“Our Government Supports Itself on the Working Class; the Richest People Can Avoid Tax” email
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Our Government Supports Itself on the Working Class; the Richest People Can Avoid Tax.
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Our Government Supports Itself on the Working Class; the Richest People Can Avoid Tax
Unite! We can Repair the Government Of, By, and For the People
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The American tax system asks the most from the people who show up every week, earn wages, and cannot hide how they live. The federal government gets over half its revenue from individual income taxes and another 30 percent from payroll taxes on wages and earnings. Corporate income taxes, by contrast, bring in only about 9 percent of federal revenue. In plain English: the people who live on paychecks are carrying a huge share of the government on their backs.
That does not mean the rich pay nothing. It means they often pay remarkably little relative to their wealth, because the tax code is built around income that is realized and reported, not around fortunes that swell on paper year after year. ProPublica’s reporting on leaked IRS data found that the 25 richest Americans saw their wealth rise by about $401 billion from 2014 to 2018 while paying $13.6 billion in federal income taxes, which it calculated as a “true tax rate” of 3.4 percent when measured against that gain in wealth.
The details were even more shocking. According to ProPublica’s analysis, Jeff Bezos paid no federal income tax in 2007 and 2011, Elon Musk paid none in 2018, Michael Bloomberg paid none in some recent years, Carl Icahn did it twice, and George Soros paid no federal income tax three years in a row. Warren Buffett, whose fortune rose by $24.3 billion from 2014 to 2018, reportedly paid $23.7 million in taxes over those years — a “true tax rate” of about 0.1 percent by that measure. ProPublica also reported that in 2011 Bezos not only avoided federal income tax but received a $4,000 child tax credit.
Most Americans live on wages, and wages are what the system can see, withhold from, and tax every pay period. ProPublica found that for the 25 richest Americans, wages were almost irrelevant: in 2018 they reported only $158 million in wages, just 1.1 percent of their total reported income. The working class cannot choose to live off asset appreciation instead of paychecks. Billionaires often can.
This is where the plutocrats’ favorite move comes in: buy, borrow, die. They buy assets that rise in value, but they do not sell them, because selling would trigger capital gains tax. Instead, they borrow against those appreciated assets and use the loan proceeds to fund homes, jets, foundations, investments, and luxury lifestyles. Borrowed money is not treated as taxable income. Yale’s Budget Lab describes current law as favoring borrowing over selling appreciated assets, and other tax-policy explanations of the strategy note that wealthy households can live on loans secured by rising asset values while avoiding tax during life.
Then comes the final move: die. Under the stepped-up basis rule, heirs generally inherit appreciated assets with their tax basis reset to market value at death. That means the income tax on the old unrealized gain can disappear forever. Americans for Tax Fairness, summarizing the effect of stepped-up basis, notes that billions in gains can escape taxation entirely when wealthy people hold appreciated assets until death. The result is a system in which labor is taxed as it is earned, while great fortunes can grow, be borrowed against, and then be passed on with much of the income tax wiped away.
So when people say the rich pay comparatively little tax, the careful version is this: the ultrawealthy often pay little compared with the growth of their wealth, because the system taxes realized income much more reliably than accumulated power. By contrast, wage earners fund the state in the most visible and unavoidable ways — through income taxes on paychecks and payroll taxes on earnings. That is not a glitch at the margins. It is one of the central design features of the modern American tax state.
And yes, we learned a great deal of this because one IRS contractor broke the law and exposed it. Charles Littlejohn, a former IRS contractor, disclosed tax-return information involving former President Donald Trump and thousands of the country’s wealthiest taxpayers to news organizations. The Justice Department says he stole tax-return information for “thousands of the nation’s wealthiest individuals,” and that the disclosures led to nearly 50 published articles. On January 29, 2024, he was sentenced to five years in prison after pleading guilty to unauthorized disclosure of tax returns and return information.
Whether one sees Littlejohn as a criminal, a whistleblower, or both, the punishment was severe. The sentence was the statutory maximum of five years. AP reported that Judge Ana Reyes imposed the maximum sentence, and Roll Call reported that the stipulated sentencing-guidelines recommendation had been eight to fourteen months, though both sides preserved the right to argue for a higher or lower sentence. In other words, the man who exposed what the tax system looks like from the penthouse got the harshest sentence the law allowed for the count he pleaded to.
That fact should trouble anyone who still believes the system is neutral. A warehouse worker cannot borrow against a $40 billion stock position instead of taking wages. A schoolteacher cannot make income vanish into unrealized gains and then live tax-free on collateralized loans. A retiree cannot hire lawyers and private bankers to turn appreciation into lifestyle cash while waiting for death to erase the tax bill. The tax system does not merely collect money. It expresses power. And in America, it still says this: if you work for a living, you pay on the way up; if you own enough, you may never really pay at all.
References
- Tax Policy Center, “What are the sources of revenue for the federal government?” Over half of federal revenue comes from individual income taxes; about 30% comes from payroll taxes; about 9% from corporate income taxes.
- U.S. Treasury Fiscal Data, “Government Revenue.” Current federal revenue overview.
- ProPublica, “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.” Main leaked-return investigation.
- ProPublica, “The Secret IRS Files Short Form: A Quick Guide to What We Uncovered.” Summary with examples and tax-rate calculations.
- ProPublica, “How We Calculated the True Tax Rates of the Wealthiest.” Method behind the 3.4% figure.
- Yale Budget Lab, “Buy-Borrow-Die: Options for Reforming the Tax Treatment of Borrowing Against Appreciated Assets.” On borrowing against assets instead of selling them.
- D.C. Fiscal Policy Institute, “How Wealthy Households Use a ‘Buy, Borrow, Die’ Strategy to Avoid Taxes on Their Growing Fortunes.” Plain-language explanation of the loan strategy.
- Americans for Tax Fairness, “Close the Stepped-Up Basis Loophole.” On how gains can escape income tax at death.
- U.S. Department of Justice, “Former IRS Contractor Sentenced for Disclosing Tax Return Information to News Organizations.” Official statement on Charles Littlejohn’s conduct and sentence.
- AP, “Ex-IRS contractor gets five years in prison for leak of tax return information of Trump, rich people.” On the maximum sentence and judicial reasoning.
- Roll Call, “Lawmakers back maximum prison sentence in tax record leak case.” On the reported guideline range of eight to fourteen months.