ProPublica’s “bombshell” report on a trove of tax records of the wealthy it procured through a leak has received a full-scale red carpet rollout from the media. The report resulted in a flurry of righteously outraged New York Times opinion pieces, while the usual suspects, such as Sens. Elizabeth Warren and Bernie Sanders, tripped over each other to proclaim that ProPublica’s report shows what they have been saying all along.
Too bad the underlying report is bunk.
The real revelation about the tax records leaked to ProPublica is how uninteresting they are. The report showed no evidence of wide-scale tax evasion, and further confirmed that our tax code is already very progressive and the wealthy pay a disproportionate percentage of federal income taxes.
But that didn’t stop ProPublica. Lacking a compelling narrative, it decided to create one. The gameplan went something like this: make up a nonsense metric that suggests some kind of deception has occurred, then pile on the moral outrage at this fraud perpetrated on the American public.
That’s where their so-called “true tax rate” comes in. This metric, entirely made up for the purpose of this report, compares taxes paid as a percentage of growth in total wealth. Generating a tax rate by dividing taxes paid not just by actual income received but also by the growth in paper value of assets that haven’t yet produced income naturally paints a very different picture than any traditional tax calculation.
The thing is, comparing tax bills to growth in total wealth is actually worse than comparing apples to oranges, because wealth is something our tax system specifically avoids targeting in most cases. That’s for good reason — taxing wealth is economically distortive on top of being an administrative nightmare. Pretending this isn’t the case is dishonest and deceptive.
After all, it’s not like this is some special exemption for the wealthy. Any taxpayer who owns a home sees its value appreciate to some degree most years, yet no one would think that they’re avoiding their rightful taxes by not paying taxes on that increase in value. Nor does it sound logical that a family should have to pay taxes on the increase in value of their retirement account in a bull market. In fact, the “true tax rate” of a person whose primary asset is a car would likely exceed 100% since vehicles generally depreciate.
The reason for this is straightforward — you’re not actually avoiding taxes, you just don’t have any actual income until you realize the increased value, such as by selling a stock that grew in value. When that happens, the value the taxpayer received becomes income, which they in turn pay taxes on.
ProPublica would argue that their report shows that there are ways around that system for the wealthy, and argue the only solution is various means of taxing wealth. But a wealth tax is a terrible idea for many reasons.
Don’t be fooled by silly arguments that we already have a wealth tax in the form of the property tax — property is just one relatively easy to value aspect of wealth. A wealth tax would have to value every aspect of a person’s net worth every year, including the enormously fickle value of celebrities’ public images. And that’s not even considering the impact on private charities and entrepreneurs.
Another progressive “solution,” Sen. Ron Wyden’s push to tax unrealized capital gains, would likewise be damaging. Such a system would have to find a way to deal with capital losses — otherwise, Americans could face steep tax bills on gains that then disappear as markets fluctuate, with no relief in the face of big losses
This full media buy-in to a report chock-full of data manipulation and editorializing does journalism no credit. Advocates for taxing wealth can make the case for doing so themselves — they don’t need the help of supposedly honest brokers of facts to do it for them.
Andrew Wilford is a policy analyst with the National Taxpayers Union Foundation, a nonprofit dedicated to tax policy research and education at all levels of government.