American public opinion has long favored higher taxes on the rich and on large, profitable corporations whose profits mainly flow to the rich. And every year around Tax Day, someone attempts to convince the public that they have it all wrong, that the rich are already paying their share. This year, the quixotic task was taken up by Jeff Bezos’ Washington Post.
Bezos’ hand-picked editorial board argues that our tax code does not need to be more progressive because the share of federal income tax paid by the rich already exceeds their share of income. This is grossly misleading for at least two reasons.
First, the Post ignores the many other taxes, besides the federal personal income tax, that Americans pay. Most of these affect the non-rich far more than the rich. Second, the Post ignores much of the income that flows to the rich that is exempt from the federal income tax. These two omissions make the wealthy appear to be paying more than their share, contrary to reality.
The Post‘s first omission is obvious to anyone who has lived in America where we pay all kinds of federal, state, and local taxes. The personal income tax, the tax which the Post fixates on, is relatively progressive because it applies at higher rates to higher levels of income and includes credits benefiting low-income earners.
But other taxes that we all pay are far less progressive. At the federal level, the biggest tax that many people pay is the payroll tax which is not paid on income above $184,500. Sales taxes at the state and local level significantly contribute to the regressivity of the overall tax system, as these consumption taxes are unavoidable when purchasing necessary goods. Low-income individuals and families are forced to spend a greater portion of their income on sales taxes in comparison to higher income individuals and families, who are able to save and invest more of their income.
Taking together all federal, state, and local taxes paid by Americans, ITEP has found that our tax system overall can just barely be described as progressive when we consider reported income. The share of taxes paid by the richest 1 percent (24 percent) is only slightly higher than their share of reported income (20 percent).
But even these numbers make America’s tax system appear more progressive than it is. This brings us to the Post‘s second omission, ignoring certain income that flows to the rich but is not subject to the income tax and therefore not reported to the IRS, particularly “unrealized” capital gains. The Post asserts that the highest earners pay “income tax far in excess of their share of total income” but the Post is not truly talking about “total” income received by the best-off. Unrealized capital gains, which are the increase in the value of assets not yet sold, are not reported to the IRS and therefore not counted when calculating income tax. Many extremely wealthy people arrange their affairs so that untaxed unrealized gains are their main source of income and therefore pay very low effective tax rates when we take this income into account.
One example is Washington Post owner Jeff Bezos. According to ProPublica, Bezos paid a true effective tax rate of less than 1 percent (0.98) on his total income (including unrealized gains) from 2014 through 2018. During this same period, he reported $4.2 billion in income but received an estimated $99 billion in wealth growth.
Not only did Bezos pay a significantly lower tax rate than any middle-class Americans, but there were multiple years where Bezos paid nothing at all in income taxes. While having billions of dollars of wealth, Bezos consistently avoided income tax by offsetting earned income with other investment losses and various deductions, all while Amazon stock was rapidly rising.
One of the examples given by the Washington Post is the 30,382 tax filers with incomes of $10 million or more in 2023 making 5.9 percent of all income and paying 10.9 percent of all income taxes. While the editorial claims to be including all sources of income, unrealized capital gains are not included in this figure.
Until the Washington Post can at least acknowledge this type of income, which is the vast majority of income flowing to its owner, we will find it difficult to take the publication’s opinion on this topic seriously.
