ProPublica's 'bombshell' and the IRS leak.

Plus, a question about the coronavirus origins.
Isaac Saul Jun 14, 2021
I’m Isaac Saul, and this is Tangle: an independent, ad-free, subscriber-supported politics newsletter that summarizes the best arguments from across the political spectrum — then “my take.” You can read Tangle for free or subscribe for Friday editions, and you can reach me anytime by replying to this email. If someone sent you this email, they’re asking you to sign up. You can do that by clicking here.

Today’s read: 11 minutes.

We’re revisiting the ProPublica tax story that we first referenced in “A story that matters.” Plus, a question about coronavirus origins and a very important story about the American workforce.

Matthew G. Bisanz / WikiCommons

Quick hits.

  1. Israel’s parliament officially voted to install a government that would replace Prime Minister Benjamin Netanyahu. (The Washington Post, subscription)
  2. As it pulls out of Afghanistan, the U.S. is weighing the possibility of an airstrike to defend Afghan forces from the Taliban. (The New York Times, subscription)
  3. The CDC is investigating nearly 800 cases of rare heart problems following Pfizer-BioNTech and Moderna immunization. Not all of the cases are likely to be verified or related to vaccines, and experts believe the benefits of immunization still far outweigh the risk of these extremely rare complications. (The New York Times, free)
  4. President Joe Biden and leaders of the Group of Seven (G-7) alliance of the wealthiest democracies called on China to respect human rights but stopped short of an outright condemnation. (The Wall Street Journal, subscription)
  5. The Justice Department’s independent watchdog will investigate the Trump administration’s decision to seize the phone records of Democratic lawmakers, their staffers, and certain journalists. (USA Today)

What D.C. is talking about.

The IRS. Last week, in the “A story that matters” section, I shared a tidbit from the ProPublica investigation on how much America’s wealthiest citizens pay in taxes. The story, which dropped on Tuesday, was built on a trove of confidential tax filings that were leaked to ProPublica. The reporters apparently received the tax filings of America’s 25 wealthiest individuals, including those of famous businessmen like Elon Musk, Warren Buffett, Mark Zuckerberg and Jeff Bezos.

Over a five-year period, those 25 richest Americans paid a combined $13.6 billion in taxes, according to ProPublica. The paper then compared “how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period,” and invented a term called their “true tax rate.”

They reported that the “true tax rate” of these 25 individuals — the percentage of their wealth growth they paid in taxes — came out to 3.4%. Meanwhile, the median American household earned about $70,000 in income annually and paid 14% in federal taxes over the last few years. Because Americans are only taxed on income and when they sell assets (like stocks), many of the world’s wealthiest people are not taxed on their wealth as it grows unless they “realize” that growth by “cashing out,” so to speak.

Another way the ultra-wealthy are avoiding taxes, according to the report, is by taking out loans, which are not taxed because they are eventually paid back. With very low interest rates and lots of collateral to put up against a loan, many of these individuals will take out loans (with their assets as collateral) rather than taking a salary or selling their stock, both of which would incur burdensome taxes. The loans then become their cash workaround to taxable income.

The ProPublica article also explained the history of America’s income tax, and how the “father” of the income tax warned after a 1920 Supreme Court decision that the ultra-wealthy would take advantage of a system that allowed them to borrow against their assets without paying a tax as their wealth grew.

Immediately, the story set off a wide range of responses: Democratic lawmakers expressed concern at the amount of taxes not making it into the federal government’s pocket, some pundits called for immediate reforms to capture the money being missed, others decried the leaking of private information, and some defended the 25 individuals who were painted in a negative light despite the fact they were working within the boundaries of the law.

We have concluded that the public interest in knowing this information at this pivotal moment outweighs that legitimate concern,” the paper said in response to some criticism.

Today, we’ll explore some reactions from the right and left to this story.


What the left is saying.

The left says the report shows how easy it is for wealth disparities to grow, and expressed concern about the very wealthy avoiding taxes.

In The New York Times, Binyamin Appelbaum said there is an estimated $2.7 trillion in wealth being held by the wealthiest Americans that isn’t being taxed. He criticized the standard that income is defined as money.

“The logic of this standard rests on a tripod of assumptions that aren’t true,” he wrote. “The first is that an increase in asset value is in some sense unreal, or at least unusable. The Supreme Court established the standard in 1920, ruling that a woman who received some shares of stock didn’t need to pay tax on the value because the transfer of the shares ‘takes nothing from the property of the corporation and adds nothing to that of the shareholder.’ The reality, however, is that many wealthy Americans live lavishly by borrowing against the value of their assets.

“The second and very common falsehood is that people will eventually pay taxes on their wealth — that they get to determine the timing but they do not get to avoid the taxman,” he said. “This is risible. It is easy to accumulate wealth that is never taxed. Assets can be siloed in nonprofit foundations whose main beneficiaries may be the people who run them. Assets can also be passed on to children and grandchildren. Better yet, the government allows heirs to take ownership at the present value, erasing the accumulated tax liability… The third objection is that taxing wealth is a bureaucratic nightmare. There are difficulties, such as fixing rules for determining the value of assets. There also are downsides, such as the possibility that someone might have to sell an asset to pay taxes. But we know it can be done because Americans already pay property taxes, and it seems to work fine.”

In The Washington Post, Christine Emba asked if it is time to limit individual wealth.

“The most shocking thing about ProPublica’s extensive report on the leaked tax returns of the super-rich wasn’t what the report contained — it was the fact that we’re barely shocked anymore,” Emba said. “Most of the response to the ProPublica report has been to argue about how to tinker with our current tax regime. In response to enormous displays of inequality, we trot out new stratagems to make billionaires toss us back just a few dollars more. Should we tax capital gains at a higher rate? Raise the corporate tax rate? Create a wealth tax? (I’d vote yes to all three.)

“But these debates are small bore,” she said. “They won’t do away with wealth inequality of a truly incomprehensible kind — the sort that allows Elon Musk and Jeff Bezos (who also owns The Post) to engage in their own private space race while a global pandemic pushes more than 100 million people into extreme poverty. Instead of debating tweaks at the edges of our tax system, what we should be doing is stretching ourselves to imagine a world where this dissonance is truly incomprehensible — a world where billionaires are impossible.”

In Rolling Stone, Tim Dickinson said the story proves billionaires “won the class war.”

“The ins-and-outs of taxation can be eyeglazing. But the gist of how the richest avoid taxes is simple: They earn relatively very little of their money as wage income, which is taxed according to the income tax brackets most of us are familiar with,” he writes. “Instead, their fortunes consist predominantly of stock holdings that can — and have — appreciated extravagantly without being taxed… The ProPublica investigation shows just how much letting the billionaire class live untaxed is costing the country. The 25 richest people were worth $1.1 trillion at the end of 2018, it writes. It would take the annual pay of ‘14.3 million ordinary American wage earners put together to equal that same amount of wealth.’

“From the average wage earners, the federal government would have collected $143 billion,” he added. “The billionaires in question paid only $1.9 billion to the IRS that year.”


What the right is saying.

The right says the tax system is working to incentivize investment, and that whoever leaked the documents should be prosecuted.

The Wall Street Journal editorial board said it “didn’t take long” for the Biden administration’s Internal Revenue Service to be at the center of an abuse-of-power scandal.

“That news broke Tuesday when ProPublica, a website whose journalism promotes progressive causes, published information from what it said are 15 years of the tax returns of Jeff Bezos, Warren Buffett and other rich Americans,” the board wrote. “Leaking such information is a crime, since under federal law tax returns are confidential. ProPublica says it received the files from ‘an anonymous source’ and doesn’t know who provided them, how they were obtained, or what the source’s motives are. Allow us to fill in that last blank. The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968.

“There is no evidence of illegality in the ProPublica story,” they added. “ProPublica knows this, so its story tries to invent a scandal by calculating what it calls the ‘true tax rate’ these fellows are paying. This is a phony construct that exists nowhere in the law and compares how much the ‘wealth’ of these individuals increased from 2014 to 2018 compared to how much income tax they paid. ProPublica says that Mr. Buffett’s ‘true tax rate’ over that period was only 0.10%… The preferential rate for capital gains and dividends has been a central part of the tax code for decades, and for good reasons. Congress has wanted to encourage capital investment; assets are often held for decades and gains are only realized upon their sale; gains can’t be adjusted for inflation over the years they are held; and investors can’t deduct net capital losses from income beyond $3,000 a year.”

Jonah Goldberg argued that the “fake scandal” ignores the fact we shouldn’t be taxing wealth in the first place.

“Let’s say you collect baseball cards,” Goldberg wrote. “On paper, your collection is worth a bundle. But its real value is only realized when you sell it. Do you think the IRS should tax you every year for what your collection could be worth if you sold it? Do you want the IRS to tax you for the value of your wedding ring — not at purchase, but forever — even if you’re never going to sell it? The same principle applies to other unrealized gains. If your stock portfolio increases in value, you get taxed on your gains when you sell.

Goldberg said the story “suggests that the only taxes they’ve paid are income taxes, when in reality they’ve paid a slew of other taxes: capital gains, property, sales, etc. Second, wealth is not income… About a decade ago, it was a hot talking point on the right to complain that some 47 percent of Americans had no ‘skin in the game’ because they didn’t pay income taxes. This got reduced to a lot of bad rhetoric about ‘makers and takers.’ Liberals (rightly) shot back that the same Americans paid a lot in payroll and other taxes. Why is conflating ‘taxation’ with ‘income taxes’ wrong for some Americans but speaking truth to power for others?”

The New York Post editorial board decried the civil liberties violations of leaking the documents.

“The press defense of ‘civil liberties’ conveniently flies out the window when these things happen,” the board said. “Look at the taxes these rich people paid! They don’t deserve the privacy afforded other Americans, but then do other Americans deserve it either? Something tells us that your tax return, your FBI file, your private records would easily be posted online if it served some progressive agenda… It’s become abundantly clear that career government employees think there are different rules when there’s a Republican in the Oval Office or a Democratic agenda to promote. Then who cares about secrets!? These tax documents are a scandal, and not the way ProPublica thinks. They are a chilling reminder that, increasingly, we have no right to a private life.”


My take.

A few criticisms about this story are worth reiterating: First, ProPublica absolutely did invent a term to frame these wealthy businessmen as negatively as possible. The “true tax rate” is not a real thing, and is the stuff of propaganda. In one stark example, the reporters describe Michael Bloomberg’s “true tax rate” of 3.7 percent for paying $70.7 million in income tax on nearly $2 billion in income. But they just briefly gloss over the fact he donated $968.3 million that year, which his spokesperson rightly noted — along with his overall tax payments — comes out to about 75 percent of his total income.

The story also does not address the most common defense for this kind of tax system, which nearly every conservative writer pointed out: it’s designed as an incentive for investment. The point is that we want the Jeff Bezoses of the world to have incentives to spend money on their employees (which lowers their tax rate) as well as on research and charity.

It’s also true that ProPublica has a progressive tilt, and that the story raises interesting ethical questions in journalism. For what it’s worth, I’m generally pro-leak: this story, like the story of Hillary’s emails or others like it, is in the public interest. Perhaps this was a hack (like Hillary’s email leak) and perhaps not. The means for how the information was reported changes the calculation slightly, but the questionable ethics are on the person who acquired and then leaked the information. Reporters who have a story like this delivered to them on a silver platter should report it to the public, where it will end up anyway. The public benefits from knowing, and I truly don’t think any of these billionaires’ lives are going to be made demonstrably (or even slightly) worse because of it.

Still, there are a few things I can’t get over: One, the wealth inequality in our country is truly out of control, and getting worse. The argument that the wealthiest Americans are contributing more in taxes than the rest of us only illustrates how deep that divide is, especially when considering the top 1% also contribute $175 billion to the roughly $450 billion tax gap. Two, the argument that the invented “true tax rate” is meaningless because it isn’t part of the law is shortsighted. If you’re going to argue that wealth assets shouldn’t be burdened by taxes, you also have to acknowledge that most of the country doesn’t have access to those kinds of assets. While plenty of Americans have some kind of retirement fund, only 15% of U.S. families directly owned stock in 2019, while 6 in 10 Americans didn’t even have $500 in savings in 2017. It’s worthwhile to contrast that to the $4 trillion wealth growth of America’s richest during a pandemic that crushed so many families.

The third is just how absurdly rich that top group is, and where the tax rate stops being progressive (in the tax application sense, that the richer a person is the higher their rate of taxation). The 1,400 households that made up the wealthiest .001 percent of taxpayers paid a smaller share of their income in taxes than the rest of the top one percent. That alone shows something is broken, in my opinion.

The elephant in the room is how to fix it and I don’t know the answer to that. That’s just the honest truth. But given how poor so many Americans are, and given how easy it is for corporations to pad their executive salaries and buy back their stock holdings every chance they get while some barely pay their workers a minimum wage, a story like this is just more salt in an open wound for the working class. I’m not saying these billionaires are evil, though I know plenty of them have a laundry list of morally abominable actions (you will never see me defending Michael Bloomberg again)

What I am saying is we must be able to imagine a tax system, and a version of capitalism more specifically, that doesn’t leave billionaires paying actual lower income tax rates than Americans making $70,000 a year, which is the case in some instances even without the invented true tax rate. It’s hard to argue, given the quality of life for so many Americans contrasted with the image of our wealthiest citizens launching themselves into space, that we don’t have any room for improvement. For that reason, I’m glad ProPublica published what should be public information anyway, and I hope we can use it to better inform our decisions going forward.


Your questions, answered.

Q: Does anyone with a whit of common sense believe it [coronavirus] occurred naturally? The genome was deconstructed and identified over a year ago. It had so many mutations, it couldn't have been naturally derived. These mutations occurred within a small length of the genome and were specific for its current infectiousness of human respiratory pathways. The path of mutation should be as transparent and easily traced as a blockchain, however, it makes several enormous leaps that point to laboratory manipulation. Follow the science? The majority of associated bureaucrats and MSM minions have done anything but follow it. Until recently, it was iron-fistedly suppressed. The question being, why?

— Alan, Southern California

Tangle: I’ve written a good deal about coronavirus’ origins recently. I also did a podcast with Josh Rogin, the Washington Post reporter who has been making the case that we need to investigate what happened in the laboratories in Wuhan.

But I also don’t want to overplay my hand here. The general case that coronavirus came from nature has been made in many places, most recently in The Washington Post (where Rogin has argued the case is weak) by two virologists who specialize in this stuff: Angela L. Rasmussen and Stephen A. Goldstein.

They argue that the spike protein did not “optimally” bind to its receptor and that the interaction between the proteins was unpredictable. They also argue that SARS-CoV-2 has odd features no human would design and that it generally “has more of the hallmarks of sloppy natural evolution than a human hand.” On top of that, as Covid-19 has spread, the virologists have observed similar interactions in other related viruses that were once thought to be unique at the beginning of the pandemic.

Finally, the virologists note, the virus had early mutations that helped it adapt and spread faster. To them, this signifies that it entered nature in a primitive fashion, and then adapted to spread among humans — meaning it was reacting to its new host rather than designed for it (or coming in deep into its evolution).

Again, my personal opinion on this wavers back and forth. There is a ton of circumstantial evidence that coronavirus may have at least escaped from a laboratory. But it’s not true that there is no evidence for a natural origin. If you want to read the full case made by the virologists, you can find it here.

Want your question answered in Tangle? Simply reply to this email and write in, or go fill out this form.


A story that matters.

Workers without a college degree are asking for a lot more money than they ever have. The lowest wage they’re willing to accept stands at $61,483 a year, a jump of $10,000 in just one year, according a survey conducted by the New York Fed. The striking new data indicates workers are beginning to flex their muscles whether or not they have formal union representation, according to Axios’s Felix Salmon. At the same time, a record 9.3 million jobs are open in America, and workers continue to be a lot pickier than they ever have about their job opportunities. (Axios)


Numbers.

  • 14,000. The number of U.S. taxpayers who reported higher income than Warren Buffett did in 2015, according to ProPublica.
  • $110 billion. Warren Buffett’s total net worth, according to a Forbes 2021 estimate.
  • 99.5%. The percentage of Buffett’s fortune that he has pledged to donate to charity.
  • 599,148. The number of Americans who have now died from coronavirus.
  • $1 trillion. The estimated size of a new infrastructure package being negotiated between Republicans and Democrats.
  • 90%. The effectiveness of a new Novavax coronavirus vaccine in a phase three trial, paving the way for it to become the fourth authorized vaccine in America.

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Have a nice day.

Incarceration rates across the U.S. are falling, which means something else can be done with many of the prisons no longer being used in the U.S. Now, some of those prisons are being repurposed into homeless shelters. “Existing infrastructure like an industrial size kitchen and plumbing were already there, saving the organization money,” Good News Network reported. “Since 2009, GRACE Marketplace has served three quarters of a million meals, seen 1,500 residents rehoused, and serviced more than 15,000 homeless in the area while reducing chronic homelessness by 38%. While offering medical care, financial, mental health, and domestic abuse services, they also have a garden, computer lab, and host cooking classes and even yoga.”

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Isaac Saul

I'm a politics reporter who grew up in Buck County, PA — one of the most politically divisive counties in America. I'm trying to fix the way we consume political news.

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