I question the ethics of ProPublica purloining rich people’s tax returns

ProPublica, a nonprofit investigative journalism site, obtained and then published details of the tax returns of billionaires including Jeff Bezos, Elon Musk, Warren Buffet, and Michael Bloomberg. Their reporting echoed across the internet, but did it really justify stealing people’s private information?

“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 site announced. And this:

In 2007, Jeff Bezos, then a multibillionaire and now the world’s richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second-richest person in the world, also paid no federal income taxes.

Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row. . . .

Taken together, it demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most. The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year.

There is nothing new here

The ProPublica investigation showed nothing new. It did not show that these rich people were using questionable methods to evade taxes. It did not point to any violations of IRS rules. As the article states, “billionaires don’t have to evade taxes exotically and illicitly — they can avoid them routinely and legally.”

The reason that these rich people paid no taxes is that most of their wealth comes from increases in the value of their assets.

If you own assets, you do not pay taxes on the increase in the value of those assets. Take your home. If your home was worth $300,000 when you bought it ten years ago, and is worth $800,000 in today’s market, you have increased your wealth. But you do not pay taxes on the gain in value. You only pay if you sell the house and realize the gain.

As anyone who owns stocks knows, the same is true for ownership of equities. If your shares of Amazon go up by a factor of two, you don’t pay on that gain until you sell the shares.

And the same is true for Jeff Bezos and his vast numbers of shares of Amazon.

Because of the way the ultra-wealthy accumulate value — through appreciation of shares of companies — they don’t pay on that appreciation. In fact, as the article states, they can borrow money secured by the shares and live on that.

I question the ethics of the ProPublica journalists

The people behind the ProPublica article have refused to indicate how they obtained their trove of tax data. The most likely method is through the IRS itself. Leaks from any one individual could have come from within that individual’s organization. But the article describes how ProPublica received “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.” These thousands of people don’t all use the same auditors or tax preparers or lawyers, so the only likely source is the IRS itself.

Whoever leaked the returns has violated the law. And the IRS is investigating. Charles Retting, IRS commissioner, said “I can confirm that there is an investigation with respect to the allegations that the source of the information in that article came from the Internal Revenue Service. Upon reviewing the article, the appropriate contacts were made, as you would expect.”

If a leak like this can reveal information from rich people’s returns, it can affect your returns as well. I don’t want my information available to others, or to criminals, or to whomever pried loose the IRS information on the rich people.

The question of leaked information is ethically perplexing. When Daniel Ellsberg leaked the Pentagon Papers in 1971, we learned just how much the government had been lying about the Vietnam war. When WikiLeaks published information from Edward Snowden in 2013, we learned all about the government’s surveillance of private citizens. And when the New York Times obtained Donald Trump’s tax records in 2020, we learned how Trump had attempted to dodge taxes with questionable and potentially illegal tax evasions that are still under investigation.

None of these cases involved leaks of masses of information on thousands of Americans. The Trump tax leak could easily have been from within the Trump organization, rather than the IRS.

And all of these leak-based articles alleged violations and lies by public officials. Revealing these lies and explaining the context was in the public interest.

The ProPublica article does not reveal lies by public figures. It just reveals how private individuals use the law to their advantage. Does this justify the acceptance of thousands of stolen IRS files? Are these journalists actually acting in the public interest, or just seeking visibility for publicizing how our tax policy works?

If you are an investigative journalist operating right now, please ask these questions before you write about leaked information.

Is it time to change the tax laws?

Some tax laws have made it possible for corporations to route profits to low-tax countries and avoid paying tens of billions of dollars in tax. This is the real cost of tax avoidance. Closing this loophole may be difficult, but it’s necessary — the amounts of money at stake are meaningful to the federal budget.

The fact that companies like FedEx, Dish Network, and salesforce.com paid no taxes is an actual scandal that needs fixing. A recent agreement by the leaders of the seven largest national economies is a start on that problem.

Some politicians such as Elizabeth Warren have proposed a wealth tax. A tax on assets would reduce the opportunity for individuals like Elon Musk to pay no taxes.

Such a wealth tax could make sense only if it applies exclusively to rich individuals. The idea that all of us who own assets should pay tax on the appreciation of our assets every year would create chaos. For one thing, the value of many of those assets is difficult to assess, and they often go up and down in value. I don’t think it’s fair that if my stock portfolio or my home increases 20% in one year that I’m suddenly on the hook for a huge tax bill.

Wealth taxes have implementation challenges. France had one and killed it.

These are discussions worth having.

But we didn’t need to reveal the tax returns of thousands of people to talk about the problem.

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  1. Without the actual facts – there is no basis for accurate discussion. If private information like Social Security numbers and addresses are redacted then there is no vulnerability to identity theft or other bad acts. When so few people are in control over so much of the planet’s wealth and resources, as well as political influence that impacts every single one of us, they become public figures. Their malfeasance and chicanery are public business. Many of us seem willing to self-victimize through fantasy and over-identification with the obscenely wealthy to the degree that we step up to protect their unwillingness to meet even the most nominal tax liabilities on what data indicates are predominantly passive incomes (rents) generated by their already astronomical disposable wealth. The other 99.9% of us who contribute to their holdings in countless ways are astronomically unlikely to ever be in the same position, even as that wealth is extracted from the closed and finite physical, fiscal, and social environments we all occupy. They can consider the exposure a “cost of doing business,” when their business models include manipulation of tax policies through influence, and the deployment of very expensive professional services to avoid returning taxes on their profits at a meaningful level.

  2. expose the filthy rich…. or do you believe their wealth accumulation was completely “ethical” in the first place?

    1. “or do you believe their wealth accumulation was completely “ethical” in the first place?”

      Is there anything specific to any individual, or is this just an assumption or an overall belief that ANY wealth accumulated (over what amount?) is considered prima facie unethical ?

      The devil is always in the details, and without them, a generalization like this is less than useful.

  3. “The fact that companies like FedEx, Dish Network, and salesforce.com paid no taxes ”

    I would like to understand their total tax expenditures (sales, VAT, property, company side of social taxes, etc), before declaring “no taxes”. No income taxes might be more correct, but still misleading in a way.

    I have no doubt they are using all the tax code to minimize what they pay. It is our own governments that have created and are creating these tax laws, in large part because we want these corporations (and individuals) to behave and spend in specific ways.

    We might be better off getting rid of the income tax code and replace it with a consumption/value-add tax (on everything), with a declining direct transfer back to folks whose income is below a threshold. Vastly more simple (slashing the economic drag of compliance and avoidance), and hard to avoid (practically impossible for large entities, bypasses the borrow on untaxed assets to pay for lifestyle loophole).