Joel Osteen’s taxes: What’s probably true and what isn’t

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This April 24, 2010 file photo shows Lakewood Church pastor Joel Osteen at Dodger Stadium during his “A Night of Hope” in Los Angeles.

  • Famed megachurch pastor Joel Osteen sparked ire online over claims he doesn’t pay taxes.
  • But he probably does pay taxes, especially on income made from his books.
  • Wealthy people in roles like Osteen’s often inspire backlash over their fortunes and positions.
  • See more stories on Insider’s business page.

Celebrity pastor and author Joel Osteen is drawing ire online over a Ferrari. Twitter users are up in arms over the car’s hefty price tag, which some claim is a whopping $325,000 (Osteen reportedly owns a Ferrari 458 Italia, according to the Houston Chronicle).

It also ignited debate over the summer’s hottest topic: taxes. Following the Ferrari incident, #TaxTheChurches started trending, alongside claims that Osteen does not pay taxes. Turns out, these claims probably aren’t exactly true.

“Joel Osteen pays lots and lots of taxes because his book sells,” Ryan Burge, a pastor and an associate professor of political science at Eastern Illinois University, told Insider.

Osteen, one of the country’s most famous pastors due to his wide-reaching broadcasts, books, and celebrity worshippers, hasn’t taken a salary from the Lakewood Church since 2005, according to the Houston Chronicle. Instead, royalties from his cadre of bestselling books likely pay for his lavish car and home, and experts told Insider that he likely pays taxes on them.

Rumors of his failure to pay taxes are likely conflated with the fact that his church – which reportedly can bring in upwards of $80 million in donations and has had $90 million in operating expenses – is largely exempt from paying taxes. The hullabaloo over Osteen’s car is another example of backlash, amidst historic inequality in the US, against the ultra-wealthy pastor, who is one of the most famous figures associated with “prosperity gospel” or the idea that financial success is the result of faith in God.

Joel Osteen Ministries did not immediately respond to Insider’s request for comment.

Osteen makes a lot of money off books, and probably pays taxes on that income

The annual salary for Osteen’s role would be $200,000, according to the Indy Star, but he hasn’t drawn that in over a decade.

Osteen’s larger-than-life lifestyle is likely propped up by speaking engagements and royalties from his books, the first of which came out in 2004 and sold more than 8 million copies, according to Publisher’s Weekly. The Christian Post reported that the multi-million dollar deal for his second book was greater than the $8.5 million Pope John Paul II got.

In addition to his Ferrari, Osteen owns a $12 million home according to an extensive profile in the Houston Chronicle. He and his wife reportedly paid $247,000 in property taxes in 2017.

Churches pay little in taxes in the US

Churches like Texas’s Lakewood Church are largely tax exempt with the exception of paying payroll and social security taxes to their staff, according to Burge.

Jared Walczak, the vice president of State Projects at the Tax Foundation, said that clergy do pay taxes on their income. The only tax benefit open to clergy that most other people can’t take advantage of is a “parsonage allowance” – essentially a housing allowance.

“It is possible to exclude a certain amount from gross income if it is structured as either providing a parsonage for a pastor or providing an allowance for housing for a primary minister,” Walczak said. But he noted that that generally benefits ministers at smaller churches. According to the Chronicle, Osteen’s home is not designated as a parsonage.

The outcry over Osteen’s fortune is part of increased pressure on the wealthy to address widening gaps

While Osteen is probably paying taxes, the outrage over wealth inequality and unfair taxation comes during a moment of reckoning.

The pandemic revealed – and, in many cases, worsened – the gaps between the wealthiest and poorest members of American society. While millions of Americans lost their jobs (and, in some cases, the unemployment benefits keeping them afloat), it was revealed that the wealthiest taxpayers had been hiding billions from the IRS.

Osteen’s church saw its own finger-pointing amidst the debate over who, or what, merited government subsidies when it came under fire for receiving a $4.4 million loan from the Paycheck Protection Plan. The news inspired backlash, especially amidst Osteen’s accumulation of personal wealth and the church’s operating budget and donation apparatus.

In a statement to media outlets, David Iloff, a spokesperson for the church, said that the church hadn’t applied for assistance at first, but eventually sought it out as pandemic-induced closures dragged on. Iloff said that the church was able to pay out salaries and health benefits to employees with the loan.

Walczak points out that service organizations like religious institutions or nonprofits are often obvious targets of anger over “ostentatious wealth.”

“You will always have individuals, whether they are ministers or leaders of other organizations who attract negative attention for this, and that’s unsurprising. But that doesn’t mean that there is a tax issue.”

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Uber and Lyft could be avoiding $153 million in Canadian taxes every year by relying on contract workers, report says

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Uber CEO Dara Khosrowshahi and Lyft CEO Logan Green

  • Uber and Lyft could avoid a combined $153 million in taxes annually in Canada, a new report claims.
  • Canadians for Tax Fairness blamed lax disclosure laws and companies classifying drivers as contractors.
  • Uber and Lyft both disputed the findings, telling Insider they paid all required taxes in Canada.
  • See more stories on Insider’s business page.

Uber and Lyft could be avoiding a combined $153 million in taxes every year in Canada, according to a new report from the nonprofit Canadians for Tax Fairness (C4TF).

The report estimated Uber and Lyft avoid $53.9 million in corporate taxes as well as $81.3 million in unemployment insurance and benefits taxes by taking advantage of lax financial disclosure requirements around corporate taxes, in addition to classifying drivers as contractors.

While not illegal, the tactics let Uber and Lyft benefit from taxpayer-funded programs like roads, pensions, and unemployment insurance, despite paying very little into those programs, C4TF argued.

“Uber and Lyft both depend to a huge degree on publicly funded infrastructure to make their revenues, but they provide very little of the funding for that infrastructure because they pay next to nothing in taxes,” DT Cochrane, the report’s author and a policy researcher at C4TF, told Insider.

While the lack of transparency around corporate taxes makes it impossible to know exactly how much the companies paid, he added: “it’s doubtful that it approaches the level that we think that it should.”

Uber and Lyft told Insider they disputed the report’s findings, and said they have paid all taxes required by Canadian law.

“Uber contributes millions of dollars in the form of ridesharing fees, which help local and provincial governments pay for ridesharing, transit, and other initiatives,” an Uber Canada spokesperson told Insider.

“We file all of our taxes in Canada, including federal and provincial corporate income tax, payroll taxes, GST/HST, QST and applicable provincial sales tax,” a Lyft spokesperson told Insider, adding that the company “is in good standing with the Canadian tax authorities.”

But C4TF’s report cited several ways it says Uber and Lyft may have been able to significantly cut their tax bills.

First, C4TF estimated the companies brought in $203 million in combined profit in Canada in 2019, which should amount to $53.9 million in federal and provincial corporate taxes. Neither company discloses how much they pay in Canadian corporate taxes, but according to C4TF, using Uber’s global average effective tax rate of 1.9%, Uber and Lyft would have paid roughly $8.6 million.

Multinational corporations have come under increasing scrutiny for attempting to lower their global tax bills by routing profits through low-tax countries. An Australian research group accused Uber of using Dutch shell companies to turn $5.8 billion in global revenue into $4.8 billion in losses on paper, allegedly sidestepping millions of dollars in taxes.

Until recently, Uber’s Canada subsidiary was owned by its Dutch subsidiary, which C4TF claimed may have let it avoid Canadian taxes as well by booking Canadian revenue in the Netherlands where corporate taxes are lower (Uber claimed it had discussed plans to spin off its Canadian subsidiary as early as 2018).

In response, C4TF argued Canadian authorities should require more transparency from companies like Uber and Lyft to ensure they are paying their full tax bill.

C4TF’s report also estimated Uber and Lyft avoid $81.3 million in unemployment insurance and pension taxes by classifying drivers as contractors – a growing source of legal and political headaches for the companies in the US, the UK, Spain, and other countries. In a ruling last year, Canada’s Supreme Court opened the door for a class-action lawsuit that could chip away at the companies’ ability to classify drivers there as contractors.

Lyft’s spokesperson told Insider the Canadian government “recognizes drivers on Lyft as independent contractors and assigns taxes accordingly.”

One such tax includes Canada’s sales taxes. Because Canadian law requires individual contractors to collect and pay sales tax (except in Quebec, where the contracting company is responsible), C4TF argued Uber and Lyft drivers are unfairly shouldering those costs.

C4TF also claimed that because Uber and Lyft don’t withhold those sales taxes – an estimated $217 million per year – from drivers’ earnings upfront, they’re overstating how much drivers are really making.

Cochrane told Insider the report was also a critique of Canadian authorities that do not hold companies accountable for paying their fair share.

“We don’t know exactly what [Uber and Lyft’s] bookings are, what their revenue is, what their take rate is, what their profit margin might be, what their taxes paid are simply because the Canadian government is falling behind on requiring greater corporate transparency,” he said.

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Ex-Mueller prosecutor says charges against Trump Org are likely a ‘shot across the bow’ with more to come

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Former Mueller probe prosecutor Andrew Weissman discussed the investigations into the Trump Org. in an interview on MSNBC on May 19.

  • Andrew Weissman, the lead prosecutor on the Mueller probe, commented on the Trump Org. charges.
  • He said last week’s charges are likely a warning to executives at the company to cooperate.
  • NY prosecutors last week charged Trump’s firm and its CFO with tax avoidance crimes.
  • See more stories on Insider’s business page.

The lead prosecutor on Robert Mueller’s Russia probe described the charges facing the Trump Organization as a “shot across the bow” ahead of more serious action.

Andrew Weissman described the charges against the company and its CFO Allen Weisselberg a warning to other executives of the potential legal cost of not cooperating.

Prosecutors from the Manhattan district attorney’s office last week charged the Trump Organization, the umbrella company for Donald Trump’s businesses, and Weisselberg with using valuable fringe benefits to avoid tax.

Observers wondered whether the charges might be the only ones against the company, or whether it could be part of a broader case. In particular, the speculation has focussed on whether Trump himself could be targeted.

Weissman, who formerly served as general counsel for the FBI, weighed in on the debate in a tweet Saturday.

He said the charges were likely about sending a message warning other executives at the company to cooperate.

“With all due respect to those who think the DA charges this week were all there is, I disagree. This was a shot across the bow. More to come. DA message to Trump Org employees cooperate now or face charges and jail,” wrote Weissman. “That’s how this works.”

Other legal analysts have questioned why prosecutors would file relatively low-level tax avoidance charges last week if there were other more serious offences they could pursue.

According to reports, prosecutors from the Manhattan DA and from the New York attorney general’s office are conducting a broad probe into business affairs at the Trump Organization, including whether financial statements were falsified for tax or insurance purposes.

Michael Cohen – formerly one of Trump’s most trusted aides and now an adamant critic – has claimed that all major financial decisions at the company required Trump’s approval.

Trump has claimed the charges are a politically motivated witch hunt, comparing it to the Mueller probe which he had also claimed was a plot to damage him politically.

The Mueller probe wrapped up in 2019, with the investigation providing evidence that Trump had sought to obstruct the probe, but declining to reach a judgement on whether the Trump campaign conspired with Russia.

Weissman, in a book published last year, was sharply critical of decisions by Mueller not to subpoena Trump or examine his financial records.

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A bipartisan Senate group wants to fund an IRS crackdown on ‘tax cheats’ in nascent infrastructure proposal

Angus King
Sen. Angus King (I-ME).

  • Senators on both sides of the aisle agree that the IRS should be funded in new spending.
  • Sen. Angus King told Insider “there’s a lot of money we’re leaving on the table” and he understands “going after tax cheats” is part of a deal.
  • Sen. Rob Portman, a prominent GOP lawmaker, said a $40 billion investment would go a long way.
  • See more stories on Insider’s business page.

As bipartisan infrastructure talks plod on, funneling money to beef up IRS enforcement looks like it’ll be sticking around.

Sen. Angus King, an independent of Maine who caucuses with the Democrats, told Insider on Tuesday that deciding what pay-fors make it into the final package is difficult – but suggested that funding for IRS enforcement will remain.

“I understand going after tax cheats is part of it,” King said. “There’s a lot of money we’re leaving on the table right now.”

The bipartisan Senate group of 10 – evenly divided between Republicans and Democrats – is working on a $1 trillion package. Sen. Rob Portman of Ohio, a prominent lawmaker in the group, told reporters Tuesday that money to bulk up the IRS’s ability to enforce tax laws would be included in the nascent framework.

The IRS officially estimates the “tax gap” coming in at $441 billion a year. But Charles Rettig, the agency’s commissioner, told Congress in April that the number could actually be over $1 trillion.

This gap between taxes owed and taxes paid could only grow if left without intervention, according to the Treasury Department, which estimates that President Joe Biden’s proposed $80 billion investment in the IRS could bring in an additional $700 billion over 10 years. That would still leave hundreds of billions in taxes going uncollected each year, Insider’s Ayelet Sheffey reports.

The bipartisan approach to IRS enforcement might not go that high.

“We have a CBO estimate that, if you put about $40 billion into bringing back the IRS workforce … that could result in $110 billion – which nets out to $63 billion,” Portman said on Tuesday. “It’s a relatively modest increase in IRS spending compared to what the Democrats proposed under Biden’s plan.”

The number of agents devoted to working on sophisticated tax evasion enforcement has fallen by 35% over the last decade, according to Treasury and the IRS budget has fallen by 20%, while audits fell by 42% from 2010 to 2017. According to a White House fact sheet, the audit rate for those making over $1 million a year declined by 80% from 2011 to 2018.

Biden wants to ramp up enforcement on the wealthiest Americans. A recent study from IRS researchers and academics found the top 1% of Americans fail to report about a quarter of their income. Income underreporting is nearly twice as high for the top 0.1%, which could account for billions unreported.

The role of IRS enforcement is coming into greater relief following a bombshell ProPublica report, which revealed just how little in proportional taxes some American billionaires pay. The tax mechanisms that those billionaires utilize are actually completely legal, but they’ve kickstarted talks of tax reform among Democrats.

Following the ProPublica report, five former treasury secretaries published an op-ed in The New York Times saying that, “in the ways outlined by President Biden’s recent proposal,” more enforcement could be pursued.

The five former treasury secretaries – who served under both Democratic and Republican presidents – write: “But on this issue, all should agree, including members of Congress of both parties: Giving the I.R.S. the tools it needs to improve compliance will raise significant revenue and create a fairer, more efficient system of tax administration.”

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A ProPublica journalist explains how Jeff Bezos, Elon Musk, and other billionaires approach taxes in a new interview. Here are the 15 best quotes.

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Elon Musk and Jeff Bezos.

  • ProPublica’s Jesse Eisinger explained how billionaires may minimize their income to avoid taxes.
  • The journalist discussed Jeff Bezos, Elon Musk, Warren Buffett, Carl Icahn, and Michael Bloomberg.
  • He flagged the tax system’s shortfalls and argued that philanthropy can’t replace government.
  • See more stories on Insider’s business page.

ProPublica recently published a bombshell report on how billionaires including Jeff Bezos, Elon Musk, and Warren Buffett pay minimal federal income tax relative to their vast fortunes. Jesse Eisinger, one of the journalists responsible for the story, discussed his key takeaways on the latest episode of The New York Times’ “Sway” podcast.

Eisinger explained how some of America’s wealthiest people have minimized their incomes and paid zero federal income tax in recent years, argued that philanthropy isn’t a substitute for government, and called for changes to the tax system.

Here are Eisinger’s 15 best quotes, lightly edited and condensed for clarity:

1. “The ultra-wealthy are not in our tax system. They’re off in an entirely different universe, one where income is essentially voluntary. The shorthand for what they’re doing is ‘buy, borrow, die.’ You buy, or you build, or you inherit your money. You borrow against it. You don’t pay taxes on the gains. And then when you die, there are various ways that you can avoid estate tax.”

2. “The means that they have at their disposal – their purchasing power, their political power, their influence, their charitable givings – all emanate from their wealth and, more directly, their wealth growth. We thought that wealth growth is more properly thought of as income for these people. Everybody has said, ‘Checkmate, ProPublica, you idiots, we don’t tax unrealized gains in this country,’ to which we say, ‘Yes, that is the point of our article.'”

3. “If you had asked tax experts and wealth experts last week, ‘Does Jeff Bezos pay zero in federal income tax? Does Elon Musk pay zero? Does Mike Bloomberg?’ – most people would say no. That’s a pretty shocking thing.”

4. “There is a wealth tax in this country for average Americans. It’s property tax. Most people’s houses are their font of wealth, and they’re taxed every year.”

5. “Warren Buffett is really astonishing. He’s the king. He has avoided more tax than anyone in America by our measurements.” – the famed investor minimizes his income by keeping his fortune in Berkshire Hathaway stock and not paying a dividend, ProPublica reported. He defended himself to the publication.

6. “Elon Musk is outside of the regular tax system. He gets paid when he wants to get paid. He takes income at the time and place of his choosing. If you can imagine arranging your affairs so that you can control when income comes in, that gives you an enormous amount of leeway over your taxable income.”

7. “Carl was great. He was incredibly charming and was totally perplexed by the concept of needing to pay taxes. ‘If you don’t have income, you don’t pay taxes.’ He was very amusing.” – discussing how billionaire investor Carl Icahn declared $500 million of income between 2016 and 2017, but reduced his taxable income to zero by borrowing against his assets to boost his investment returns, then deducting the interest costs of the loans.

8. “What the wealthiest person in the country contributes to American society through a tax system that we all need to contribute to – that’s a little bit more newsworthy than a crotch shot.” – dismissing a comparison between ProPublica publishing details of Amazon CEO Jeff Bezos’ tax returns and tabloids releasing supposedly intimate photos of him.

9. “We don’t have any evidence that Warren Buffett borrows. Not all these guys have exactly the same model or do all of this in lockstep with each other. But what we do know is that Buffett takes hardly anything for income, so when he talks about raising tax rates for the rich, it’s essentially irrelevant to him. It’s really irrelevant for all these guys.”

10. “Bloomberg said it’s a violation of his privacy, which was an interesting statement for a person who runs one of the most important media companies in America.” – on Michael Bloomberg’s response to ProPublica publishing details of his tax returns.

11. “We have thousands of people. We’re going to be doing stories all year on various aspects of it. And we’ll name many, many more people, but only in what we consider to be responsible ways that are in the public interest.”

12. “Warren Buffett said to us, ‘I’m going to give 99%-plus of my fortune to charity … that’s going to be better for society than paying down the United States debt.’ I would like to allocate my tax dollars the way I want, spend them on this and not that. But we collectively have a society, and we have a democracy. And the democracy gets together and makes priorities. And then we influence the democracy through the vote.”

13. “There are certain collective functions of government that charities could never do. We do need government to do some things, and government can’t do it if it’s starved, if the roads and bridges are crumbling, if we think that Social Security and Medicare are going to go bankrupt.”

14. “There are whole swaths of the tax system that just simply do not function anymore. We don’t have enforcement. We don’t have auditing from the IRS. The budget has been gutted. The wealthiest among us could be paying tens of billions of dollars more every year in income taxes – not even talking about a wealth tax -if we had a different kind of income tax system or taxation system in general.”

15. “There are two extraordinary things about death in our tax code that are great gifts to the ultra-wealthy.” – highlighting the “step-up in basis” which raises the cost base of appreciated assets when they’re inherited, and structures such as trusts that let recipients avoid paying inheritance tax.

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A business ethicist explains why billionaires like Elon Musk and Jeff Bezos shouldn’t use tax avoidance strategies, even if it’s legal

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Ordinary people don’t have access to tax avoidance strategies like the superrich do.

  • Some US billionaires reportedly pay minimal amounts of federal income tax, or sometimes nothing at all.
  • While not illegal, tax avoidance strategies can seen as unethical, says business ethics scholar Erin Bass.
  • Regardless of ethics, if the super rich avoid taxes, it could encourage the public to do the same.
  • See more stories on Insider’s business page.

Some of the US’s wealthiest individuals reportedly pay just a tiny fraction of the billions of dollars added annually to their fortunes in federal income tax – sometimes they pay nothing at all.

Investigative journalism outlet ProPublica says it has obtained a “vast cache” of information from the Internal Revenue Service that purports to show the lengths that American billionaires go to to avoid paying taxes.

It claims to provide an insight into how prominent billionaires such as Jeff Bezos, Elon Musk, and Michael Bloomberg take advantage of “tax avoidance strategies” beyond the reach of ordinary people.

Though there is general public consensus on the illegality of tax evasion – the act of deliberately not paying taxes that are due – much more variance exists in how the public evaluates and scrutinizes tax avoidance strategies that seek to minimize the amount an individual pays through legal loopholes. There is no suggestion that the billionaires in the ProPublica report did anything illegal.

A poll taken just before the 2016 election found that nearly half of Americans agreed with Donald Trump – another wealthy individual not averse to tax avoidance strategies – who noted that paying minimal or no taxes is “smart.” But two-thirds said it is “selfish” and 61% declared it to be “unpatriotic.”

Read more: ‘I love depreciation’: How big companies use Trump-like maneuvers to play the tax code in their favor

Rights and responsibilities

As a scholar who studies business ethics, I see these differences in how individuals view and rationalize tax avoidance as being dependent on a person’s ethical foundations. Ethical foundations are the principles, norms, and values that guide individual or group beliefs and behaviors. They can shape what people believe is important – such as fairness, care for oneself or others, loyalty, and liberty – and guide judgments about what is right, or ethical, and what is wrong, or unethical.

Philosophers have debated these ethical foundations for centuries, coming up broadly with three different perspectives that are worth exploring in the context of tax avoidance strategies.

Thinkers from Immanuel Kant to John Rawls have offered what has been called the deontological argument. This emphasizes ethics based on adherence to rules, regulations, laws, and norms. Such an approach suggests that “what is right” is defined as that which is most in line with an individual’s responsibility and duty toward society.

Meanwhile, utilitarian philosophers such as John Stuart Mill and Jeremy Bentham put forward an argument that recognizes the costs and benefits, or even trade-offs, in pursuing what is right. Under this belief system, called consequentialism, behaviors are ethical if the outcome is beneficial to the greatest number of people, even if it comes at a cost.

A third perspective comes in the shape of what is called the virtue ethical foundation that is associated with Aristotle and other Greek philosophers. This suggests that what is right is that which elevates the individual’s virtues and efforts toward moral excellence – defined by both avoiding vices and striving to do good. In this way, ethical behavior is that which enables the individual to achieve his or her most excellent moral self.

On morals and money

When applied to the tax avoidance strategies of individuals, each perspective offers a unique understanding of why individuals differ on what they view to be “right.”

An individual who adopts the deontological perspective likely evaluates a public figure’s tax avoidance strategies – and that of others – with less scrutiny. As long as an individual follows the tax code, and acts legally, the tax avoidance strategies are likely to be viewed by that individual as ethical.

In contrast, a consequentialist is likely to evaluate tax avoidance strategies by also looking at how those taxes could have been used to benefit society – by paying for schools and hospitals, for example. When one individual – be it a billionaire or any other person – avoids taxes, it increases the costs experienced by everyone else while also decreasing the benefits experienced by society as a whole.

The cost to society in terms of lesser funding for programs and services supported by tax dollars may be even greater when a wealthy individual avoids taxes, given what is likely a higher tax responsibility than that of individuals with modest incomes. Thus, consequentialist individuals may well conclude that tax avoidance strategies are unethical.

An individual who adopts the virtue perspective of Aristotle might evaluate tax avoidance strategies in the context of an individual’s other virtuous behaviors. If someone avoids taxes but provides financial support to other institutions or entities that are meaningful to the tax avoider but also produce benefits for society, then the virtuous individual may view this behavior with less disdain.

For example, someone may use tax avoidance strategies and direct some wealth to provide funding directly to an academic health care center for cancer research. But if that person employs tax avoidance strategies in the absence of any other virtuous behaviors, then the tax avoidance is likely to be seen and rationalized as unethical.

Social influencers

So whether tax avoidance strategies are viewed and rationalized as ethical or unethical likely depends on the ethical foundations of the person judging such actions.

But when it comes to public figures and the superrich, there are additional ethical concerns at play here. Public figures are evaluated not just on their own personal morality, but also by what influence their behaviors could have on others. If the superrich avoid taxes, it might signal to the public to do the same, which could have greater consequences. The public often demands more of the superrich – and ethics are no exception. The expectation is that these individuals, as leaders in society, should create benefits for society through their behaviors. As a result, these individuals may be held to a higher ethical standard and their behaviors more closely scrutinized.

As such, the question of whether the tax avoidance strategies of the ultrawealthy are “ethical” depends not only on the ethical foundation of the individual who views and judges the behavior but also on the expectation of the ultrawealthy to create benefits for society.

This is an updated version of an article originally published on The Conversation on October 30, 2020.

Erin Bass, associate professor of management, University of Nebraska Omaha

The Conversation
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The wealthiest Americans avoided billions in taxes by voluntarily doing something most only do out of necessity: borrowing money.

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  • America’s 25 wealthiest people got $401 billion richer from 2014 to 2018, according to Forbes.
  • ProPublica reported the income taxes they paid amounted to just 3.4% of that new net worth.
  • One way the ultra-rich avoid taxes: borrowing money at low-interest rates, according to ProPublica.
  • See more stories on Insider’s business page.

ProPublica reported Tuesday it had obtained a massive trove of IRS documents, revealing that America’s wealthiest individuals have avoided paying billions of dollars in taxes for years, resulting in income tax bills that amount to a fraction of their net worth.

One of the key strategies employed by the ultrawealthy to keep their tax bills low: borrowing money.

Many Americans borrow money only when they have to for large purchases like college tuition or a house, as interest can quickly add up, especially if they’re not able to pay back the loan right away.

But according to ProPublica and independent experts, America’s billionaires have often financed their lavish lifestyles by using their vast fortunes as collateral for loans, which can come with single-digit interest rates.

Borrowing money allows the ultrawealthy to earn minuscule salaries, avoiding the 37% federal tax on top incomes, as well as avoid selling stock to free up cash, bypassing the 20% top capital gains tax rate. Since loans aren’t considered taxable income, the wealthy need only pay back the principal and interest, rather than the higher taxes that would accompany multimillion-dollar incomes and investments.

America’s 25 wealthiest individuals saw their net worth grow by $401 billion from 2014 to 2018, according to Forbes. But they paid a total of $13.6 billion in federal income taxes in that same period, amounting to 3.4% of that newly acquired wealth, ProPublica found.

By contrast, a middle-class American in their 40s who had amassed a “typical amount of wealth for people their age,” saw their net worth grow by $65,000 from 2014 to 2018, but paid $62,000 in income taxes, or 95% of that new wealth, according to ProPublica.

The US does not directly tax individuals’ total wealth, unlike some European countries. Nor does it tax stock holdings until they are sold. And billionaires tend to have a lot of their net worth wrapped up in stocks.

However, ProPublica’s analysis revealed in new detail how America’s tax code allows the ultrawealthy to take advantage of a litany of tax loopholes and wealth-management strategies to increase their wealth without also increasing their tax bills substantially.

To illustrate the gap between wealth and taxes paid by the ultrawealthy, ProPublica created what it called a “true tax rate.” ProPublica defined this as the total federal income tax a person paid, in this case from 2014 to 2018, compared to how much new wealth they acquired in that same time period.

ProPublica did not publish its source data or disclose how it obtained IRS data.

According to ProPublica, the top 25 wealthiest Americans paid a “true tax rate” of 3.4% – a result of tax avoidance strategies that are out of reach for most Americans.

Borrowing, it turns out, is one of those strategies.

In 2014, for example, Oracle cofounder Larry Ellison disclosed he had used 250 million of his Oracle shares as collateral to secure a $9.7 billion personal line of credit.

Elon Musk has similarly put up a massive amount of his equity in Tesla and SpaceX as collateral for loans, rather than sell those shares and pay 20% in capital gains tax to free up the money. From 2014 to 2018, Musk paid $455 million in taxes on a reported income of $1.52 billion, resulting in an effective tax rate of 29.9%. But his wealth grew by $13.9 billion during that time, meaning his “true tax rate,” according to ProPublica’s methodology, was just 3.27%.

Musk replied to ProPublica’s request for comment with: “?”

Investor Carl Icahn also took advantage of borrowing money, paying $0 in federal income taxes despite reporting an adjusted gross income of $544 million, as he had an outstanding loan with Bank of America worth $1.2 billion, ProPublica reported.

“I didn’t make money because, unfortunately for me, my interest was higher than my whole adjusted income,” Icahn told ProPublica, adding that while he does borrow a lot of money, it’s “not at all” meant to lower his tax bill, but rather that he borrows “to win. I enjoy the competition. I enjoy winning.”

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Joe Biden wants to tax the wealthy without creating a wealth tax, even though it’s overwhelmingly popular

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President Joe Biden.

  • As infrastructure talks begin to heat up, taxes – and how much they’ll go up – will be a hot topic.
  • Yes, Biden wants to raise taxes on the wealthy, but he doesn’t want to do an outright wealth tax.
  • It’s an important distinction, as Biden is proposing tweaks to already existing programs.
  • See more stories on Insider’s business page.

Yes, President Joe Biden wants to tax the wealthiest Americans. But he wouldn’t do it with a wealth tax.

It may seem like a small difference, but it’s a significant one. A wealth tax is an outright tax on someone’s net worth, while Biden is proposing changes to existing taxes.

Of course, there’s a famous example of a wealth tax from one of Biden’s rivals from the 2020 campaign: Sen. Elizabeth Warren’s Ultra-Millionaire Tax Act, which would levy additional taxes on those with a net worth of $50 million or more.

White House Press Secretary Jen Psaki broke it down at a March press briefing: “I know Sen. Warren has put forward a wealth tax, and the president shares her view that middle-class families are paying more than their fair share and those at the top are not doing their part, so certainly he has that shared objective,” before continuing, “He laid out during the campaign his own plans for fixing this, which are different from Sen. Warren’s.”

When he talks about raising taxes, Biden’s tone strikes notes of Warren and Sanders, saying hikes won’t impact the wealthiest’s standard of living or “deprive” them of their second or third homes, and he’s “sick and tired of ordinary people being fleeced.”

But he’s not legislating like Warren and leaning into an outright wealth tax (even though it’s consistently popular). Instead, he’s opting for more of a backdoor, with a series of complex reforms that may be more palatable to lawmakers. It shows the potential limitations of how far left Biden is willing to – or thinks he can – go.

Biden would raise the income tax rate to 39.6% for Americans earning over $400,000, and would increase the rate of tax on assets – called capital gains – to be in line with that 39.6% income tax, rather than the current lower rate of around 20%. He also wants to ramp up IRS enforcement on the ultrawealthy, who have been found to hide billions. He also wants to close up loopholes like the stepped-up basis, which can provide massive tax relief on inherited properties.

“While there may be some overlap in the people – the subset of the population – being hit by these tax hikes, the design is very different,” Garrett Watson, a senior policy analyst at the Tax Foundation, told Insider of the difference between the two plans. “One is hitting income, and the other is taxing the stock of wealth or someone’s net worth.”

The Biden White House hasn’t totally dismissed the idea of an outright wealth tax, but it hasn’t supported it, either. Treasury Secretary Janet Yellen cited implementation problems as one reason it would be difficult to execute, but never fully ruled it out.

How Biden’s proposal would impact the wealthy

That difference in design could actually have a disparate impact on the wealthiest Americans, according to David Gamage, a law professor at Indiana University who recently testified in front of Warren and a Senate Finance subcommittee on wealth taxes.

Biden’s proposal to hike the capital-gains rate would have a big impact on some of the very wealthy, Gamage told Insider. Specifically, he said, people like Wall Street financiers earn most of their income from capital gains (like selling off stocks increasing in value). That means they essentially pay half the tax rate on their income, unlike people drawing a straightforward salary.

But then there’s people like Elon Musk and Bill Gates and Warren Buffett.

“Most of their wealth or economic income is in the form of their stuff they own going up in value because of the things they’ve done, primarily stock,” Gamage said, “and until they sell that stock – which they’re never going to do, for the most part, because there’s ways around that – it wouldn’t be included in the tax space.”

Things like closing some potential loopholes, including the stepped-up basis, which taxes an inheritance on the value it’s inherited at – not value it gained while held by its prior owner – could potentially have a big impact on megamillionaires and billionaires, said Gamage.

But, according to Bill Smith, managing director for CBIZ MHM’s national tax office, said that getting through those loopholes adjustments could be paramount; he said it could be a “money-loser” if it just taxes capital gains alone, because people might hold off on selling them.

What it all means

If all of that sounds a bit confusing to you, you’re not alone.

Frank Clemente, president of Americans for Tax Fairness, noted that wealth taxes often poll well – and that could be because of how straightforward they are.

“I think that it does so well in polls because it’s easy to understand. It’s very clear. It does not hit people,” Clemente said. “If you’re assessing a wealth tax on $50 million, everybody knows they’re not at $50 million except for a very small slice of the population.” Clemente, a wealth tax advocate, said he wishes Biden had been a bit bolder in his proposals, but thinks he “calibrated his position to what he thinks he could get through Congress.”

However, that doesn’t mean talks of a wealth tax will simply just go away; Smith said he doesn’t think that we’re done with an either/or situation.

“I think the Biden proposals have a number of steps in the right direction, but we need more than what’s currently being proposed to really fix the deep flaws in the income tax,” Gamage said, noting that a proposal like Biden’s could work well in tandem with Warren’s wealth tax.

And what’s been proposed isn’t final yet. There’s a long road of negotiations over different economic packages and their funding ahead. It’ll be a hot tax summer, as politicians argue over how they’ll change and who will pay them. Currently, the top 1% of tax filers would shoulder the burden of proposed changes on individuals, paying $100,000 more annually.

“It’ll be interesting to see how this stuff moves through Congress,” Watson said.

For his part, Biden has vocally defended the tax measures laid out in his plans, emphasizing fairness and equity.

“This is about making the average multimillionaire pay just a fair share,” he said in one fiery address. “It’s not going to affect their standard of living a little bit.”

But it also won’t target their wealth.

Read the original article on Business Insider

America’s wealthiest earners appear to be hiding billions of dollars from the IRS, study finds

Dubai party coronavirus
Tourists party on a yacht in Dubai Creek on February 4, 2021.

  • The top 1% of US earners aren’t reporting about a fifth of their income, new research shows.
  • Under-reporting is even higher among the top 0.1%, the paper found.
  • Offshore accounts and pass-through businesses are used to avoid taxes.
  • See more stories on Insider’s business page.

The top 1% of the highest-earning American households fail to report around 21% of their income, according to new research by the Internal Revenue Service (IRS) and academic economists.

This is a far larger percentage than the IRS’s methods had previously assumed, according the working paper published Sunday and first reported on by the Wall Street Journal. ]

Out of the 21% of unreported tax, around 6 percentage points are linked to sophisticated tax evasion that is rarely detected in random audits, the paper, by researchers at the IRS as well as schools including the London School of Economics, Carnegie Mellon, and the University of California at Berkeley, said.

These high-income households avoid paying tax through a number of ways, researchers found, adding to a bevvy of recent insight into wealth secrecy and tax avoidance. One strategy is using tax havens, where super rich individuals keep money in offshore accounts. Such evasion “increases the top 1% income share” in the US, the paper said.

Read more: Billionaire Tom Golisano says the Warren wealth tax would be ‘triple taxation’

Under-reported income is almost twice as high among the top 0.1% of earners, largely because of tax evasion through foreign bank accounts and pass-through businesses, like partnerships and S-corporations, the report says. The research found offshore accounts made up about $15 billion of evaded taxes, with the top 0.1% accounting for most of that.

To be in the top 1% of earners in the US, a family must meet an annual income threshold of $421,926, according to 2018 data from the Economic Policy Institute. But the average annual earnings for these top earners is actually $1,316,985.

For a decade, audit rates and staffing at the IRS have declined because of budget cuts, but Democrats and President Joe Biden are seeking to change that by expanding the agency, the Journal said, noting that additional enforcement could increase tax revenue by $1 trillion over a decade.

Last week, Biden said he was considering a tax hike for the wealthiest Americans in order to fund an infrastructure and jobs package. Those making more than $400,000 could see taxes raised to nearly 40% under the plan.Earlier in March, Democrats including Sen. Elizabeth Warren proposed an ultramillionaire tax on the top .05% of earners, which would raise $1.4 trillion over a decade, based on Forbes billionaire data.

Read the original article on Business Insider

The top 1% of high-income households in the US fail to report 20% of their income, a new paper reveals

Dubai party coronavirus
Tourists party on a yacht in Dubai Creek on February 4, 2021.

  • The top 1% of US earners aren’t reporting about a fifth of their income, new research shows.
  • Under-reporting is even higher among the top 0.1%, the paper found.
  • Offshore accounts and pass-through businesses are used to avoid taxes.
  • See more stories on Insider’s business page.

The top 1% of the highest-earning American households fail to report around 21% of their income, according to new research by the Internal Revenue Service (IRS) and academic economists.

This is a far larger percentage than the IRS’s methods had previously assumed, according the working paper published Sunday and first reported on by the Wall Street Journal. ]

Out of the 21% of unreported tax, around 6 percentage points are linked to sophisticated tax evasion that is rarely detected in random audits, the paper, by researchers at the IRS as well as schools including the London School of Economics, Carnegie Mellon, and the University of California at Berkeley, said.

These high-income households avoid paying tax through a number of ways, researchers found, adding to a bevvy of recent insight into wealth secrecy and tax avoidance. One strategy is using tax havens, where super rich individuals keep money in offshore accounts. Such evasion “increases the top 1% income share” in the US, the paper said.

Read more: Billionaire Tom Golisano says the Warren wealth tax would be ‘triple taxation’

Under-reported income is almost twice as high among the top 0.1% of earners, largely because of tax evasion through foreign bank accounts and pass-through businesses, like partnerships and S-corporations, the report says. The research found offshore accounts made up about $15 billion of evaded taxes, with the top 0.1% accounting for most of that.

To be in the top 1% of earners in the US, a family must meet an annual income threshold of $421,926, according to 2018 data from the Economic Policy Institute. But the average annual earnings for these top earners is actually $1,316,985.

For a decade, audit rates and staffing at the IRS have declined because of budget cuts, but Democrats and President Joe Biden are seeking to change that by expanding the agency, the Journal said, noting that additional enforcement could increase tax revenue by $1 trillion over a decade.

Last week, Biden said he was considering a tax hike for the wealthiest Americans in order to fund an infrastructure and jobs package. Those making more than $400,000 could see taxes raised to nearly 40% under the plan.Earlier in March, Democrats including Sen. Elizabeth Warren proposed an ultramillionaire tax on the top .05% of earners, which would raise $1.4 trillion over a decade, based on Forbes billionaire data.

Read the original article on Business Insider