Over the last few days, headlines have been dominated by a story that is being treated by many as a landmark revelation of tax evasion by the world’s billionaire class. The reality, though, is much less sensational.
The report, released by ProPublica, was hyped as a “bombshell” that, upon closer examination, results in one, unflinching conclusion: wealthy Americans pay far more than their fair share of taxes, not less.
Progressive legislators and advocates alike have lamented the supposed inequalities of America’s tax system for years, claiming those at the top pay far less in taxes than they should. But ProPublica’s report distorts the truth of tax law to make its case to the public. The reality is that wealthy Americans pay their fair share, and they do so more than the bottom half of the nation’s taxpayers. This is affirmed in the graphic below, created by the National Taxpayers Union Foundation (NTUF) analyzing 2018 tax year data.
Upon reviewing the NTUF analysis, one can clearly see that for the 2018 tax year, the top one percent of taxpayers paid more than 40 percent of total federal income taxes, despite generating just under 21 percent of total adjusted gross income (AGI).
According to the analysis, during that same tax year, the top five percent of earners had roughly a 36.5 percent share of AGI yet paid over 60 percent of total federal income taxes.
On the other hand, the bottom 50 percent of earners had an AGI share of 11.6 percent yet paid just less than three percent of federal income tax.
Despite this, ProPublica and other sources have devised a new calculation to fit the narrative to which they have subscribed: that everyone at the top one percent evades federal income tax.
The nonprofit decides to correlate one’s growth in wealth over the course of a year to their taxable income, compared to the taxes they pay that year. They call this the “true tax rate,” when all it is, of course, is true nonsense.
The way the American tax system works is by taxing realized gains, not unrealized gains. Most of the billionaires at the top of the wealth pyramid have lots of assets in non-liquid mediums: stocks, property, retirement accounts, etc. As with any other American, any increase in value of those assets is not taxed until the asset is sold.
The reasoning behind such a policy is sound. Having money in, say, a stock, will not benefit the holder until they sell it, at which point the capital gains on that stock are taxed.
The same works with land, a home, car, retirement account or any other type of investment that can increase in value. The fact is, nobody is expected to pay taxes on any increase in value until it actually turns into income.
This is not tax evasion; it’s simply how the country’s tax system functions, and for good reason.
ProPublica’s deceptive and misguided campaign to convince the American electorate that billionaires don’t pay their fair share in taxes has been thoroughly debunked. Perhaps that explains why the outlet said it was looking to hire tax experts to join their team after issuing their phony report.
Are you knowledgeable about tax law?
— ProPublica (@propublica) June 9, 2021
Wealth management?
The IRS?
Accounting?
We could use your help with our future reporting. https://t.co/RLVuOHrrgM