, lawmakers and IRS officials expressed concerns about the leak of sensitive tax information. “The unauthorized disclosure of confidential government information is illegal,” said Treasury Department spokeswoman Lily Adams. IRS Commissioner Rettig told lawmakers that federal authorities are investigating the leak. In response to a question from Sen. Chuck Grassley (R-IO) about whether the leakers could face prosecution, Rettig said, “Absolutely.”

Deficit Totaled $2.1 Trillion Over First Eight Months of 2021 Fiscal Year

The federal budget deficit rose to $2.1 trillion in the first eight months of fiscal year 2021, the Congressional Budget Office estimated Tuesday.

The deficit was $184 billion larger compared to the same period the year before. Revenues were $587 billion higher as the economy rebounded from the pandemic, while outlays increased by $771 billion, driven in large part by emergency spending in response to the Covid-19 crisis.

White House Budget Chief Suggests Biden Spending Plans at Risk Without Tax Hikes

The White House’s acting budget director defended President Biden’s spending and tax plans Wednesday but suggested at a hearing of the Senate Budget Committee that the spending could plans be curtailed if Congress doesn’t go along with the proposed tax hikes.

“My guess is if the Senate doesn’t pass the offsets that the spending is also in danger,” Shalanda Young, deputy director of the Office of Management and Budget, said in response to a question from Sen. Rick Scott (R-FL) about what the administration would do if Congress doesn’t pass Biden’s tax increases. “So we’d have to see the full package the Senate and House would move on.”

Biden’s budget calls for $6 trillion in spending in fiscal year 2022, and projects a deficit of $1.8 trillion. It envisions $5 trillion in additional spending over a decade, partially offset by $3.6 trillion in higher taxes. The White House says that Biden’s budget would fully offset the costs of his American Jobs Plan and American Families Plan within 15 years and reduce deficits by more than $2 trillion over the 2030s.

Responsible spending?
Young told lawmakers that the budget is fiscally and economically responsible, balancing much-needed investments in the near term with longer-term deficit reduction that would start in 2030.

“The decades-long, global trend of declining interest rates gives us the fiscal space to make necessary upfront investments. Under the budget’s policies, the real cost of federal debt payments will remain below the historical average through the coming decade, even as the budget assumes that interest rates will rise from their current lows, consistent with private sector forecasts,” she said. “Over the long run, when we face larger fiscal challenges and more uncertainty about interest rates, the budget will reduce the deficit and improve our nation’s finances. That’s because its front-loaded investments are more than paid for through the permanent tax reforms that will ensure corporations and the wealthiest Americans pay their fair share.”

At the same time, Young said that the administration does not want to cut Social Security and Medicare, mandatory programs for which spending is set to grow rapidly. “We are reducing the deficit, but as you know we have an aging society — which is part of the structural growth in spending we’re not addressing because we don’t think we should be cutting Social Security and Medicare at this time,” she said. “And if the choice is between that and asking the wealthiest to pay more, that’s what we need to do.”

Or too much butter?
Sen. Lindsey Graham (R-SC), the top Republican on the Budget Committee, slammed Biden’s budget, saying that there aren’t enough people in the top 1% to bear the load of the proposed spending.

“This tax and spend budget will break the back of our economy and will destroy future generations’ ability to achieve the American dream that most of us have had a shot at because we will sink them with debt. We’ll have an economy with a tax structure that very few businesses will look to America as a place to locate,” he said. “Other than that it’s fine.”

Except that Graham’s criticisms didn’t end there. He also decried the 16% proposed increase in non-defense discretionary spending and the 1.6% increase for defense, saying Biden botched the guns-versus-butter ratio and his proposed budget was blind to global threats. “There’s enough butter in this bill to call a heart attack for everybody in the world,” Graham said. “This is the most cholesterol-laden budget I’ve ever seen.”

Graham also pressed Young on the $300-a-week federal boost to unemployment benefits enacted as part of the American Rescue Plan in March. Some two dozen Republican-led states have canceled the added benefit, arguing that it deters workers from rejoining the labor force. When Young said she had not met Americans who prefer not to work, Graham said he had — in his own family.

“I got a lot of people in my family that ain’t working because they’re getting — I'll show you some of my family,” Graham said. “So bottom line is I think there are people out there, they're not bad people, but they're not going to work for $15 an hour if they can make $23 unemployed. That doesn’t make you a bad person. If you're working for $15 an hour, that makes you almost a chump.”

Job Openings Rise to Record High

The number of job openings in the U.S. economy soared to a record 9.3 million in April, up from 8.2 million in March, the Labor Department announced Tuesday. In another positive sign, the number of people who quit their jobs also rose during the month, hitting a record 4 million, while the number of layoffs dropped to a record low.

“High quits mean workers feel comfortable leaving their jobs in search of better matches,” Elise Gould of the left-leaning Economic Policy Institute wrote. “Low layoffs are an obvious good. The economic recovery is gaining momentum.”

The report added to concerns expressed by some business owners that there is a labor shortage, caused in part by the temporary, elevated unemployment benefits of $300 per week being paid by the federal government. Many experts say the labor market is more complicated than that, with a variety of factors contributing to the uneven reopening of the economy after a year of pandemic-related closures.

Whatever the cause, economists agree that the current dynamic is giving employees more power in the labor market than they have had for decades. “The sectors leading the way in quitting are those where labor markets are already fairly tight or where hiring is ramping up: leisure and hospitality, transportation and warehousing, and retail trade,” said Nick Bunker, director of research at the hiring website Indeed, according to Politico.

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