US Billionaires 'pay almost no income tax'

ProPublica says it has seen the tax returns of some of the world's richest people, including Jeff Bezos, Elon Musk and Warren Buffett. The website alleges Amazon's Mr Bezos paid no tax in 2007 and 2011, while Tesla's Mr Musk paid nothing in 2018.

ProPublica said it was analysing what it called a "vast trove of Internal Revenue Service data" on the taxes of the billionaires, and would release further details over coming weeks.

The alleged leak comes at a time of growing debate about the amount of tax paid by the wealthy and widening inequality. ProPublica said the richest 25 Americans pay less in tax - an average of 15.8% of adjusted gross income - than most mainstream US workers.

So while the value of their wealth grows enormously through their ownership of shares in their company, that's not recorded as income. Billionaires buy an asset, build one or inherit a fortune, and then borrow against their wealth. Because they don't realise any gains or sell any stock, they're not taking any income, which could be taxed.

Using perfectly legal tax strategies, many of the super-rich are able to shrink their federal tax bills to nothing or close to it even as their wealth soared over the past few years.

The wealthy, as with many ordinary citizens, are able to reduce their income tax bills via such things as charitable donations and drawing money from investment income rather than wage income.

ProPublica, using data collected by Forbes magazine, said the wealth of the 25 richest Americans collectively jumped by $401bn from 2014 to 2018 - but they paid $13.6bn in income tax over those years. President Joe Biden has vowed to increase tax on the richest Americans as part of a mission to improve equality and raise money for his massive infrastructure investment programme. He wants to raise the top rate of tax, double the tax on what high earners make from investments, and change inheritance tax.

ProPublica, an investigative website, has written several articles about how budget cuts at the US Internal Revenue Service have hampered its ability to enforce tax rules on the wealthy and large corporations. The news organisation said it received the leaked documents in response to these articles.

What's going wrong here? Let's take a very simplified analysis. If the shares I own in the company I founded are worth £1bn at the beginning of the tax year and rise to a value of £2bn by the end of the tax year - how much income tax do I owe? Zero. Because while I am twice as rich, I received zero income.

On the other hand, if I have zero assets, and I make £30,000 in income, I will pay roughly £6,000 in income tax and national insurance. 

Small wonder that many politicians around the world (Elizabeth Warren in the US and Jeremy Corbyn/John McDonnell in the UK) and academics such as Thomas Piketty have argued for a way to tax wealth, not income.

Defenders of the present model say it is capitalism at work - but as with the new global consensus on taxing multinationals - the clamour for tax change is getting louder. The same can be said for Malaysia. We need a major tax reform but the elite will resist and promote GST – a regressive tax that impacts the poor more than the rich.

Reference

US billionaires “pay almost no income tax” (https://www.bbc.com/news/business-57383869)