Brian Lehrer: Brian Lehrer on WNYC. Happy Tax Day, everybody. We know that the tax deadline is supposed to be April 15th, that was Friday which was Good Friday, so it's today. Many elected officials will release their tax returns on and around today but one exception is the new mayor of New York who said he would fill out conflict of interest forms that the law requires but have this brief exchange on Friday with a reporter who asked a follow-up question.

Speaker 2: Mayor de Blasio released his taxes every year. Can we get a firm commitment from you that you'll do the same? Then I have a question on the subways.

Speaker 3: No, you can't.

Brian Lehrer: No, you can't. That's one issue for Tax Day but here's another. The nonprofit news organization ProPublica says it has spent countless hours over the past year scrutinizing the tax information of thousands of the wealthiest Americans and come up with a number of conclusions including the headline to one of their stories, "If you're getting a W-2, you're a sucker."

Another conclusion, the richest 400 Americans are so rich that big stars like LeBron James, George Clooney, and Taylor Swift don't come close to making the list. As you can figure out from the framing so far, these super rich Americans don't pay the same tax rates as most of us suckers who get W-2s. How can policy changes get them to pay their fair share and help other Americans not to get soaked?

With us now, Paul Kiel, the leader of that ProPublica reporting team out from behind his calculator and fine print reader for form 1040, usually covers business and personal finance for ProPublica. Paul, thanks for coming on with us. Happy Tax Day, if that's the thing we can say to people, and welcome to WNYC.

Paul Kiel: Thank you.

Brian Lehrer: Before we get to why we're suckers if we get a W-2, why did you put those specific celebrities near the start of one of your articles as not in the top 400?

Paul Kiel: This is the top 400 by income, the income that people put on their tax returns. We did that to set a context for people because it can be hard to even conceptualize what amount of money if you can get you the top 400. To get in the top 400 you had to earn over $110 million every year. That's the bar to get in the top 400. Who we found in the top 400 were some household names. Bill Gates is the very top which had to do with him selling a lot of his Microsoft stock, that's how he ended up in the top 400.

Michael Bloomberg is up there, but then you get a lot of Wall Street people. Over a quarter of the top 400 are hedge fund managers, private equity managers, all of them earning sometimes $1 billion a year at the very top of the hedge fund managers. Then you got a lot of heirs. One thing that struck us is that, in the top 400, there was 11 separate heirs of the Walmart fortune who gets such a stream of money from their inheritance that they're making the top 400 every year.

Brian Lehrer: How much annual income do you need to have to be in the top 400 or to be in the top 5% or the top 1% which I think you also measured?

Paul Kiel: Right. Top 5% is about $200,000 a year for a household, those are IRS stats. Top 1%, you get up about $500,000 a year. We're talking about even further up than the top 0.001%, the top 400 is the small group of people. If you look at the distribution of the income, the graph would go crazy high at the very right. We had 11 people who made over $1 billion a year, which was again a mix of tech billionaires and hedge fund managers.

Brian Lehrer: How does that compare to the average income in the US?

Paul Kiel: The average, according to IRS data, is $40,000 a year-ish. During this time period, we were looking 2013 to 2018 to be a little higher now. That's the range for average people and so that is your W-2 person for the most part. You mentioned the sucker piece and the frame is if you ask someone what is your income, it's not really a complicated question. In fact, they get a piece of paper every year that says what their income was through W-2.

One key thing we focused on this year of coverage is when you ask what the income of the wealthy is, it's a much richer question I guess to say and it can go both ways. One is they have a lot more control in terms of how much of the wealth they turn into income than ends up in their tax returns and the other thing is the ability to generate tax losses particularly in some industries like real estate, oil and gas where you can [unintelligible 00:05:07] up losses that don't necessarily reflect any financial trouble.

It's something that's like a perk of being in the industry. One extreme example is Stephen Ross, Stephen Ross owns the Miami Dolphins, he developed a Time Warner Center. He's one of the most successful real estate developers in the country. He's worth over $7 billion. He didn't pay a dollar in federal income tax for 10 years straight. That has to do with the system that we have particularly for real estate. It's so much easier to generate-- If you look at his tax return, you would see a number like negative $400 million for his income for a year. It doesn't reflect him being in some financial tailspin, it reflects the ability through our tax system, to generate tax losses.

Brian Lehrer: You're right that others use what you call the buy, borrow, and die method of avoiding taxes. How does that work in the period when they're still alive?

Paul Kiel: Our system tax is a special kind of income. You have to "realize the income." What that means is, if you're sitting on a vast amount of wealth in the form of stock, it's not income until you turn it into income by selling it, turning it into cash essentially, which is a very valuable ability to have. If you get that much richer, you can borrow against your wealth. The buy, borrow, die it's encapsulating this strategy that's so easy to use when you're this wealthy.

The buy part is it could be also build an asset, you buy or build an asset, you can borrow against that asset. There's all sorts of bankers in Wall Street who, in a similar way that you can draw from your house credit, you can have a home equity line of credit, the asset, in this instance, would be all this stock. Very cheap interest rates are available to borrow against that stock, so that solves a problem of having something to live on so you don't have to turn your wealth into income, you can just borrow against it.

Then when you get to the die part, there's a major feature of our tax system that, upon death, all of these gains just evaporate and your heirs don't have to deal with it, there's never going to be any capital gains tax paid on it. Then we have the state tax but there's a million maze around it. It's very leaky, it doesn't really do its job.

Brian Lehrer: Listeners, your questions about the taxes paid or not paid by the super rich and anything related, welcome here on this Tax Day 2022 for Paul Kiel from ProPublica who led a team taking a deep dive into the taxes paid by the richest 400 Americans compared to most Americans. 212-433-WNYC, 212-433-9692, or tweet your question @BrianLehrer.

Let's get to the policy level here. There have been some major changes to the tax laws during this 21st century. There were the famous Bush tax cuts, the famous Trump tax cuts, and, I think, a separate one that you write about that affected lower rates on capital gains and dividends starting in 2013. Do I have those tent polls right?

Paul Kiel: The Bush tax cuts are really the biggest ones. What they did, particularly for the wealthiest, the key thing that they cut their rate on capital gain, so if you're selling stock, you're going to pay a lower rate on that. Then one major feature that-- Obama rolled back some of those but one thing he did not roll back was a lower rate for dividends, so dividends paid on stock.

One thing we point at is, for instance, if you are on very high wages or whatever, you'll pay about 37% is the top marginal rate now but the rate on dividends you've got 20% which is actually a major difference, it's almost half. We looked at who benefited the most of this because we have individual returns and we can calculate, what if the rate was 37% instead of 20%, for instance.

The top beneficiaries end up being these wealthy people who have vast holdings of stock. The top was Bill Gates who was saving $125 million in taxes every single year as a result of this change. I mentioned the Walmart heirs before. Walmart pays dividends and so this group of 11 people who were in the top 400 were saving $370 million collectively in taxes every year.

Brian Lehrer: What about the effects on the private sector? Some economists say the Trump tax cuts did stimulate wage and job growth. It's been a long time since people were writing about the Bush tax cuts in that way one way or the other. Do you address that claim either way?

Paul Kiel: That's a question for economists but I think the general consensus or the estimates I've seen is that the Trump tax cut, I think I've heard the description of it being a sugar high temporary benefit  but not a lasting benefit. You go back to the '80s and trickle down. There's always promises that if you cut taxes, that it'll juice economic growth. Then conversely, there's always the lobbyists who will say that it'll have all sorts of bad effects if you raise tax rates, it's going to depress investment.

I think, ultimately, there's not a really lot of good evidence for that, but it really does work as an argument on Capitol Hill. There's this two-step thing that I think goes back decades, and that is there's all these features of our tax code to give breaks to business, to give breaks to specific industries like real estate.

Once they're in the tax code, it's really to get them out because there's a real estate developer in every district, there's always an argument to be made that this will hurt the economy. They tend to stay in there and then people will hear that, so and so billionaire didn't pay taxes, and then there's like, that's not right. There are attempts to add an extra complication to the tax code to make it so you can't do that. We have something called the alternative minimum tax, which actually dates the 1960s when the treasury secretary announced that hundreds of very wealthy people had paid no taxes.

It's actually a pretty complicated aspect of our tax code that can bite even people further down the income scale. Is there this patch that you put on because it's not really working the way we think it should be? That's a pattern that occurs in order. Again, we have all these things aren't tax code to make it possible for wealthy people to dodge taxes, and then there's these halfhearted attempts to stop that from happening.

Brian Lehrer: Rob in Tom's River, you're on WNYC. Hi, Rob.

Rob: Hey Brian, thanks to take my call. Your guest had mentioned about the rich being able to escape taxes because of borrowing. My question is how do you borrow, but not pay the money back that would incur a taxable time? They have to get that money somehow to pay back that debt?

Brian Lehrer: Actually, I think interest on debt is one of the things that makes it so tax-deductible, but Paul, did you understand the question?

Paul Kiel: Was the question how they pay it back?

Brian Lehrer: Yes, don't they incur taxable events once they start paying that money back?

Paul Kiel: My understanding is if you're sitting on an appreciating asset, then oftentimes my understanding is there's a lot of patience on behalf of the lenders to wait for their payday. If you're getting vastly richer on paper, you can have some taxable income. It just not going to be you can invest in bonds or sorts of things. The point is that they're in control in terms of when and how they realize income and they have teams of intelligent people to help them strategize by how to do that.

Brian Lehrer: Michael in Harlem, you're on WNYC with Paul Kiel from ProPublica. Hi, Michael.

Michael: Yes. Good morning. Gentlemen, the thing that I find so shocking about this business of taxes and wealth is that there's virtually no African American. There are no African Americans and at the top of the list, there are only seven billionaires who are African American out of something like 700 billionaires in this country, and the richest African American has a near $7 billion compared to Mayor Bloomberg who has something, I think, around $80 billion.

Brian Lehrer: Michael, thank you. Did you do a racial disparity breakout of any of this? I do see that you mentioned Michael Bloomberg is achieving one of the lowest tax rates in the top 400. You want to address both those things?

Paul Kiel: Sure. With our recent piece, the highest income earners we have pictures or renderings of everyone that we name in the piece, which we name about 40 of the top 400. I don't believe there is a Black person among those 40. There's a wealth gap in this country along racial lines, and that definitely comes across at the very top. It's an additional reason why we point out our tax system is exacerbating wealth inequality in the sense that the wealthier you are, the easier it is to sidestep the system, the more control you have over how you are taxed.

That's only are going to make the situation worse, even though we have things in place like the estate tax that are supposed to address that, but those things aren't working. On Bloomberg, yes, his tax rate was 4%. A lot of it has to do with deductions. He has a lot, his charitable courses, and additionally, until 2017, there was this state and local tax deduction where he was getting about $400 million a year of his income wiped out due to that.

The Trump tax cuts, one thing they did was, in that, capped it at $10,000, but then they added a new deduction for pass-through businesses. His company is privately owned, all the profits flow to him, and so he gets a big deduction through that. A lot of it has to do with deductions.

Brian Lehrer: Judah, a tax accountant. He says, wants to push back on some of this. Judah, you're on WNYC. Hello.

Judah: Thank you, Brian. I'm a tax accountant with about 45 years of experience. I have over 400 clients. There are many, many benefits for wage earners, such as they're qualified for unemployment, the employer pays 1/2 of the social security in medical. They have a benefit they can invest in a Roth 401(k) up to $20,000 or so without any limitation. There are many limitations to investing into a Roth ILA, which income limitations. There are many benefits to being an employee. We shouldn't say that they are suckers. They're not the suckers.

Brian Lehrer: Thank you, Judah. Do you want to respond to that, Paul?

Paul Kiel: Sure. I should say I am a sucker, so I'm not meaning this to-- it was a fun way of talking about this problem, and I'm not excluding myself from that. The quote actually was from an economist who used to work at the federal reserve, who did a study looking at business income and found that if you ask business owners which they do that this federal reserve survey, "How much income did you have this year?"

They compared answers like that in this massive survey to IRS data, and they found that basically half of the income that business owners say they make just evaporates when it gets to taxes, which doesn't mean that the business owners are necessarily hiding money from the IRS, although that is certainly something that happens, it's more reflection of all these perks we have in the tax code that allow you to wipe out your income.

This question of how flexible your income is really what I was trying to get at. Yes, we have a lot of things in our tax system that are targeted at middle-income earners like 401(k)s and Roth accounts and that stuff. The payroll thing you mentioned though is something that's not really a perk of being a W-2 recipient. When we talk about income taxes, that's a very specific tax, but we have social security taxes and Medicare taxes that are generally lumped in.

As payroll taxes, you pay half of it, your employer pays half. Economists generally say that these taxes that your employer pay on your behalf, that's coming out of your salary. That's an expense of hiring you. It's generally something that economists view as borrow and buy the wage earner. One thing we do in this piece on the highest earners is compare the tax rate, the total personal federal tax rate. A tax rate that includes payroll and income and compares, for instance, take someone who's earning $45,000 a year to the very tippy top.

If you include payroll, the tax rate of someone making $45,000, like a single person without kids is above 20%, which is about what the top 400 is paying, because the top 400 don't really pay payroll taxes at all because they don't get wages.

If you ever hear about some CEO or Jeff Bezos or whatever, if they have a salary, it tends to be like $60,000 or sometimes it's zero which people sometimes say is evidence of them bleeding in the company, but it's also, from a tax perspective, you just don't want wages. That's why all these wealthy people don't have wages if they can help it.

Brian Lehrer: This is all very revelatory about who pays what relative to their income. Are there any serious proposals on the table in Washington to change this, in our last 30 seconds?

Paul Kiel: Sure. There's this Biden proposal that came out that, it's probably not going anywhere in the Senate, but basically it would get at this unrealized gain issue and would essentially tax that at 20% and was supposed to close the door to essentially being able to sidestep the system by not realizing your gains.

Brian Lehrer: Paul Kiel led a team that looked at the taxes paid by the top 400 earners in the United States for ProPublica. Paul, thank you so much for joining us.

Paul Kiel: Thanks.

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