Ultrarich Americans Pay Shockingly Little Income Tax: Report

By Yuval Rosenberg

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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