Taxes and Spin

A lot of people are nervous about what might come out of Washington prompted by the current administration.  A lot of my clients have been asking about whether their taxes are going to go up.

Unfortunately, my crystal ball is in the shop, so my predictions are a little murky.

ProPublica has made use of this general public uncertainty to try to shine a light on the wealth (and tax position) of the super-uber-wealthy.  I’m not going to post a link – if you want to read the article, you can Google it (ProPublica Secret IRS File).  I don’t have an interest in driving more traffic to the site – it was picked up by all kinds of media, so if you pay attention to national news, you have likely already heard about this.

We get it – there are some super-weathly people that (seemingly) don’t pay their fair share of taxes.  But check out this analysis of the ProPublica article by Reason (and I will share the link to this article – which has links to most of its source material):

ProPublica’s Bombshell that Wasn’t, by Andrew Moylan and Andrew Wilford

Please read the full article, but here are the two most important points:

Despite ProPublica’s best efforts to make the information enclosed within seem damning, the data tell us little we didn’t already know. For the 2018 tax year, the last year for which we have data, the top 1 percent paid over 40 percent of federal income taxes, despite earning just under 21 percent of total adjusted gross income (AGI). The bottom 50 percent of taxpayers earned 11.6 percent of total AGI, but paid less than 3 percent of income taxes. The same story holds when looking at all revenue sources too, so it’s not just the income tax that is progressive.

ProPublica, however, tries to make the case that the wealthy are getting away with murder through the tax code, so they “do a calculation that has never been done before,” comparing growth in wealth over the course of a year to taxable income. They use this to calculate an individual’s “true tax rate,” which is sort of like handing out wins in a baseball game in the middle of the early innings and calling it the “true outcome” of the contest.

I’m not advocating one way or another for a change in how we administer income taxes – there probably needs to be some change and some increase in taxes to recover all that money the government has been spending on COVID relief.  There is probably some low-hanging fruit in the upper tiers of income tax payers.

For purposes of this post, I am advocating for some perspective, and sharing a reminder that perspective is important.  Please re-read the section that is emphasized above.   Unfortunately, Reason does not cite it’s source, but you can take a look at the IRS statistics published every year to confirm the information – you’ll just need to do a little math on your own:

IRS Statistics Website

Here’s a more direct link to the downloadable spreadsheets:  IRS Income Spreadsheets

Bottom line – watch for the agenda in a story – particularly one that seems like it really resonates.  This is an example of a click-bait story that received a lot of traction, but didn’t really demonstrate much (and used some very questionable tactics)

PS – Personal income tax returns are not public information, and the IRS is supposed to keep your income tax return confidential.  How did ProPublica get the information?  Does this mean your personal tax information is also in ProPublica’s hands?