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We are publishing the tax secrets of the .001%

609 points by jbegley 5y ago

bko 5y ago
> Many will ask about the ethics of publishing such private data. We are doing so — quite selectively and carefully — because we believe it serves the public interest in fundamental ways, allowing readers to see patterns that were until now hidden.... We believe that disclosing the identities of billionaires who paid little to no taxes in years their fortunes grew by billions of dollars will help readers understand the magnitude of the tax advantages the ultrarich enjoy... Our publication of this tax data comes at a possibly pivotal moment in America’s long, often contentious debate about the fairness of our tax system So it's okay to encroach on the privacy of private individuals as long as it serves a political purpose? To try to drum up support for higher tax rates? They're not even saying these individuals used their money to manipulate the tax code, but are merely beneficiaries of income with preferable tax treatment.
- toomuchtodo 5y ago
  How you feel about this is going to depend on where you are on the political spectrum. I fully support this decision based on where the country stands on inequality and socioeconomic power imbalances. It’s in the public interest to demonstrate the result of poorly constructed public policy (and thereby stoke inertia to fix it and erode wealth inequality). I’m happy to make my tax returns and income history public if the wealthy are required to do the same.
  - bko 5y ago
    So if someone wanted to demonstrate poor building codes by setting your house on fire, that would be okay too, since you know, it's in the public interest to demonstrate lax building codes? Privacy is a right that I would think more people on this forum would respect. I don't see why you're so happy to offer up the rights of others as sacrificial lambs to make some political point.
    - toomuchtodo 5y ago
      A better analogy would be breaking and entering to collect evidence that a building was unsafe for occupancy, and I’d support that as well under the assumption that due process had failed and there was risk to those marginalized. I don’t believe there is an absolute right to privacy. As always, there’s nuance.
      - bko 5y ago
        So evidence obtained illegally outside of due-process is fair game in your book? I guess by saying "when due process failed" kind of makes it so since by definition it "failed".
        itsoktocry 5y ago
        >So evidence obtained illegally outside of due-process is fair game in your book? So evidence of horrible crimes should be ignored if subjective "due-process" isn't followed? You do realize that the moneyed elite have disproportionate influence over "process" and law, right? Focus on the leaks and whether they are true, not the messenger.
        bko 5y ago
        The "horrible crimes" of following the applicable tax laws. Got it. I'm not focusing on the messenger. I'm questioning the ethics to violate the privacy of private individuals to try to score political points.
        aaron-santos 5y ago
        You're not advocating for modeling our actions, social interactions, behaviours, and relationships after our criminal justice system, right? Also you're not advocating for an equivalentcy between judicial evidenciary procedure and information gathering, and judicial due process and social due process, right?
      - sokoloff 5y ago
        Does this hypothesize the lack of a functioning court system to issue a search warrant, the lack of observing the Fourth Amendment in the US (or equivalent in many other countries), or both?
- exotree 5y ago
  They are not private individuals. They are individuals that are of public interest (much like celebrities) and hold significant sway over communities (much like public officials). This is pretty standard legal precedent.
  - bko 5y ago
    So privacy is only for those that aren't celebrities? Do you have some barometer for what makes a "celebrity"? Blue check mark? Right to privacy is a human right. Do you agree? If so, are there classes of human rights that aren't applicable to some groups of individuals?
    - nzmsv 5y ago
      It's actually very simple. If a year from now you find that the authors (Engelberg and Tofel, others?) of this project are still free then everyone whose data they published was a legit "celebrity" and the leak was OK with the current administration. If you suddenly discover that all of ProPublica are actually sex offenders and evade justice by hiding out in embassies (or something similar) then they overreached and leaked the wrong data on an off-limits "non-celebrity". Makes sense.
    - deeblering4 5y ago
      Unfortunately you are speaking of ideals. In reality a person's right to privacy is dependent on many factors including their country, race, etc. With regards to celebrity, there is absolutely a tradeoff. On paper celebrities have the same civil rights as anyone else, but e.g. have you heard of the paparazzi before?
      - bko 5y ago
        > Unfortunately you are speaking of ideals. In reality a person's right to privacy is dependent on many factors including their country, race, etc. I disagree. A right is a human right. Human rights are not granted by a country, they can only be violated. My right to free thought and expression doesn't cease being a right if I'm in an oppressive state. A state can violate my rights but human rights are universal. You can disagree that privacy is a human right, and that's fine if you do. In regards to paparazzi, if you're in a public space, you don't have the same right. It's balance by the right of another person taking photos in that same public space. There is no expectation of privacy, so I'm free to snap your picture, same as I have a right to record a police interaction (despite what some legislation might have you believe). But that doesn't mean I have the right to break into your home and record you sleeping.
- deeblering4 5y ago
  And the .001 consistently encroach on our political policies for private benefit. I see these tax loopholes as bugs/vulnerabilities in the tax code. And just like in software, bad actors have an incentive to keep the bugs in place. Shedding light on them is a first step towards greater awareness and eventual fixes.
  - bko 5y ago
    > Taxes aren't and shouldn't be secret. Cool. Would you mind sending me your tax returns (assuming you're in the US), or similar income history? You can oppose tax loopholes without encroaching on the privacy of others. To use your example, imagine dumping hacked Facebook user data because you don't like bugs in Facebook software
    - deeblering4 5y ago
      > Imagine dumping hacked facebook user data because you don’t like bugs in Facebook software No need for imagination here... This happens all the time. Data leaks are a regular outcome from security bugs/breeches.
      - bko 5y ago
        And it's just as unethical in that case as well
        deeblering4 5y ago
        Are you suggesting that the top “earners” who manipulate their taxes are acting ethically? These people deserve (and can afford) every ounce of scrutiny they receive.
        dnautics 5y ago
        Suppose I like to donate to nonprofits supporting political dissidents of another nation and that makes me an assassination target, or hell political or adjacent orgs in this country (BLM, PP, NRA) and that makes me a harassment target
- greenie_beans 5y ago
  They obviously considered the ethics of this and decided to share for “the public interest” and not “a political purpose” as you say. What politicians do with this information is another matter. They’re simply telling the story like journalists are supposed to do!
  - strictnein 5y ago
    Labeling something a "True Tax Rate" (paid taxes / wealth increase) isn't journalism, it's advocacy.
    - greenie_beans 5y ago
      Good point. I guess I see the advantages of the ultra rich as something that shouldn’t be politicized. That’s some bullshit that all stripes of political belief should agree on and change. Like, who wouldn’t advocate for that? (Besides the ultra rich. And please don’t say those who aspire to be ultra rich, because that’s not a realistic argument/that idea should die) Edit: Can you explain why the phrase “true tax rate” is considered political advocacy?
- Jonnax 5y ago
  Yes. It is. They are billionaires hiding their wealth. Leeches on society. The more money you have, the less right to privacy you have. That's my opinion. Your opinion seems to be that you accept that you're a peasant and you wish to lick their boots.
  - throw_nbvc1234 5y ago
    > The more money you have, the less right to privacy you have. I'd change this to: The more power you have, the less right to privacy you have. Money is just one form of power. If there was a way to give up the "power" that money provides (without giving up their money) then I'd say they can regain their right to privacy. Transparency is needed for the people to keep those with power accountable (in a free society and/or without violence).
  - deleted 5y ago
    [deleted]
- leetcrew 5y ago
  > quite selectively and carefully > allowing readers to see patterns that were until now hidden am I being too cynical, or is this a "pick one" situation? what "pattern" are the readers supposed to see in this carefully chosen subset of the data? what patterns do the unchosen subsets show?
  - exotree 5y ago
    This is where trust comes in. Most people need a narrative and a story to follow the threads; they are not experts in determining what the data does or does not tell us, and someone has to attempt to do so. I'd give ProPublica the benefit the doubt here. They have the resources to hire the right talent, and that talent is likely empowered to keep conjecture at bay or properly disclosed. And, of course, you're unlikely to get all the data. Stories like this will nearly always, in some form or fashion, be based on a somewhat incomplete snapshot of data or documents. But taking that data and corroborating it with what we do know is often enough to add validity to the assumptions that are being reached by a publication such as ProPublica.
- jonathankoren 5y ago
  Let's talk about the actual damage that could occur to an individual here. The fact of the matter is, billionaires are effectively isolated from all societal repercussions, where the average person simply isn't. Even if you waved a magic wand, and prevented them from making any money through any mechanism, and they just had spend their wealth, their lifestyle would not change at all. They literally can not spend the amount of money they have, in the years of life they have remaining. Even the threat of jail time isn't a real threat, given the serious discrepancies in prosecution and sentencing guidelines, let alone the plausibility of someone pulling a Carlos Ghosn[0], which is much easier to do when you effectively have infinite resources. Now let's look at the other side. The societal benefit is making these effects current preferential policies concrete. Often politicians and other supporters of the super wealthy intentionally muddy the waters by talking about "small businesses", "family farms", and other middle class and upper middle class lifestyles. (e.g. The arguments made by against inheritance tax, that only affects net worths in excess of $11.7 million, or the arguments based on absolute dollar amounts rather than income or wealth percentages.) By making the effects concrete rather than abstract, it's much harder to argue that there is any sort of negative individual effects on ultra wealthy.[1] [0] https://www.bbc.com/news/world-50964040 https://www.bbc.com/news/world-50964040 [1] For example: Even if you took half of Warren Buffet's wealth ($110 B) every year for the rest of his life (90 years old, today), he'd probably still die a billionaire. And even if he lived to be a 100, he'd still have $100 million.
- deeviant 5y ago
  > So it's okay to encroach on the privacy of private individuals as long as it serves a political purpose? Interesting how your turn "public interest" into "political purpose".
- wegs2 5y ago
  I think, in this case, the rich encroach on my privacy enough that it seems proportionate. It's not okay to shoot your neighbor. It is okay to shoot your neighbor if they're shooting at you. When the rich stop trading my data, I'll fight for their privacy too.
bwestergard 5y ago
In Finland, everyone's taxable income is a matter of public record. One theoretical benefit of such a policy is that it eliminates information asymmetries between workers and employers in wage bargaining.
- failwhaleshark 5y ago
  That makes the lives of gold-diggers easier too. If it were opt-in that would be fine, otherwise it's an invasion of privacy of most people who aren't rich. It's almost as bad as having medical conditions and STIs test results listed publicly. Facilitating public exposure of counting other people's money doesn't help anyone except the rich to know if you can fight them in court or how much to bribe them. Fight wealth inequality with income-&-holdings-proportional fines; simple, government-calculated graduated taxes without complicated exemptions; elimination of corporate/wealth welfare; and expand economic-advancement-oriented welfare to those who aren't super-rich who can use it.
  - lucideer 5y ago
    > If it were opt-in that would be fine If it were opt-in it would be pointless. Surely that's obvious? > Facilitating public exposure of counting other people's money doesn't help anyone except the rich to know if you can fight them in court or how much to bribe them. This is a fair point, but I think these are relatively small individual downsides, which are also much more visible (and potentially addressable). Bribery is probably a harder nut to crack, but the legal system favouring the rich (& lawyered up) is something that one can potentially work toward balancing/mitigating with legislative measures.
  - gota 5y ago
    I disagree almost completely. I understand your concerns - but they are based on weighing personal freedom above all else, and I just don't. I think there's a tradeoff there and it is favorable in favor of disclosing tax information. To your points: > gold-diggers I'm not sure if this is an idiomatic term and out of my grasp, but if you mean that people will get romantically involved with others because of their money... this is a non-issue. Happy to debate it further, but it seems so silly and self-apparent that we shouldn't care at all about it > Invasion of privacy Arguably, but as long as only a minimum amount of whats is public, with only the lump-sums published, I think its fine in context. > It's almost as bad as having medical conditions and STIs test results listed publicly. I think these are very different things, the difference is not just of severity. They are different classes of things. Financial information relates to money, which only makes sense in a society (money is for trade). A disease's effects are personal. When they aren't, you are obligated to disclose them and/or to comply to other rules (for example, to quarantine). > Facilitating public exposure of counting other people's money doesn't help anyone except the rich to know if you can fight them in court or how much to bribe them. I think the experience where this has been applied is precisely the opposite - the rich are the ones affected the most. And - if your justice can be bought, the problem has less to do with the knowledge that the other can't find back and more to do with the legal system in the first place. > Fight wealth inequality with income-&-holdings-proportional fines; simple, government-calculated graduated taxes without complicated exemptions; elimination of corporate/wealth welfare; and expand economic-advancement-oriented welfare to those who aren't super-rich who can use it. Can't argue with that, even if I wanted to, in fewer than 15 pages. Complex stuff!
mlac 5y ago
I would really just like a flat tax. No loopholes or deductions. Very simple. It should not take a masters degree to understand the tax code. I recognize this is one of the main ways Policy is implemented (incentives can drive certain behavior), but we’ve got hundreds of years of complexity going on and I wouldn’t mind simplifying this. I don’t know where to start though.
- lucideer 5y ago
  > I don’t know where to start though. I would start with "cui bono" and look into learning about the various institutions in place who's main purpose is to maintain the complexity, that would stand to make significant losses (or disappear) if it were simplified. (just in case this sounds like pessimism or apathy, I don't necessarily think it is. But if one genuinely wants change, one does need to be aware of where hurdles lie)
- an_opabinia 5y ago
  Economically, you sort of live in a flat tax. (https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.html https://www.nytimes.com/interactive/2019/10/06/opinion/incom...) I know that's not what you mean. But if you simply filed a 1040EZ, then paid a 20% penalty when the IRS sends you a letter saying pay the rest of what you owe, expect to pay... 28 percentage points effective instead of 26. This is to say that tax complexity is a red herring. You can already live in an almost zero-complexity tax obligation personally, as a wage earner, above and beyond what is officially prescribed. It's not really what it's about. It's probably not about saving money either.
  - hellisothers 5y ago
    Looks like the 1040-EZ is no longer used, could you elaborate on this “hack” you’re suggesting is a flat tax solution?
- madaxe_again 5y ago
  I don’t know that flat tax is necessary - progressive taxation is a sane policy, as the marginal utility of money goes down the more of it you have, and therefore a larger tax burden is more easily borne - however addressing the gap between how asset and employment income are taxed is critical to combatting gross wealth asymmetry. I write this as a member of the asset-owning class. I wasn’t always - I worked in the U.K., with my income automatically taxed via PAYE (Pay As You Earn), and paid between 20 and 45% effective tax rates on my earnings. Now, my income is rentals and investments, and my effective tax rate is nearer 5%, on a much larger income than I ever had from employment. I’ve not done anything special or weird, I’ve just paid capital gains and written down the allowable expenses. It would not be hard to pay no tax, just by restructuring my finances a little, but it doesn’t sit well with me as it is. Honestly, it’s nonsensical. At the very least asset income should be taxed at the same rates as labour income - but it should probably be taxed at a higher rate, as penalising productive labour and rewarding rent-seeking is ultimately contrary to the interests of everyone.
hoppyhoppy2 5y ago
See also https://news.ycombinator.com/item?id=27432326 https://news.ycombinator.com/item?id=27432326
- koheripbal 5y ago
  This post should be marked as dup
WalterBright 5y ago
The top 1% contribute 38.5% of Federal income tax revenue.
- ausbah 5y ago
  the top 1% own 31% of all the net wealth in the US, which isn't the same as income - but gives a good idea of how disproportionate their share is 38.5% seems too low https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:119;series:Assets;demographic:networth;population:all;units:levels;range:2005.2,2020.2 https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
  - WalterBright 5y ago
    People creating wealth are not taking it from others. Wealth is not zero sum.
- akie 5y ago
  Two questions: 1. How much of the wealth (and/or income) do they have? 2. If they paid their taxes like the rest of the population, what would this number be?
  - koheripbal 5y ago
    1. We don't know. Wealth is not taxable. Income is taxed. 2. They already pay according to the same rules as everyone else.
- LatteLazy 5y ago
  No, the top 1% of earners contribute that. Wealthy people don't have earned income. If you go to work, even as a ceo, even in the top 1% of earners, you're not wealthy.
alfiedotwtf 5y ago
Side-note: although not part of the 0.001%, it's mind blowing that it's June 2021, and we still haven't seen Trump's promised tax return.
- geoduck14 5y ago
  Did Trump make that promise? Are you REALLY surprised he didn't fill that promise?
  - standardUser 5y ago
    Yes he did make that promise and no, of course no one should be surprised Trump lied directly and repeatedly to voters.
geoduck14 5y ago
Ok HN! We are intelligent, rational, and well intentioned- but we are also diverse! And it is great. Can someone please help me with the following! Why do we still compare WEALTH with INCOME tax? Of COURSE wealth is skewed: you go negative pretty fast (college and mortgage), and then you accumulate over time. It is a pretty rational progress. Income can vary over time - and the tax should vary, too. Why do we smash these two together? Are we DELIBERATLY pushing for a wealth tax? We we doing it underhandedly? Is it ACTUALLY a good idea?
- rexreed 5y ago
  I also don't understand how wealth and income can be conflated like this. We have an income tax, so, no duh, we tax income, not wealth. Criticizing the income tax because it doesn't tax wealth is like criticizing sales tax because it doesn't tax property values. They aren't the same. I don't get how ProPublica can take such a stance. Either it's intentional, which is bad, or it's unintentional, which is even worse?
  - ihumanable 5y ago
    80% of the actual article, https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov..., is discussing this exact thing. This isn't a case where there's a journalistic sleight-of-hand, trying to conflate and confuse wealth and income. one could argue that the entire thesis of the article is that because we tax income and not wealth, those with wealth avoid ever realizing income, relying on loans instead of income. It's an article about the end result of taxing income instead of wealth, there's literally a massive interactive scrolling graphic that discusses it half-way through.
    - rexreed 5y ago
      Well yeah that's obvious. I could summarize this whole article by saying that wealthy people don't pay much income tax because they don't report much taxable income. Since we don't tax wealth separately from income, they don't pay much tax. There, I summarized all their intense reporting in an obvious way. What does it tell us? Nothing that we don't already know. All they are arguing about is taxing wealth separately from taxing income. That will never happen for many reasons.
deleted 5y ago
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jvanderbot 5y ago
What I don't understand is: If I (a wage slave) find a football sized diamond in my back yard, I'm suddenly very "wealthy". Should I be forced to pay taxes on that find because my wealth has increased? What if I want to keep that diamond but cannot afford to because of the taxes? Isn't that how business owners gain wealth: By the valuation defined by others to the thing they "found". Should we force Bezos et al to sell some of their stock in their companies to pay tax? Surely a $100m+ tax burden would do that?
- dataangel 5y ago
  You don't pay capital gains taxes until you sell the stock. The IRS only taxes you when you cash out. Presumably the articles will show the wealthy "cashing out" via loopholes that evade the tax.
  - mrkurt 5y ago
    The trick is to cash out by dying. You can do this by living off loans against your unrealized capital gains. These then get paid off at your death, and there are all kinds of "simple" ways to keep estate untaxed.
    - rbtprograms 5y ago
      I have a friend who is a member of the ultra rich, and this is exactly how his family uses their portfolio. They currently can borrow with .03% interest through their brokerage.
    - kasey_junk 5y ago
      What I’m curious about is at what level of funds flows does it make sense to start using these strategies. The average faang employees income is dominated by shares but a) they weren’t granted in the distant past when the prices were lower so the tax difference isn’t big between income and b) they have different risk tolerances as Bezos can lose half of his net worth and still be unable to spend all his money before he dies. There must be some level where these strategies make sense but articles like this rarely point them out.
throwawaysea 5y ago
Surely people recognize that the related article purposely misleads readers by calculating false tax rates based not on income but paper wealth that is not real or recognized. ProPublica has a hard progressive bias, this article being one among many examples.
whiddershins 5y ago
Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. The worse tax situation is always the person who makes 500k in a good year, or sells a house they held for 25 years which went up a bunch in value. I suspect this is a significant factor in social mobility. Our tax system is punitive to people who try to leave the working class.
- Wowfunhappy 5y ago
  > Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. Could you please share some of the situations you're thinking about here? I'm not familiar.
  - realce 5y ago
    If you have just enough assets to be "rich" but don't have enough to purchase tax assistance, you've become unprotected prey. Everyone that can afford this tax assistance has a lower cost of business than you, everyone poorer has a lower tax burden.
    - Wowfunhappy 5y ago
      I'd love to see some data on how big a deal this really is, because I would normally assume that by the time you've reached the levels of wealth we're talking about, "tax assistance" is a trivial expense.
      - kbelder 5y ago
        I think at this level, tax protection isn't 'hiring a decent accountant' or 'donate $10,000 to charity', but instead is 'moving your base of operations off-shore' and things like that. Things you can do with a ten-million dollar income, but not a half-million.
        5y ago
eplanit 5y ago
Large grain of salt required. But, at least they were honest enough to state (in the middle of the article), that the information on which this is based is suspect: "We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests."
- itsoktocry 5y ago
  >Large grain of salt required. What exactly do I need to "take" with a large grain of salt? Have you been in seclusion for the past 20 years? I'm pretty sure we're at the point where the burden of proof is on the billionaires to demonstrate they aren't funnelling away their money, not vice versa.
  - eplanit 5y ago
    Evidence isn't necessary for one who is already convinced. However, there is a lot that says that the 1% actually pay the vast majority of taxes collected: https://www.publishedreporter.com/2021/04/05/op-ed-top-1-income-earners-pay-majority-of-taxes-benefits-other-99-of-americans/ https://www.publishedreporter.com/2021/04/05/op-ed-top-1-inc... https://howmuch.net/articles/high-income-americans-pay-majority-of-federal-taxes https://howmuch.net/articles/high-income-americans-pay-major... https://taxfoundation.org/top-1-percent-pays-more-taxes-bottom-90-percent https://taxfoundation.org/top-1-percent-pays-more-taxes-bott...
    - Analemma_ 5y ago
      "The top earners pay the majority of tax already!" is a smoke and mirrors argument to try and distract you, especially when they've been collecting all the income gains. Consider that if there are income gains which go exclusively to the wealthy but the tax code stays the same, by definition they will end up paying an increasing percentage of total tax revenue, even though this situation does not mean their taxes need to be decreased - precisely the opposite.
f38zf5vdt 5y ago
It seems like this is missing the obvious focal point: loans taken out by individuals against assets like stock options and equities should be taxed as income. It's trivial to evade income tax when you have accumulated wealth in equities by taking out a loan against the equities and then progressively liquidating them at capital gains tax rates to fulfil the loan payments. If every loan taken out by Elon Musk or Jeff Bezos against their corporate assets were treated as income, I suspect we'd see a much larger share of tax paid by them. edit: How do I make the same point as u/fairity 5 minutes prior but accumulate down votes? lol
- imtringued 5y ago
  Why does this matter? The real problem is that the capital gains tax rate is below the income tax you would have to pay for the same income. Either you adjust the capital gains tax upwards to match income taxes or you replace it completely with income taxes. You don't need a complicated loan tax.
  - 34679 5y ago
    They explain it well in the full article: https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov... >So how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it. >For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax. >The tax math provides a clear incentive for this. If you own a company and take a huge salary, you’ll pay 37% in income tax on the bulk of it. Sell stock and you’ll pay 20% in capital gains tax — and lose some control over your company. But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income.
fairity 5y ago
One of the primary mechanisms for tax avoidance is taking out loans against appreciated capital assets to avoid realizing capital gains. What's stopping the average citizen from exploiting this tax avoidance strategy? For example, every time I try to submit an order to sell stock that results in short-term capital gains, my broker should be asking me whether I want to take out a collateralized loan instead. If there are loopholes in the tax system, they should be made readily accessible to all.
- ajaimk 5y ago
  You can: https://www.schwab.com/pledged-asset-line https://www.schwab.com/pledged-asset-line https://www.wealthfront.com/portfolio-line-of-credit https://www.wealthfront.com/portfolio-line-of-credit And HELOCs are essentially the same for people who own a house but not stocks.
  - fairity 5y ago
    Got it, but why don't brokers more aggressively push this program onto clients? It seems like a win-win. The debtor avoids the elevated short-term capital gains tax. The bank gets interest payments on a loan that has an almost 0 default rate due to the loan being fully collateralized.
    - iooi 5y ago
      > It seems like a win-win. It's not a win-win, there's significant risk. > fully collateralized This is not true! The underlying asset fluctuates in value and is open to lowering significantly in value, leaving the bank holding the bag.
      - ac29 5y ago
        > leaving the bank holding the bag You probably underestimate the ability of banks to evaluate risk. Yes, they absolutely could end up underwater on an asset backed loan, but you also shouldn't assume that you can take out $1 in loans on every $1 of stock. On Schwab's page, they say: "Schwab Bank, in its sole discretion, will determine what collateral is eligible collateral and the loan value of collateral". So, if you have some recently highly-appreciated shares of AMC for example, they might decide they are not eligible collateral, or only offer to lend you $1 for every $5 of stock.
jedberg 5y ago
The people who will be most upset about this probably aren't the wealthy people themselves, but their lawyers and accountants. I have a lawyer friend who does estates for ultra-wealthy people. Each week, her whole firm gets together to review all new laws that have been passed that might change estates, and one of them does a "book report" on how to take advantage of old laws. They consider this their competitive advantage and how they win clients over other firms -- by being better at taking advantages of loopholes. I'm sure they'll be looking at this article to both gain ideas and check if any of their own clients are there and if any of their secrets are revealed.
cm2187 5y ago
Would be curious to see twitter blocking this story on the basis that this is the distribution of stolen data as they did last year...
- jtdev 5y ago
  Twitter only does that when it facilitates manipulation of important elections. They’ve moved on to protecting Fauci, Harris, Biden from the harsh reality of their own incompetence and rapidly vanishing facade of legitimacy.
  - deleted 5y ago
    [deleted]
jtdev 5y ago
Our political leaders and absolutely terrible media are the villains here… not the rich people protecting their wealth.
bjornsing 5y ago
Interesting, but Pro Publica’s calculation of effective tax rate as taxes payed divided by wealth increase is weird. I don’t think there’s a jurisdiction in the world that calculates tax that way, and there are good reasons for that.
- speapr 5y ago
  The exact point is that because taxation does not consider this income, the vast majority of the money made by very rich people takes this form. Pro Publica's point is not that these people are breaking the law, but that the tax system should be different.
- WalterBright 5y ago
  ProPublica confuses wealth with income. If you have $2b in wealth, and lost $1b in bad investments one year, you're still a billionaire, and your tax rate is 0%.
  - jl2718 5y ago
    Nope. $3000 yearly passive loss exemption. Let's say you operate a business netting you $1B and then buy a $1B pokemon card, which you sell for $0. You owe tax on $1B - $3000.
    - WalterBright 5y ago
      If you have $2b in wealth, and lose $1b of it, you do not owe taxes on $1b.
      - jl2718 5y ago
        At some point they may have paid taxes on that $2B asset distribution, but of course they still have it, so maybe they took out a $1B loan to pay the IRS. Now they sell the asset, and they are lucky that it fetches $1B, enough to pay the loan. Now they have $0, and a huge sigh of relief. Could have been much worse. So you see, a lot of these equity-based billionaires would owe more than they have without these 'loopholes', and some obviously not much with them.
williamtwild 5y ago
If they distill this information down to things that any person can use then it will be useful.
stakkur 5y ago
But we already know the 'secrets' of the .001%: 1. Hide income and assets whenever possible. 2. When #1 is not possible, structure visible income and assets to leverage the most advantageous tax rules.
1024core 5y ago
I'm not sure I agree with taxing the "wealth", instead of income. Sure, on paper, Buffett's wealth went up by $23B; but these are just imaginary numbers based on the whims of the market. The tax should be on what amount of money actually flowed into his bank account.
- mathattack 5y ago
  Over the long term it makes sense. Over the short term it’s more difficult if the assets aren’t liquid.
- lumost 5y ago
  The problem is that there is no way to track what flows into his bank account. Evidence says that he can avoid being taxed on any dollars flowing to his bank account. This wasn't a huge problem a century ago due to the Estate tax ensuring that estates would shrink over time and eventually be taxed. In stark contrast to European laws that required estates to be maintained in their entirety to preserve the aristocracy. If Buffett can avoid tax during life and death and pass on a preserved estate then there is no guardrail against a gentle class. Fundamentally it also means that we've setup a tax system more akin to a feudal system where workers pay taxes and aristocrats receive benefits.
  - kwhitefoot 5y ago
    Off topic, just for your information: gentile in English is not the same word as in, for example, French. The English word means not-Jewish whereas I think you probably meant gentle which has an archaic meaning of noble. See https://www.lexico.com/definition/gentle https://www.lexico.com/definition/gentle
    - lumost 5y ago
      Great Callout! I've updated the text to reflect the correct word.
    - filoeleven 5y ago
      The modern equivalent (though it is not often encountered either) is “genteel”, which I think roughly mimics the French pronunciation of the original word, but with a hard “g”. Sure looks like a cognate to me.
fastball 5y ago
So lots of people saying the ultra rich are hard to tax because they take out loans against assets to fund the day-to-day. This then results in an argument about the morality/viability/etc of a wealth tax. But... why can't we just tax the loans?
- notriddle 5y ago
  Small business owners take out loans in order to build up their company. Making that harder seems like something HN would implicitly dislike.
- hawk_ 5y ago
  yes that's called interest which the fed is reluctant to raise to appease the same lot in the name of improving employment.
  - jl2718 5y ago
    Your comment made me realize something. The government is funded by taxes and bond sales. Bond purchases absorb high interest rate demand across the entire market. If there weren't any taxes, there would be higher interest rates. So taxes are what subsidizes low interest rates. We're the ones paying the interest on their loans. Now it all makes sense. Mind is blown.
- marcell 5y ago
  If you tax loans that means every credit card purchase or mortgage would trigger a tax. If you receive a $400k loan for a mortgage, that would mean something like $100k in taxes for an upper middle earner.
  - fastball 5y ago
    Thresholds + only collateralized loans?
    - marcell 5y ago
      Pawnshops are collateralized loans for the poor. If the goal is to tax the rich, just be more direct and tax the rich. A wealth tax would work, no need for elaborate schemes.
WalterBright 5y ago
Let's say you borrow and invest $1 million into a business startup, like buying farmland. The land goes up in value 10%. Now you owe $40,000 in taxes. But you only made a $50,000 profit farming it. How are you going to pay taxes on that "gain"? You already borrowed money to pay for the farmland, you can't borrow any more. The only way is by selling off parts of the farm, which may not be feasible. In other words, many enterprises will never start because it is an impossible business model. You'll just wind up crushing existing businesses and make starting new ones infeasible.
- EricRiese 5y ago
  That logic doesn't really apply when you scale up to the ultra-billionaires. Shares of stock are plenty liquid.
  - jl2718 5y ago
    Unless the float is much smaller than the cap.
  - WalterBright 5y ago
    The rest of it still applies. It makes the numbers not work for starting a business. Besides, selling off pieces of it means making less and less money off of it. You wind up working for the people you sold it to in order to pay the taxes. You might as well kiss entrepreneurship goodbye with wealth taxes.
    - rtpg 5y ago
      There is such a stupidly easy solution to this, which is to set a lower limit for whatever rule applies. Though... even though things like estate taxes have these rules (either "first million isn't taxed" or "primary residence isn't taxed" etc, depending on jursidiction), most people tend to not actually read the details and assume that the gov't wants to take the family farm. No, I don't think it's your god-given right to hand down a $2 million townhouse without paying taxes.
jl2718 5y ago
Tax is obsolete. You won't fix it with more.
Kharvok 5y ago
The article seems to be toggling the conflation of income vs net worth.
arbitrage 5y ago
oh gosh, something is definitely going to happen, this time, i'm sure!
kristjansson 5y ago
The conflation of change in mark-to-market net worth with income has got a whole lot to do with the constant breathless reporting of "Bezos/Gates/Buffet/... made/lost x BILLION dollars today" every time the market moves by more than a point. Sure, I get they want to beat the drum on wealth inequality, and perhaps that's a drum worth beating. But its a disingenuous disservice to pretend that these people are sitting on a massive pile of 'hoarded' liquid cash that could be redistributed in a meaningful without incurring massive losses. Might as well pretend that we could seize and sell all of the latest $100bn shitcoin and get $100bn USD to distribute.
- asdff 5y ago
  If they didn't want to incur loss Bezos could just gift me his shares in Amazon
- Ericson2314 5y ago
  Yes, it's a bummer common discourse does this. While making the billionaires wealth seem more liquid would seem to overstate their power, I think the real issue is quite opposite. The popular understanding of capitalism is accurate prices and liquid goods, and only a few things (as contested in culture wars) are genuine separate axis. The reality is the real power of the billionaires isn't in their "net worth" (however good the accounting is), but in their power over the institutions they control. Look at the size of the flow in and out of those institutions, their capacity for investment. Realize also that even as we collectively have the wealth for much simultaneous investment, earlier investment has a profound and non-erotic effect on future history (e.g. car vs public transit, Unix being entrenched for 50+ years, etc.) This is the real travesty of billionaire power, not the ability of Bezos to buy big yachts or whatever.
- ksec 5y ago
  Yes. Most people dont think about it that way. I am wondering if there are any simple free bitcoin / cryptocurrency making services? Get people to apply one crypto of their own, make 1 billion coins. I buy one for one coin for $1. Now that person is instantly a billionaire.
- HWR_14 5y ago
Stevvo 5y ago
Not a great reading experience to have to scroll through nearly endless fawning of "ooh look at how we are such responsible journalists" to get to the actual story.
digglet90 5y ago
Imo, Wyoming or Sweden not something in between. Most economies do something in between and outrageously favour maintenance of large stores of ultimately unworkable existing wealth.
deleted 5y ago
[deleted]
musicale 5y ago
> Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell. Taxing assets seems like it could be bad for the 99%, for example taxing people out of their homes and eating up their savings and retirement assets. It's reminiscent of how "financial aid" tacitly assumes that one's parents should simply sell their house and then give the money to the university.
toddh 5y ago
If you read the article, they are calculating a fictitious thing they call the “true tax rate”. This is the tax paid compared to the growth in assets. That is not an income tax. It’s a wealth tax. It feels like conflating the debt and the deficit. Effectively you would have to have a deemed sale of all assets at the end of the year and pay tax on the gain/loss. I agree that the rich have access to tax planning machinations that most tax payers do not. But this doesn’t bluster their argument.

609 points by jbegley 5y ago

bko 5y ago

> Many will ask about the ethics of publishing such private data. We are doing so — quite selectively and carefully — because we believe it serves the public interest in fundamental ways, allowing readers to see patterns that were until now hidden.... We believe that disclosing the identities of billionaires who paid little to no taxes in years their fortunes grew by billions of dollars will help readers understand the magnitude of the tax advantages the ultrarich enjoy... Our publication of this tax data comes at a possibly pivotal moment in America’s long, often contentious debate about the fairness of our tax system So it's okay to encroach on the privacy of private individuals as long as it serves a political purpose? To try to drum up support for higher tax rates? They're not even saying these individuals used their money to manipulate the tax code, but are merely beneficiaries of income with preferable tax treatment.

toomuchtodo 5y ago
How you feel about this is going to depend on where you are on the political spectrum. I fully support this decision based on where the country stands on inequality and socioeconomic power imbalances. It’s in the public interest to demonstrate the result of poorly constructed public policy (and thereby stoke inertia to fix it and erode wealth inequality). I’m happy to make my tax returns and income history public if the wealthy are required to do the same.
- bko 5y ago
  So if someone wanted to demonstrate poor building codes by setting your house on fire, that would be okay too, since you know, it's in the public interest to demonstrate lax building codes? Privacy is a right that I would think more people on this forum would respect. I don't see why you're so happy to offer up the rights of others as sacrificial lambs to make some political point.
  - toomuchtodo 5y ago
    A better analogy would be breaking and entering to collect evidence that a building was unsafe for occupancy, and I’d support that as well under the assumption that due process had failed and there was risk to those marginalized. I don’t believe there is an absolute right to privacy. As always, there’s nuance.
    - bko 5y ago
      So evidence obtained illegally outside of due-process is fair game in your book? I guess by saying "when due process failed" kind of makes it so since by definition it "failed".
      - itsoktocry 5y ago
        >So evidence obtained illegally outside of due-process is fair game in your book? So evidence of horrible crimes should be ignored if subjective "due-process" isn't followed? You do realize that the moneyed elite have disproportionate influence over "process" and law, right? Focus on the leaks and whether they are true, not the messenger.
        bko 5y ago
        The "horrible crimes" of following the applicable tax laws. Got it. I'm not focusing on the messenger. I'm questioning the ethics to violate the privacy of private individuals to try to score political points.
      - aaron-santos 5y ago
        You're not advocating for modeling our actions, social interactions, behaviours, and relationships after our criminal justice system, right? Also you're not advocating for an equivalentcy between judicial evidenciary procedure and information gathering, and judicial due process and social due process, right?
    - sokoloff 5y ago
      Does this hypothesize the lack of a functioning court system to issue a search warrant, the lack of observing the Fourth Amendment in the US (or equivalent in many other countries), or both?
exotree 5y ago
They are not private individuals. They are individuals that are of public interest (much like celebrities) and hold significant sway over communities (much like public officials). This is pretty standard legal precedent.
- bko 5y ago
  So privacy is only for those that aren't celebrities? Do you have some barometer for what makes a "celebrity"? Blue check mark? Right to privacy is a human right. Do you agree? If so, are there classes of human rights that aren't applicable to some groups of individuals?
  - nzmsv 5y ago
    It's actually very simple. If a year from now you find that the authors (Engelberg and Tofel, others?) of this project are still free then everyone whose data they published was a legit "celebrity" and the leak was OK with the current administration. If you suddenly discover that all of ProPublica are actually sex offenders and evade justice by hiding out in embassies (or something similar) then they overreached and leaked the wrong data on an off-limits "non-celebrity". Makes sense.
  - deeblering4 5y ago
    Unfortunately you are speaking of ideals. In reality a person's right to privacy is dependent on many factors including their country, race, etc. With regards to celebrity, there is absolutely a tradeoff. On paper celebrities have the same civil rights as anyone else, but e.g. have you heard of the paparazzi before?
    - bko 5y ago
      > Unfortunately you are speaking of ideals. In reality a person's right to privacy is dependent on many factors including their country, race, etc. I disagree. A right is a human right. Human rights are not granted by a country, they can only be violated. My right to free thought and expression doesn't cease being a right if I'm in an oppressive state. A state can violate my rights but human rights are universal. You can disagree that privacy is a human right, and that's fine if you do. In regards to paparazzi, if you're in a public space, you don't have the same right. It's balance by the right of another person taking photos in that same public space. There is no expectation of privacy, so I'm free to snap your picture, same as I have a right to record a police interaction (despite what some legislation might have you believe). But that doesn't mean I have the right to break into your home and record you sleeping.
deeblering4 5y ago
And the .001 consistently encroach on our political policies for private benefit. I see these tax loopholes as bugs/vulnerabilities in the tax code. And just like in software, bad actors have an incentive to keep the bugs in place. Shedding light on them is a first step towards greater awareness and eventual fixes.
- bko 5y ago
  > Taxes aren't and shouldn't be secret. Cool. Would you mind sending me your tax returns (assuming you're in the US), or similar income history? You can oppose tax loopholes without encroaching on the privacy of others. To use your example, imagine dumping hacked Facebook user data because you don't like bugs in Facebook software
  - deeblering4 5y ago
    > Imagine dumping hacked facebook user data because you don’t like bugs in Facebook software No need for imagination here... This happens all the time. Data leaks are a regular outcome from security bugs/breeches.
    - bko 5y ago
      And it's just as unethical in that case as well
      - deeblering4 5y ago
        Are you suggesting that the top “earners” who manipulate their taxes are acting ethically? These people deserve (and can afford) every ounce of scrutiny they receive.
        dnautics 5y ago
        Suppose I like to donate to nonprofits supporting political dissidents of another nation and that makes me an assassination target, or hell political or adjacent orgs in this country (BLM, PP, NRA) and that makes me a harassment target
greenie_beans 5y ago
They obviously considered the ethics of this and decided to share for “the public interest” and not “a political purpose” as you say. What politicians do with this information is another matter. They’re simply telling the story like journalists are supposed to do!
- strictnein 5y ago
  Labeling something a "True Tax Rate" (paid taxes / wealth increase) isn't journalism, it's advocacy.
  - greenie_beans 5y ago
    Good point. I guess I see the advantages of the ultra rich as something that shouldn’t be politicized. That’s some bullshit that all stripes of political belief should agree on and change. Like, who wouldn’t advocate for that? (Besides the ultra rich. And please don’t say those who aspire to be ultra rich, because that’s not a realistic argument/that idea should die) Edit: Can you explain why the phrase “true tax rate” is considered political advocacy?
Jonnax 5y ago
Yes. It is. They are billionaires hiding their wealth. Leeches on society. The more money you have, the less right to privacy you have. That's my opinion. Your opinion seems to be that you accept that you're a peasant and you wish to lick their boots.
- throw_nbvc1234 5y ago
  > The more money you have, the less right to privacy you have. I'd change this to: The more power you have, the less right to privacy you have. Money is just one form of power. If there was a way to give up the "power" that money provides (without giving up their money) then I'd say they can regain their right to privacy. Transparency is needed for the people to keep those with power accountable (in a free society and/or without violence).
- deleted 5y ago
  [deleted]
leetcrew 5y ago
> quite selectively and carefully > allowing readers to see patterns that were until now hidden am I being too cynical, or is this a "pick one" situation? what "pattern" are the readers supposed to see in this carefully chosen subset of the data? what patterns do the unchosen subsets show?
- exotree 5y ago
  This is where trust comes in. Most people need a narrative and a story to follow the threads; they are not experts in determining what the data does or does not tell us, and someone has to attempt to do so. I'd give ProPublica the benefit the doubt here. They have the resources to hire the right talent, and that talent is likely empowered to keep conjecture at bay or properly disclosed. And, of course, you're unlikely to get all the data. Stories like this will nearly always, in some form or fashion, be based on a somewhat incomplete snapshot of data or documents. But taking that data and corroborating it with what we do know is often enough to add validity to the assumptions that are being reached by a publication such as ProPublica.
jonathankoren 5y ago
Let's talk about the actual damage that could occur to an individual here. The fact of the matter is, billionaires are effectively isolated from all societal repercussions, where the average person simply isn't. Even if you waved a magic wand, and prevented them from making any money through any mechanism, and they just had spend their wealth, their lifestyle would not change at all. They literally can not spend the amount of money they have, in the years of life they have remaining. Even the threat of jail time isn't a real threat, given the serious discrepancies in prosecution and sentencing guidelines, let alone the plausibility of someone pulling a Carlos Ghosn[0], which is much easier to do when you effectively have infinite resources. Now let's look at the other side. The societal benefit is making these effects current preferential policies concrete. Often politicians and other supporters of the super wealthy intentionally muddy the waters by talking about "small businesses", "family farms", and other middle class and upper middle class lifestyles. (e.g. The arguments made by against inheritance tax, that only affects net worths in excess of $11.7 million, or the arguments based on absolute dollar amounts rather than income or wealth percentages.) By making the effects concrete rather than abstract, it's much harder to argue that there is any sort of negative individual effects on ultra wealthy.[1] [0] https://www.bbc.com/news/world-50964040 https://www.bbc.com/news/world-50964040 [1] For example: Even if you took half of Warren Buffet's wealth ($110 B) every year for the rest of his life (90 years old, today), he'd probably still die a billionaire. And even if he lived to be a 100, he'd still have $100 million.
deeviant 5y ago
> So it's okay to encroach on the privacy of private individuals as long as it serves a political purpose? Interesting how your turn "public interest" into "political purpose".
wegs2 5y ago
I think, in this case, the rich encroach on my privacy enough that it seems proportionate. It's not okay to shoot your neighbor. It is okay to shoot your neighbor if they're shooting at you. When the rich stop trading my data, I'll fight for their privacy too.

bwestergard 5y ago

In Finland, everyone's taxable income is a matter of public record. One theoretical benefit of such a policy is that it eliminates information asymmetries between workers and employers in wage bargaining.

failwhaleshark 5y ago
That makes the lives of gold-diggers easier too. If it were opt-in that would be fine, otherwise it's an invasion of privacy of most people who aren't rich. It's almost as bad as having medical conditions and STIs test results listed publicly. Facilitating public exposure of counting other people's money doesn't help anyone except the rich to know if you can fight them in court or how much to bribe them. Fight wealth inequality with income-&-holdings-proportional fines; simple, government-calculated graduated taxes without complicated exemptions; elimination of corporate/wealth welfare; and expand economic-advancement-oriented welfare to those who aren't super-rich who can use it.
- lucideer 5y ago
  > If it were opt-in that would be fine If it were opt-in it would be pointless. Surely that's obvious? > Facilitating public exposure of counting other people's money doesn't help anyone except the rich to know if you can fight them in court or how much to bribe them. This is a fair point, but I think these are relatively small individual downsides, which are also much more visible (and potentially addressable). Bribery is probably a harder nut to crack, but the legal system favouring the rich (& lawyered up) is something that one can potentially work toward balancing/mitigating with legislative measures.
- gota 5y ago
  I disagree almost completely. I understand your concerns - but they are based on weighing personal freedom above all else, and I just don't. I think there's a tradeoff there and it is favorable in favor of disclosing tax information. To your points: > gold-diggers I'm not sure if this is an idiomatic term and out of my grasp, but if you mean that people will get romantically involved with others because of their money... this is a non-issue. Happy to debate it further, but it seems so silly and self-apparent that we shouldn't care at all about it > Invasion of privacy Arguably, but as long as only a minimum amount of whats is public, with only the lump-sums published, I think its fine in context. > It's almost as bad as having medical conditions and STIs test results listed publicly. I think these are very different things, the difference is not just of severity. They are different classes of things. Financial information relates to money, which only makes sense in a society (money is for trade). A disease's effects are personal. When they aren't, you are obligated to disclose them and/or to comply to other rules (for example, to quarantine). > Facilitating public exposure of counting other people's money doesn't help anyone except the rich to know if you can fight them in court or how much to bribe them. I think the experience where this has been applied is precisely the opposite - the rich are the ones affected the most. And - if your justice can be bought, the problem has less to do with the knowledge that the other can't find back and more to do with the legal system in the first place. > Fight wealth inequality with income-&-holdings-proportional fines; simple, government-calculated graduated taxes without complicated exemptions; elimination of corporate/wealth welfare; and expand economic-advancement-oriented welfare to those who aren't super-rich who can use it. Can't argue with that, even if I wanted to, in fewer than 15 pages. Complex stuff!

mlac 5y ago

I would really just like a flat tax. No loopholes or deductions. Very simple. It should not take a masters degree to understand the tax code. I recognize this is one of the main ways Policy is implemented (incentives can drive certain behavior), but we’ve got hundreds of years of complexity going on and I wouldn’t mind simplifying this. I don’t know where to start though.

lucideer 5y ago
> I don’t know where to start though. I would start with "cui bono" and look into learning about the various institutions in place who's main purpose is to maintain the complexity, that would stand to make significant losses (or disappear) if it were simplified. (just in case this sounds like pessimism or apathy, I don't necessarily think it is. But if one genuinely wants change, one does need to be aware of where hurdles lie)
an_opabinia 5y ago
Economically, you sort of live in a flat tax. (https://www.nytimes.com/interactive/2019/10/06/opinion/income-tax-rate-wealthy.html https://www.nytimes.com/interactive/2019/10/06/opinion/incom...) I know that's not what you mean. But if you simply filed a 1040EZ, then paid a 20% penalty when the IRS sends you a letter saying pay the rest of what you owe, expect to pay... 28 percentage points effective instead of 26. This is to say that tax complexity is a red herring. You can already live in an almost zero-complexity tax obligation personally, as a wage earner, above and beyond what is officially prescribed. It's not really what it's about. It's probably not about saving money either.
- hellisothers 5y ago
  Looks like the 1040-EZ is no longer used, could you elaborate on this “hack” you’re suggesting is a flat tax solution?
madaxe_again 5y ago
I don’t know that flat tax is necessary - progressive taxation is a sane policy, as the marginal utility of money goes down the more of it you have, and therefore a larger tax burden is more easily borne - however addressing the gap between how asset and employment income are taxed is critical to combatting gross wealth asymmetry. I write this as a member of the asset-owning class. I wasn’t always - I worked in the U.K., with my income automatically taxed via PAYE (Pay As You Earn), and paid between 20 and 45% effective tax rates on my earnings. Now, my income is rentals and investments, and my effective tax rate is nearer 5%, on a much larger income than I ever had from employment. I’ve not done anything special or weird, I’ve just paid capital gains and written down the allowable expenses. It would not be hard to pay no tax, just by restructuring my finances a little, but it doesn’t sit well with me as it is. Honestly, it’s nonsensical. At the very least asset income should be taxed at the same rates as labour income - but it should probably be taxed at a higher rate, as penalising productive labour and rewarding rent-seeking is ultimately contrary to the interests of everyone.

hoppyhoppy2 5y ago

See also https://news.ycombinator.com/item?id=27432326 https://news.ycombinator.com/item?id=27432326

koheripbal 5y ago
This post should be marked as dup

WalterBright 5y ago

The top 1% contribute 38.5% of Federal income tax revenue.

ausbah 5y ago
the top 1% own 31% of all the net wealth in the US, which isn't the same as income - but gives a good idea of how disproportionate their share is 38.5% seems too low https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/#quarter:119;series:Assets;demographic:networth;population:all;units:levels;range:2005.2,2020.2 https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr...
- WalterBright 5y ago
  People creating wealth are not taking it from others. Wealth is not zero sum.
akie 5y ago
Two questions: 1. How much of the wealth (and/or income) do they have? 2. If they paid their taxes like the rest of the population, what would this number be?
- koheripbal 5y ago
  1. We don't know. Wealth is not taxable. Income is taxed. 2. They already pay according to the same rules as everyone else.
LatteLazy 5y ago
No, the top 1% of earners contribute that. Wealthy people don't have earned income. If you go to work, even as a ceo, even in the top 1% of earners, you're not wealthy.

alfiedotwtf 5y ago

Side-note: although not part of the 0.001%, it's mind blowing that it's June 2021, and we still haven't seen Trump's promised tax return.

geoduck14 5y ago
Did Trump make that promise? Are you REALLY surprised he didn't fill that promise?
- standardUser 5y ago
  Yes he did make that promise and no, of course no one should be surprised Trump lied directly and repeatedly to voters.

geoduck14 5y ago

Ok HN! We are intelligent, rational, and well intentioned- but we are also diverse! And it is great. Can someone please help me with the following! Why do we still compare WEALTH with INCOME tax? Of COURSE wealth is skewed: you go negative pretty fast (college and mortgage), and then you accumulate over time. It is a pretty rational progress. Income can vary over time - and the tax should vary, too. Why do we smash these two together? Are we DELIBERATLY pushing for a wealth tax? We we doing it underhandedly? Is it ACTUALLY a good idea?

rexreed 5y ago
I also don't understand how wealth and income can be conflated like this. We have an income tax, so, no duh, we tax income, not wealth. Criticizing the income tax because it doesn't tax wealth is like criticizing sales tax because it doesn't tax property values. They aren't the same. I don't get how ProPublica can take such a stance. Either it's intentional, which is bad, or it's unintentional, which is even worse?
- ihumanable 5y ago
  80% of the actual article, https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov..., is discussing this exact thing. This isn't a case where there's a journalistic sleight-of-hand, trying to conflate and confuse wealth and income. one could argue that the entire thesis of the article is that because we tax income and not wealth, those with wealth avoid ever realizing income, relying on loans instead of income. It's an article about the end result of taxing income instead of wealth, there's literally a massive interactive scrolling graphic that discusses it half-way through.
  - rexreed 5y ago
    Well yeah that's obvious. I could summarize this whole article by saying that wealthy people don't pay much income tax because they don't report much taxable income. Since we don't tax wealth separately from income, they don't pay much tax. There, I summarized all their intense reporting in an obvious way. What does it tell us? Nothing that we don't already know. All they are arguing about is taxing wealth separately from taxing income. That will never happen for many reasons.

deleted 5y ago

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jvanderbot 5y ago

What I don't understand is: If I (a wage slave) find a football sized diamond in my back yard, I'm suddenly very "wealthy". Should I be forced to pay taxes on that find because my wealth has increased? What if I want to keep that diamond but cannot afford to because of the taxes? Isn't that how business owners gain wealth: By the valuation defined by others to the thing they "found". Should we force Bezos et al to sell some of their stock in their companies to pay tax? Surely a $100m+ tax burden would do that?

dataangel 5y ago
You don't pay capital gains taxes until you sell the stock. The IRS only taxes you when you cash out. Presumably the articles will show the wealthy "cashing out" via loopholes that evade the tax.
- mrkurt 5y ago
  The trick is to cash out by dying. You can do this by living off loans against your unrealized capital gains. These then get paid off at your death, and there are all kinds of "simple" ways to keep estate untaxed.
  - rbtprograms 5y ago
    I have a friend who is a member of the ultra rich, and this is exactly how his family uses their portfolio. They currently can borrow with .03% interest through their brokerage.
  - kasey_junk 5y ago
    What I’m curious about is at what level of funds flows does it make sense to start using these strategies. The average faang employees income is dominated by shares but a) they weren’t granted in the distant past when the prices were lower so the tax difference isn’t big between income and b) they have different risk tolerances as Bezos can lose half of his net worth and still be unable to spend all his money before he dies. There must be some level where these strategies make sense but articles like this rarely point them out.

throwawaysea 5y ago

Surely people recognize that the related article purposely misleads readers by calculating false tax rates based not on income but paper wealth that is not real or recognized. ProPublica has a hard progressive bias, this article being one among many examples.

whiddershins 5y ago

Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. The worse tax situation is always the person who makes 500k in a good year, or sells a house they held for 25 years which went up a bunch in value. I suspect this is a significant factor in social mobility. Our tax system is punitive to people who try to leave the working class.

Wowfunhappy 5y ago
> Every time someone tries to make a tax targeting the ultra rich, it ends up hurting the moderately wealthy instead. Every. Single. Time. Could you please share some of the situations you're thinking about here? I'm not familiar.
- realce 5y ago
  If you have just enough assets to be "rich" but don't have enough to purchase tax assistance, you've become unprotected prey. Everyone that can afford this tax assistance has a lower cost of business than you, everyone poorer has a lower tax burden.
  - Wowfunhappy 5y ago
    I'd love to see some data on how big a deal this really is, because I would normally assume that by the time you've reached the levels of wealth we're talking about, "tax assistance" is a trivial expense.
    - kbelder 5y ago
      I think at this level, tax protection isn't 'hiring a decent accountant' or 'donate $10,000 to charity', but instead is 'moving your base of operations off-shore' and things like that. Things you can do with a ten-million dollar income, but not a half-million.
      - 5y ago

eplanit 5y ago

Large grain of salt required. But, at least they were honest enough to state (in the middle of the article), that the information on which this is based is suspect: "We do not know the identity of our source. We did not solicit the information they sent us. The source says they were motivated by our previous coverage of issues surrounding the IRS and tax enforcement, but we do not know for certain that is true. We have considered the possibility that information we have received could have come from a state actor hostile to American interests."

itsoktocry 5y ago
>Large grain of salt required. What exactly do I need to "take" with a large grain of salt? Have you been in seclusion for the past 20 years? I'm pretty sure we're at the point where the burden of proof is on the billionaires to demonstrate they aren't funnelling away their money, not vice versa.
- eplanit 5y ago
  Evidence isn't necessary for one who is already convinced. However, there is a lot that says that the 1% actually pay the vast majority of taxes collected: https://www.publishedreporter.com/2021/04/05/op-ed-top-1-income-earners-pay-majority-of-taxes-benefits-other-99-of-americans/ https://www.publishedreporter.com/2021/04/05/op-ed-top-1-inc... https://howmuch.net/articles/high-income-americans-pay-majority-of-federal-taxes https://howmuch.net/articles/high-income-americans-pay-major... https://taxfoundation.org/top-1-percent-pays-more-taxes-bottom-90-percent https://taxfoundation.org/top-1-percent-pays-more-taxes-bott...
  - Analemma_ 5y ago
    "The top earners pay the majority of tax already!" is a smoke and mirrors argument to try and distract you, especially when they've been collecting all the income gains. Consider that if there are income gains which go exclusively to the wealthy but the tax code stays the same, by definition they will end up paying an increasing percentage of total tax revenue, even though this situation does not mean their taxes need to be decreased - precisely the opposite.

f38zf5vdt 5y ago

It seems like this is missing the obvious focal point: loans taken out by individuals against assets like stock options and equities should be taxed as income. It's trivial to evade income tax when you have accumulated wealth in equities by taking out a loan against the equities and then progressively liquidating them at capital gains tax rates to fulfil the loan payments. If every loan taken out by Elon Musk or Jeff Bezos against their corporate assets were treated as income, I suspect we'd see a much larger share of tax paid by them. edit: How do I make the same point as u/fairity 5 minutes prior but accumulate down votes? lol

imtringued 5y ago
Why does this matter? The real problem is that the capital gains tax rate is below the income tax you would have to pay for the same income. Either you adjust the capital gains tax upwards to match income taxes or you replace it completely with income taxes. You don't need a complicated loan tax.
- 34679 5y ago
  They explain it well in the full article: https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax https://www.propublica.org/article/the-secret-irs-files-trov... >So how do megabillionaires pay their megabills while opting for $1 salaries and hanging onto their stock? According to public documents and experts, the answer for some is borrowing money — lots of it. >For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax. >The tax math provides a clear incentive for this. If you own a company and take a huge salary, you’ll pay 37% in income tax on the bulk of it. Sell stock and you’ll pay 20% in capital gains tax — and lose some control over your company. But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income.

fairity 5y ago

One of the primary mechanisms for tax avoidance is taking out loans against appreciated capital assets to avoid realizing capital gains. What's stopping the average citizen from exploiting this tax avoidance strategy? For example, every time I try to submit an order to sell stock that results in short-term capital gains, my broker should be asking me whether I want to take out a collateralized loan instead. If there are loopholes in the tax system, they should be made readily accessible to all.

ajaimk 5y ago
You can: https://www.schwab.com/pledged-asset-line https://www.schwab.com/pledged-asset-line https://www.wealthfront.com/portfolio-line-of-credit https://www.wealthfront.com/portfolio-line-of-credit And HELOCs are essentially the same for people who own a house but not stocks.
- fairity 5y ago
  Got it, but why don't brokers more aggressively push this program onto clients? It seems like a win-win. The debtor avoids the elevated short-term capital gains tax. The bank gets interest payments on a loan that has an almost 0 default rate due to the loan being fully collateralized.
  - iooi 5y ago
    > It seems like a win-win. It's not a win-win, there's significant risk. > fully collateralized This is not true! The underlying asset fluctuates in value and is open to lowering significantly in value, leaving the bank holding the bag.
    - ac29 5y ago
      > leaving the bank holding the bag You probably underestimate the ability of banks to evaluate risk. Yes, they absolutely could end up underwater on an asset backed loan, but you also shouldn't assume that you can take out $1 in loans on every $1 of stock. On Schwab's page, they say: "Schwab Bank, in its sole discretion, will determine what collateral is eligible collateral and the loan value of collateral". So, if you have some recently highly-appreciated shares of AMC for example, they might decide they are not eligible collateral, or only offer to lend you $1 for every $5 of stock.

jedberg 5y ago

The people who will be most upset about this probably aren't the wealthy people themselves, but their lawyers and accountants. I have a lawyer friend who does estates for ultra-wealthy people. Each week, her whole firm gets together to review all new laws that have been passed that might change estates, and one of them does a "book report" on how to take advantage of old laws. They consider this their competitive advantage and how they win clients over other firms -- by being better at taking advantages of loopholes. I'm sure they'll be looking at this article to both gain ideas and check if any of their own clients are there and if any of their secrets are revealed.

cm2187 5y ago

Would be curious to see twitter blocking this story on the basis that this is the distribution of stolen data as they did last year...

jtdev 5y ago
Twitter only does that when it facilitates manipulation of important elections. They’ve moved on to protecting Fauci, Harris, Biden from the harsh reality of their own incompetence and rapidly vanishing facade of legitimacy.
- deleted 5y ago
  [deleted]

jtdev 5y ago

Our political leaders and absolutely terrible media are the villains here… not the rich people protecting their wealth.

bjornsing 5y ago

Interesting, but Pro Publica’s calculation of effective tax rate as taxes payed divided by wealth increase is weird. I don’t think there’s a jurisdiction in the world that calculates tax that way, and there are good reasons for that.

speapr 5y ago
The exact point is that because taxation does not consider this income, the vast majority of the money made by very rich people takes this form. Pro Publica's point is not that these people are breaking the law, but that the tax system should be different.
WalterBright 5y ago
ProPublica confuses wealth with income. If you have $2b in wealth, and lost $1b in bad investments one year, you're still a billionaire, and your tax rate is 0%.
- jl2718 5y ago
  Nope. $3000 yearly passive loss exemption. Let's say you operate a business netting you $1B and then buy a $1B pokemon card, which you sell for $0. You owe tax on $1B - $3000.
  - WalterBright 5y ago
    If you have $2b in wealth, and lose $1b of it, you do not owe taxes on $1b.
    - jl2718 5y ago
      At some point they may have paid taxes on that $2B asset distribution, but of course they still have it, so maybe they took out a $1B loan to pay the IRS. Now they sell the asset, and they are lucky that it fetches $1B, enough to pay the loan. Now they have $0, and a huge sigh of relief. Could have been much worse. So you see, a lot of these equity-based billionaires would owe more than they have without these 'loopholes', and some obviously not much with them.

williamtwild 5y ago

If they distill this information down to things that any person can use then it will be useful.

stakkur 5y ago

But we already know the 'secrets' of the .001%: 1. Hide income and assets whenever possible. 2. When #1 is not possible, structure visible income and assets to leverage the most advantageous tax rules.

1024core 5y ago

I'm not sure I agree with taxing the "wealth", instead of income. Sure, on paper, Buffett's wealth went up by $23B; but these are just imaginary numbers based on the whims of the market. The tax should be on what amount of money actually flowed into his bank account.

mathattack 5y ago
Over the long term it makes sense. Over the short term it’s more difficult if the assets aren’t liquid.
lumost 5y ago
The problem is that there is no way to track what flows into his bank account. Evidence says that he can avoid being taxed on any dollars flowing to his bank account. This wasn't a huge problem a century ago due to the Estate tax ensuring that estates would shrink over time and eventually be taxed. In stark contrast to European laws that required estates to be maintained in their entirety to preserve the aristocracy. If Buffett can avoid tax during life and death and pass on a preserved estate then there is no guardrail against a gentle class. Fundamentally it also means that we've setup a tax system more akin to a feudal system where workers pay taxes and aristocrats receive benefits.
- kwhitefoot 5y ago
  Off topic, just for your information: gentile in English is not the same word as in, for example, French. The English word means not-Jewish whereas I think you probably meant gentle which has an archaic meaning of noble. See https://www.lexico.com/definition/gentle https://www.lexico.com/definition/gentle
  - lumost 5y ago
    Great Callout! I've updated the text to reflect the correct word.
  - filoeleven 5y ago
    The modern equivalent (though it is not often encountered either) is “genteel”, which I think roughly mimics the French pronunciation of the original word, but with a hard “g”. Sure looks like a cognate to me.

fastball 5y ago

So lots of people saying the ultra rich are hard to tax because they take out loans against assets to fund the day-to-day. This then results in an argument about the morality/viability/etc of a wealth tax. But... why can't we just tax the loans?

notriddle 5y ago
Small business owners take out loans in order to build up their company. Making that harder seems like something HN would implicitly dislike.
hawk_ 5y ago
yes that's called interest which the fed is reluctant to raise to appease the same lot in the name of improving employment.
- jl2718 5y ago
  Your comment made me realize something. The government is funded by taxes and bond sales. Bond purchases absorb high interest rate demand across the entire market. If there weren't any taxes, there would be higher interest rates. So taxes are what subsidizes low interest rates. We're the ones paying the interest on their loans. Now it all makes sense. Mind is blown.
marcell 5y ago
If you tax loans that means every credit card purchase or mortgage would trigger a tax. If you receive a $400k loan for a mortgage, that would mean something like $100k in taxes for an upper middle earner.
- fastball 5y ago
  Thresholds + only collateralized loans?
  - marcell 5y ago
    Pawnshops are collateralized loans for the poor. If the goal is to tax the rich, just be more direct and tax the rich. A wealth tax would work, no need for elaborate schemes.

WalterBright 5y ago

Let's say you borrow and invest $1 million into a business startup, like buying farmland. The land goes up in value 10%. Now you owe $40,000 in taxes. But you only made a $50,000 profit farming it. How are you going to pay taxes on that "gain"? You already borrowed money to pay for the farmland, you can't borrow any more. The only way is by selling off parts of the farm, which may not be feasible. In other words, many enterprises will never start because it is an impossible business model. You'll just wind up crushing existing businesses and make starting new ones infeasible.

EricRiese 5y ago
That logic doesn't really apply when you scale up to the ultra-billionaires. Shares of stock are plenty liquid.
- jl2718 5y ago
  Unless the float is much smaller than the cap.
- WalterBright 5y ago
  The rest of it still applies. It makes the numbers not work for starting a business. Besides, selling off pieces of it means making less and less money off of it. You wind up working for the people you sold it to in order to pay the taxes. You might as well kiss entrepreneurship goodbye with wealth taxes.
  - rtpg 5y ago
    There is such a stupidly easy solution to this, which is to set a lower limit for whatever rule applies. Though... even though things like estate taxes have these rules (either "first million isn't taxed" or "primary residence isn't taxed" etc, depending on jursidiction), most people tend to not actually read the details and assume that the gov't wants to take the family farm. No, I don't think it's your god-given right to hand down a $2 million townhouse without paying taxes.

jl2718 5y ago

Tax is obsolete. You won't fix it with more.

Kharvok 5y ago

The article seems to be toggling the conflation of income vs net worth.

arbitrage 5y ago

oh gosh, something is definitely going to happen, this time, i'm sure!

kristjansson 5y ago

The conflation of change in mark-to-market net worth with income has got a whole lot to do with the constant breathless reporting of "Bezos/Gates/Buffet/... made/lost x BILLION dollars today" every time the market moves by more than a point. Sure, I get they want to beat the drum on wealth inequality, and perhaps that's a drum worth beating. But its a disingenuous disservice to pretend that these people are sitting on a massive pile of 'hoarded' liquid cash that could be redistributed in a meaningful without incurring massive losses. Might as well pretend that we could seize and sell all of the latest $100bn shitcoin and get $100bn USD to distribute.

asdff 5y ago
If they didn't want to incur loss Bezos could just gift me his shares in Amazon
Ericson2314 5y ago
Yes, it's a bummer common discourse does this. While making the billionaires wealth seem more liquid would seem to overstate their power, I think the real issue is quite opposite. The popular understanding of capitalism is accurate prices and liquid goods, and only a few things (as contested in culture wars) are genuine separate axis. The reality is the real power of the billionaires isn't in their "net worth" (however good the accounting is), but in their power over the institutions they control. Look at the size of the flow in and out of those institutions, their capacity for investment. Realize also that even as we collectively have the wealth for much simultaneous investment, earlier investment has a profound and non-erotic effect on future history (e.g. car vs public transit, Unix being entrenched for 50+ years, etc.) This is the real travesty of billionaire power, not the ability of Bezos to buy big yachts or whatever.
ksec 5y ago
Yes. Most people dont think about it that way. I am wondering if there are any simple free bitcoin / cryptocurrency making services? Get people to apply one crypto of their own, make 1 billion coins. I buy one for one coin for $1. Now that person is instantly a billionaire.
HWR_14 5y ago

Stevvo 5y ago

Not a great reading experience to have to scroll through nearly endless fawning of "ooh look at how we are such responsible journalists" to get to the actual story.

digglet90 5y ago

Imo, Wyoming or Sweden not something in between. Most economies do something in between and outrageously favour maintenance of large stores of ultimately unworkable existing wealth.

deleted 5y ago

[deleted]

musicale 5y ago

> Their wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell. Taxing assets seems like it could be bad for the 99%, for example taxing people out of their homes and eating up their savings and retirement assets. It's reminiscent of how "financial aid" tacitly assumes that one's parents should simply sell their house and then give the money to the university.

toddh 5y ago

If you read the article, they are calculating a fictitious thing they call the “true tax rate”. This is the tax paid compared to the growth in assets. That is not an income tax. It’s a wealth tax. It feels like conflating the debt and the deficit. Effectively you would have to have a deemed sale of all assets at the end of the year and pay tax on the gain/loss. I agree that the rich have access to tax planning machinations that most tax payers do not. But this doesn’t bluster their argument.