Fiscal Policy

Ends and Means: Publicizing Leaked Tax Returns, and Why

Founder, Chairman, CEO and President of Amazon Jeff Bezos unveils his space company called Blue Moon during an event in Washington, U.S., May 9, 2019. (Clodagh Kilcoyne/Reuters)
ProPublica, billionaires, and you.

Editor’s note: The following is an edited version of the Capital Letter published on June 12, 2021.

However much some on the left might like to deny it, there is a legitimate distinction between capital appreciation and income. And however much some of them might understand it, ignoring the validity of that distinction is too good a propaganda opportunity to be passed up.

And so when ProPublica, “an independent, nonprofit newsroom that produces investigative journalism with moral force” “obtained” and then, in an article by Jesse Eisinger, Jeff Ernsthausen, and Paul Kiel, publicized some of the details of “a vast cache of IRS information showing how billionaires like Jeff Bezos, Elon Musk and Warren Buffett pay little in income tax compared to their massive wealth — sometimes, even nothing,” much of the secondhand reporting of their story, not to speak of the ProPublica article itself, followed an all too predictable script.

First, some background. Eisinger, Ernsthausen, and Kiel explain that the data, which consisted of “the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years” was handed over to ProPublica “in raw form, with no conditions or conclusions.” The information offers “an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.” Presumably it does (or could do) the same with respect to all the “thousands” who had their data pilfered.

ProPublica’s reporters then “spent months processing and analyzing the material to transform it into a usable database.”


We then verified the information by comparing elements of it with dozens of already public tax details (in court documents, politicians’ financial disclosures and news stories) as well as by vetting it with individuals whose tax information is contained in the trove. Every person whose tax information is described in this story was asked to comment. Those who responded, including Buffett, Bloomberg and Icahn, all said they had paid the taxes they owed. . . . Musk responded to an initial query with a lone punctuation mark: “?” After we sent detailed questions to him, he did not reply.

Musk wins again.

Eisinger, Ernsthausen, and Kiel:

One of the billionaires mentioned in this article objected arguing that publishing personal tax information is a violation of privacy [but] we have concluded that the public interest in knowing this information at this pivotal moment outweighs that legitimate concern.

Ah, yes, ends and means.

In a joint statement, Stephen Engelberg and Richard Tofel, ProPublica’s editor-in-chief and president, wrote:

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.

“Patterns” — i.e., the different tax treatment of capital and income — that were not “hidden,” but were rather well-known to anyone with a fairly basic awareness of the way in which the tax system works. Indeed, patterns — paired with “hidden,” a suitably sinister-sounding word — that are the result of decisions taken by democratically elected legislators, and which are generally in line with tax principles that (command economies apart) have applied for a long time and across much of the world, however much ProPublica may object to them.

Engelberg and Tofel concede that

there is also a legal question here, and we want you to know we have taken it seriously. A federal law ostensibly makes it a criminal offense to disclose tax return information. But we do not believe that law would be constitutional if applied to bar or sanction publication of a story in the public interest when the news organization did not itself remove the information from the control of the IRS or solicit anyone else to do so — as we did not.

I reckon they are right about that. What’s more, I would not describe that as a “loophole,” even if that is a pejorative that the authors of the ProPublica report use several times in their article, albeit not with reference to their own conduct. (For example: “In the coming months, ProPublica will use the IRS data we have obtained to explore in detail how the ultrawealthy avoid taxes, exploit loopholes . . .”). The law is the law.

And those who enforce the law are unlikely to look so favorably on those who leaked the information.


Attorney General Merrick Garland told lawmakers that investigating the source of a massive leak of taxpayer information behind an article by ProPublica will be one of his top priorities.

Good. Let’s see how that goes.

Meanwhile Edward Luce in the Financial Times was one of those who wondered about the source of the leak:

The unanswered question about ProPublica’s leak is where it came from. The news site does not know its origin but has corroborated the data against other sources. A reasonable suspicion is that it was hacked by an entity that does not wish US democracy well. No single IRS officer would have access to all this information.

ProPublica also observes (correctly) that “outside of the U.S., Sweden, Norway and Finland make public every citizen’s tax returns.” This owes a great deal both to the very Nordic concept of, to use the Swedish-language word, Jantelagen — an anti-individualistic approach to life difficult to reconcile with core American values — even if “in Wisconsin,” Engelberg and Tofel relate, “anyone can file a public records request to find out how much state residents pay in state taxes.”

Ironically, those who leaked the tax information and those who published it risk undermining the administration’s current proposal that the IRS be handed even more power than it already has to peer into individuals’ lives. If the IRS cannot be relied upon to safeguard the secrets with which it is now entrusted, why give it more?

Turning to the substance of the ProPublica report, we read that

the IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.

Well, that’s because, for all the digits that it takes to depict them, those “gains” are ultimately meaningless until they are realized. Given how many digits can be involved, I wouldn’t want to push the claim of meaninglessness too far, but those who were worth millions on paper during the dot-com boom — and then next to nothing thereafter — might have a few thoughts on the evanescence of unrealized gains. In the event there had been a tax on the unrealized gains that they had “accumulated” during the bubble would they have been given refunds after they had been wiped out, say, the year after?

And there’s something else. We are frequently told by those on the left and their fellow travelers that short-term investment horizons are a discreditable feature of “casino capitalism.” Yet taxing unrealized gains penalizes those investors and business-builders who are in for the long haul.

Eisinger, Ernsthausen, and Kiel:

America’s billionaires avail themselves of tax-avoidance strategies beyond the reach of ordinary people. 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.

To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We 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.

We’re going to call this their true tax rate.

That number can be strikingly low — which is why the authors make such use of it — but dubbing it a “true” tax rate does not make it so. By all means, make the case for a wealth tax, however misguided, but do not pretend that (possibly temporary) growth in unrealized asset values is, in any real respect, “income.” To be sure, it is true that billionaires can, as the authors highlight, borrow against their assets. But so, too, could anyone who takes out a home equity loan, albeit on an immensely smaller scale. Asserting that such a loan — which, like all loans, must be repaid — is, in some regards, “income,” and then turning that assertion into an argument, in some circumstances, to justify taxing the asset on which it is secured does not rest on the soundest of logical foundations.

There is much more in the ProPublica piece to consider — do read the whole thing — but little of it is any more persuasive. I spotted, incidentally, a sideswipe at the Trump tax overhaul:

In 2018, [Bloomberg] reported income of $1.9 billion. When it came to his taxes, Bloomberg managed to slash his bill by using deductions made possible by tax cuts passed during the Trump administration, charitable donations of $968.3 million and credits for having paid foreign taxes.

What those Trump-derived deductions might have been I don’t know, but charitable donations have long been tax-deductible (and not without reason), as have foreign tax credits, which are essentially a way of avoiding double taxation on the same income.

A spokesman for Mike Bloomberg replied that:

Mike Bloomberg pays the maximum tax rate on all federal, state, local and international taxable income as prescribed by law.

Taken together, what Mike gives to charity and pays in taxes amounts to approximately 75% of his annual income (over 95% of which is ordinary income). In other words, he currently only keeps about 25 cents of every dollar he makes. His effective tax rate on any income not given to charity is approximately 45%. If he stopped donating to charity, he would keep about 55 cents of every dollar he makes.

Mike has given $11 billion in his lifetime to charity, for which the U.S. allows a deduction to encourage giving. The tax benefit that he gets from the charitable deduction is a fraction of what he gives to charity and he views any of this tax benefit as more money to put towards charitable causes.

He scrupulously obeys the letter and spirit of the law. Mike also pays taxes in more than 30 countries, 35 states and a myriad of cities where his company does business, including New York which has among the highest income tax rates in the country. And as the majority owner of a global business, he pays significant overseas taxes which are not double taxed by the U.S. under federal tax law and international tax agreements.

The company repatriates all profits back to America every year . . .

The increase in Bloomberg’s net worth (relying on their distinctly debatable methodology, Eisinger, Ernsthausen, and Kiel calculate that “between 2014 and 2018, Bloomberg had a true tax rate of 1.30%”) does not merit a mention in his spokesman’s statement. And nor should it have done.

Let’s briefly return to the tax cuts passed during the Trump administration. Later on in the article, these are described as having “disproportionately benefited the wealthy,” something that is hardly a shock given that the wealthy pay a disproportionate share of the nation’s taxes.  And maybe keep in mind too, that, as Demian Brady wrote for Capital Matters back in February,

recent data published from the Internal Revenue Service find that the share of income taxes paid by the top 1 percent of filers increased under the first year of the TCJA, while the share of taxes paid by the bottom 50 percent of filers decreased . . .

 Unsurprisingly, Eisinger, Ernsthausen, and Kiel also turn their attention to the estate tax, grumbling about trusts and philanthropic foundations. What really caught my attention, though, was this:

The notion of dying as a tax benefit seems paradoxical. Normally when someone sells an asset, even a minute before they die, they owe 20% capital gains tax. But at death, that changes. Any capital gains till that moment are not taxed. This allows the ultrarich and their heirs to avoid paying billions in taxes. The “step-up in basis” is widely recognized by experts across the political spectrum as a flaw in the code.

Some on the left, or even the center, may object to this step-up, but to say that this provision, which is not confined to the U.S., is widely recognized by experts across the political spectrum as a flaw is nonsense, and it is not a provision that benefits just the very rich.

As alluded to above, how the step-up works is to reset the capital gains “basis” in an asset that someone inherits to the market price at the time of the testator’s death. If your uncle leaves you an asset that he bought for $50,000, but which was worth $200,000 when he died, your basis for capital-gains-tax purposes will be $200,000, not $50,000.

As Daniel Pilla wrote in Capital Matters in April:

This is what we refer to as “stepped-up basis.” And the rule absolutely does not apply only to “rich people.” The operation of Code §1014 is not controlled by one’s annual income, the value of the inherited asset, or the total value of one’s estate. It applies across the board. Every American taxpayer enjoys the benefit of stepped-up basis on inherited property.

If Code §1014 were repealed in its entirety, all inherited property would be taxed on sale at the capital-gains rate. In general, the gain would be calculated on the difference between the sale price and the price at which the deceased person paid for it (plus any capital improvements that add to the cost basis).

The Biden administration is taking aim at the step-up “loophole” (its word), having proposed in late April

ending the practice of “stepping-up” the basis for gains in excess of $1 million ($2.5 million per couple when combined with existing real estate exemptions) and making sure the gains are taxed if the property is not donated to charity.

If precedent is anything to go by, that $1 million will be eroded by inflation over the years, and (if the administration gets its way) when capital-gains tax does kick in it may do so at a new, higher rate.

Despite Eisinger, Ernsthausen, and Kiel’s careful disclaimer that what “it would take for a fundamental overhaul of the U.S. tax system is not clear,” they would, I’d guess, prefer to see the introduction of some type of wealth tax. As the authors acknowledge, this is a form of taxation that has been tried and, by some, abandoned elsewhere — even if they understate the extent of that abandonment. It would, in all likelihood, catch unrealized capital gains within its net.

The authors have the honesty to note that where wealth taxes exist, they are on “a small scale.” (So far as I am concerned, any wealth tax should, for reasons both practical and philosophical, be rejected.) Perhaps it’s worth noting that the now-scrapped Swedish wealth tax on, say, a Jeff Bezos (one of ProPublica’s targets), would have peaked out at about 3 percent in the late 1980s, assuming that he was unable of take advantage of various available reductions. I suspect that quite a few of those in the U.S. arguing for the taxation of unrealized capital gains, a grotesque notion on many levels, might not be satisfied with 3 percent, at least when it comes to the super-rich.

Eisinger, Ernsthausen, and Kiel conclude as follows:

Buffett put it in 2011: “There’s been class warfare going on for the last 20 years, and my class has won.”

That’s rhetoric (admittedly taken from Warren Buffett) designed to conjure up images of greedy plutocrats and hardworking blue-collar folk. But in reality this article is just another salvo in a long-standing battle within the elite. The thinking behind it, if it led to the policies its authors almost certainly favor, would eventually lead to severe damage to the economy and to the aspirations of millions. But that, it seems, is beside the point.


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