The editors of the Wall Street Journal are upset over the leak of tax return information to ProPublica that I posted on the other day:
Leaking such information is a crime, since under federal law tax returns are confidential. ProPublica says it received the files from “an anonymous source†and doesn’t know who provided them, how they were obtained, or what the source’s motives are.
Allow us to fill in that last blank. The story arrives amid the Biden Administration’s effort to pass the largest tax increase as a share of the economy since 1968. The main Democratic argument for a tax hike is that the rich should pay their “fair share.†The ProPublica story is a long argument that somehow the rich don’t pay enough. The timing here is no coincidence, comrade.
If I didn’t make it clear in my post I agree with this assessment:
There is no evidence of illegality in the ProPublica story. As these columns keep pointing out, the rich can afford to hire lawyers and accountants to exploit every part of the tax code to pay the minimum amount of income tax the law allows.
ProPublica knows this, so its story tries to invent a scandal by calculating what it calls the “true tax rate†these fellows are paying. This is a phony construct that exists nowhere in the law and compares how much the “wealth†of these individuals increased from 2014 to 2018 compared to how much income tax they paid. ProPublica says that Mr. Buffett’s “true tax rate†over that period was only 0.10%.
But wealth and income are different, and what Americans pay is a tax on income, not wealth. ProPublica makes much of the fact that these billionaires pay a lower rate on capital gains and dividends than they do on income. The story suggests this is unfair, but it isn’t.
The preferential rate for capital gains and dividends has been a central part of the tax code for decades, and for good reasons. Congress has wanted to encourage capital investment; assets are often held for decades and gains are only realized upon their sale; gains can’t be adjusted for inflation over the years they are held; and investors can’t deduct net capital losses from income beyond $3,000 a year. Bipartisan majorities have long supported this part of the tax code.
The real scandal, as I have pointed out time after time, is not the marginal rates that the richest Americans pay or how small their taxes are relative to their wealth. It’s what’s legal under the tax code (not to mention the code’s complexity). Don’t expect that to change. A good part of the Congress’s power derives from granting exemptions to their friends and donors and punishing their enemies and their enemies’ donor via the tax code. It would not be difficult at all to fix but were the Congress to do so they would relinquish that power so it won’t change. Only those who benefit change.
I didn’t realize that they made up a “true tax rate.” The first lesson of taxes is identifying what is taxed, and if its not taxed then its probably invisible on a tax return.