The Secret IRS Files: How the Wealthiest Avoid Income Tax

The Secret IRS Files: How the Wealthiest Avoid Income Tax

The American tax system is based on the principle that everyone pays their fair share and the richest Americans pay the most. However, a recent investigation by ProPublica has revealed that this is far from the truth. ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation's wealthiest people, covering more than 15 years. The data shows how billionaires like Jeff Bezos, Elon Musk and Warren Buffett pay little in income tax compared to their massive wealth — sometimes, even nothing.

How do they do it?

The secret lies in how the wealthy derive their income. Unlike most Americans who earn wages or salaries that are taxed at progressive rates, the billionaires' wealth comes from the skyrocketing value of their assets, such as stock and property. These gains are not considered taxable income by U.S. laws unless and until the billionaires sell them. This means that they can avoid paying income tax on their wealth growth, while also benefiting from deductions, loopholes and credits that reduce their taxable income even further.

How much do they pay?

To measure how much the richest Americans pay in taxes, ProPublica 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. They called this their true tax rate. The results are shocking. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.

Some examples of the true tax rates of some of the wealthiest Americans are:

- Jeff Bezos: 0.98%
- Elon Musk: 3.27%
- Warren Buffett: 0.10%
- Bill Gates: 1.37%
- Mark Zuckerberg: 0.36%

In contrast, the median American household earned about $70,000 annually and paid 14% in federal taxes in recent years.

Why does it matter?

The findings of ProPublica's investigation challenge the fundamental fairness of the American tax system and raise questions about the role of taxation in a democracy. The tax system is supposed to fund public goods and services, such as infrastructure, education, health care and national defense, that benefit all citizens. It is also supposed to reduce inequality and promote social mobility by redistributing income from the rich to the poor. However, if the wealthiest Americans can avoid paying their fair share of taxes, they can accumulate more wealth and power at the expense of the rest of society. They can also influence the political system to protect their interests and shape the tax laws in their favor.

What can be done?

ProPublica's investigation has sparked a public debate about how to reform the tax system to make it more equitable and efficient. Some possible solutions include:

- Taxing capital gains as ordinary income, or at least at higher rates than currently.
- Closing loopholes and eliminating deductions that benefit the wealthy disproportionately.
- Expanding the estate tax to prevent dynastic wealth accumulation.
- Creating a wealth tax or a minimum tax on high-net-worth individuals.
- Increasing IRS funding and enforcement to prevent tax evasion and fraud.

These proposals face significant political and legal challenges, as well as opposition from powerful interest groups. However, they also reflect a growing public demand for more transparency and accountability from the richest Americans and their tax obligations.


(1) The Secret IRS Files — ProPublica.
(2) The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the ....
(3) The Secret IRS Files: Trove Of Never-Before-Seen Records Reveal How The ....
(4) The Secret IRS Files — ProPublica.
(5) The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the ....
(6) The Secret IRS Files Short Form: A Quick Guide to What We Uncovered.
To Top