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US tax authorities have launched an investigation into a leak of private records of billionaires including Warren Buffett, Jeff Bezos, Mike Bloomberg, George Soros and Elon Musk that showed many of them have paid little tax even as their wealth ballooned.
ProPublica published details of what it called “a vast trove of Internal Revenue Service data” covering more than 15 years of tax returns from thousands of the wealthiest Americans. The non-profit investigative journalism outlet did not disclose the source of the leak.
Its report concluded that legal tax-avoidance strategies had allowed the 25 richest Americans to pay just $13.6 billion in federal income taxes in the five years to 2018, even as the rising value of their stocks, properties and other assets had inflated their collective wealth by an estimated $401 billion.
Charles Rettig, the IRS commissioner, told a senate finance committee hearing that the agency had opened an investigation to uncover the source of the leak. He said he shared “the concerns of every American” that sensitive confidential information had been disclosed.
Jen Psaki, the White House press secretary, said “any unauthorised disclosure of confidential government information by a person with access” was “illegal” and taken “very seriously”. She pointed to the IRS’s referral of the leak to the treasury department’s inspector general for tax administration, the FBI, and the US attorney’s office for the District of Columbia.
However, Ms Psaki also said the leak highlighted that “there is more to be done to ensure that corporations and individuals” were paying “more of their fair share” in taxes as proposed by President Joe Biden.
Tax details
The report notes that wealthy Americans can take advantage of a complex web of loopholes and deductions that are perfectly legal and can significantly minimize tax liability. That includes borrowing huge sums of money backed by enormous stock holdings. Loans are not taxed, and the interest that the executives pay on the borrowed money can often be deducted from their tax bills.
In 2007, Mr Bezos, the chief executive of Amazon, paid nothing in federal income taxes even as his company’s stock price doubled. Four years later, as his wealth swelled to $18 billion, Mr Bezos reported losses and received a tax credit of $4,000 for his children, according to ProPublica. An Amazon spokesman did not immediately respond to a request for comment.
Mr Buffett, the chief executive of Berkshire Hathaway who has long said publicly that the tax code should hit the rich harder, paid just $23.7 million in taxes from 2014 to 2018, as his wealth rose by $24.3 billion.
In a statement to ProPublica, Mr Buffett said he expected that 99.5 per cent of his wealth would go toward taxes and charity upon his death, adding, “I continue to believe that the tax code should be changed substantially.”
Mr Soros, the billionaire philanthropist and investor, paid no federal income tax for three consecutive years, according to the report. A spokesman for Mr Soros told ProPublica that “between 2016 and 2018, George Soros lost money on his investments, therefore he did not owe federal income taxes in those years”.
In 2018, Mr Bloomberg, the former New York mayor and US presidential candidate, reported income of $1.9 billion and paid $70.7 million in income tax. According to the report, Mr Bloomberg was able to reduce his tax bill through deductions, charitable donations and “credits for having paid foreign taxes”.
Privacy concerns
Mr Bloomberg pledged to use “all legal means” to uncover the source of the leak. The founder of the eponymous financial information group pushed back at the article’s premise, saying that he “scrupulously obeys the letter and spirit of the law” and distributes about three-quarters of his annual income in taxes and charitable giving.
“The release of a private citizen’s tax returns should raise real privacy concerns regardless of political affiliation or views on tax policy,” he said in a statement. “We intend to use all legal means at our disposal to determine which individual or government entity leaked these and ensure that they are held responsible.”
Eric Hylton, who spent 30 years with the IRS before retiring as head of the small business division in March, said he found it hard to believe that one of the service’s 83,000 employees had provided the data, noting that any such leak would be treated as a felony. “I have not seen a leak such as this in my entire career,” he said.
The IRS already placed “a high priority” on examining the tax affairs of billionaires, Mr Hylton said, but a decade of budget cuts had affected its enforcement capacity. Mr Biden has asked Congress to increase the IRS budget by $80 billion to enhance enforcement.
The leak comes as some Democrats are advocating a tax on the richest Americans’ total wealth, rather than focusing on annual incomes, which can be offset by deductions, borrowing and investment losses.
Elizabeth Warren, the US senator from Massachusetts, introduced legislation this spring to apply a 2 per cent tax on individuals with a net worth above $50 million, with a further 1 per cent surcharge imposed on any wealth above $1 billion. President Biden has proposed increases in the tax rate on capital gains and dividends for those earning more than $1 million but has not backed the wealth tax.
Senator Warren seized on the ProPublica report, writing on Twitter that it showed that it was time “to make the ultra-rich finally pay their fair share”.
Morris Pearl, chairman of a group of wealthy campaigners for higher taxes on the rich called the Patriotic Millionaires, said the report bolstered its argument that the very richest Americans “can basically choose whether to pay taxes or not”.
The wealth taxes and higher taxes on unrealised capital gains for which his group advocated were “fringe ideas” when it launched in 2010, he said, but sentiment had shifted and ProPublica’s disclosures could boost support further.
Mr Bloomberg and Mr Buffett have been among the billionaires calling for higher taxes on the wealthiest Americans for several years, but the economic divides exposed by the pandemic have raised the political stakes.
ProPublica said it had decided to reveal the details “because it is only by seeing specifics that the public can understand the realities of the country’s tax system”.
Ron Wyden, a Democrat from Oregon who chairs the Senate finance committee, said ProPublica’s report had shown that “the country’s wealthiest, who profited immensely during the pandemic, have not been paying their fair share”. – Copyright The Financial Times Limited 2021
(Additional reporting, New York Times)