Wyden renews wealth tax push after billionaires’ returns leak

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The top Senate tax writers expressed concern Tuesday about the unauthorized disclosure of taxpayer information in a ProPublica report examining more than 15 years worth of tax returns for the country’s wealthiest individuals, but they drew different conclusions about how the disclosure should influence their legislative efforts.

© Provided by Roll Call Charles P. Rettig, left, commissioner of the Internal Revenue Service, greets Chairman Sen. Ron Wyden, D-Ore., before testifying during Tuesday’s Senate Finance Committee hearing.

Senate Finance Chair Ron Wyden, D-Ore., said the report’s findings that America’s wealthiest billionaires paid little in income taxes underscored the need for legislation that would require them to pay their “fair share.”

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But Finance ranking member Michael D. Crapo focused more on the leak of the tax returns, saying it adds to his concerns that the administration’s proposal to require banks to report more taxpayer financial information to the IRS could compromise Americans’ privacy.

Wyden brought up the ProPublica report as he opened Tuesday’s hearing on the fiscal 2022 IRS budget request with Commissioner Charles Rettig. He said the data used in the report “appears to be a massive, unauthorized disclosure of taxpayer records” and called on the IRS to investigate the source of the disclosure.

Rettig told the panel he could not comment on the specifics of the ProPublica article, particularly individual taxpayer information, but said an investigation is underway.

“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,” he said.

In response to a question from Sen. Charles E. Grassley, R-Iowa, Rettig said the IRS would “absolutely” refer the source of the leak for criminal prosecution if the investigation finds the law protecting taxpayer information was violated.

Effective tax rate: 3.4 percent

While Wyden was alarmed at about the unauthorized disclosure of taxpayer records, he was equally as dismayed at ProPublica’s findings in reviewing the returns of billionaires such as Amazon founder Jeff Bezos; Tesla founder Elon Musk; Facebook founder Mark Zuckerburg; Microsoft co-founder Bill Gates; media mogul Rupert Murdoch; and Michael Bloomberg, the former presidential candidate and founder of Bloomberg L.P.

The report revealed that those individuals and others Forbes ranks as the top 25 wealthiest Americans saw their collective net worth rise $401 billion from 2014 to 2018, while they paid a total of $13.6 billion in federal income taxes in those five years, amounting to an average effective tax rate of 3.4 percent.

That’s largely because under long-established U.S. tax law, gains in asset values, such as corporate stock, aren’t taxed until the assets are sold. And business owners can structure their compensation so a smaller share is treated as wages or dividends, which are taxed annually.

Surprisingly, ProPublica found the individual among the 25 wealthiest who paid the least in taxes was Warren Buffet, who’s been outspoken for years about the need for the rich to pay their fair share in taxes. Democrats have unsuccessfully pushed legislation over the years nicknamed the “Buffett rule” to require millionaires to pay at least a 30 percent effective tax rate.

Buffett’s net worth increased $24.3 billion between 2014 and 2018, during which he reported paying a total of $23.7 million in taxes, or an effective tax rate of 0.1 percent, ProPublica reported.

“What this data reveals is that the country’s wealthiest — who profited immensely during the pandemic — have not been paying their fair share,” Wyden said. “I’ll have a proposal to change that.”

Wyden did not describe his proposal during the hearing but he appeared to confirm to reporters afterward that he was referring to his “mark-to-market” plan.

The Finance chairman released a 32-page report in September 2019 describing his proposal to tax wealth like income, but he has not yet released legislative text. For individuals above certain income and asset thresholds, Wyden’s initial plan proposed taxing capital gains at ordinary income rates and requiring taxes to be paid annually on gains from tradable assets like stocks.

“I’ll have it ready to go here shortly,” Wyden said after the hearing. “And today, this article from ProPublica highlights — I’ve had senators already ask me about it, you know, since then — highlights the need for the reform that I’ll be offering.”

Crapo’s privacy concerns

Crapo addressed the ProPublica report but avoided the findings and instead focused on the leak of confidential taxpayer information.

“We don’t know the details of what happened here yet or not, but this information today is very relevant in my opinion to some of the proposals that the administration has on the table to expand the IRS’s access to data on people, not just to their tax filings but for individuals and companies to have their data in financial institutions open to access to the IRS,” he said. “These are issues that are very significant and require resolution.”

Crapo called out the administration’s proposal to require financial institutions to report gross inflows and outflows on all business and personal accounts above $600 to the IRS. He said he has “a significant amount of privacy concerns” about the proposal, which he says would give the IRS “near universal access” to financial account information.

“I don’t think that Americans would support giving up their access to their own private financial information to the IRS or any government agency,” he said. “The information we got today in the ProPublic circumstance is just evidence of why Americans I think are going to be very concerned about giving the IRS direct access to their financial data.”

Rettig said the financial account information is one of the first things revenue agents request during an audit and that having it more readily available could reduce and shorten audits in some cases.

“There’s a strong belief that modernized systems and the ability to actually use the information that we have and would receive will help us lessen the burden on some taxpayers by having us not audit certain taxpayers and maybe streamline the examinations of others,” he said.

Regarding the privacy concerns, Rettig said he is “not insensitive” to Crapo’s comments but that the IRS has been “very successful” in protecting taxpayer data “for the volume of data that we have and that gets exchanged.” He also pointed out that there are numerous oversight systems in place, including the Treasury Inspector General for Tax Administration, the IRS Taxpayer Advocate and the Government Accountability Office.

The ProPublica report was just a small focus of the larger hearing on the IRS’s fiscal 2022 budget request. Lawmakers in both parties questioned how the IRS would use the proposed 14 percent increase in discretionary funding to improve enforcement and taxpayer services.

Rettig provided mostly generic answers he’s given in previous testimony, like his estimate that with additional enforcement resources the IRS could capture 10 to 20 percent of the annual tax gap of revenues owed but not paid. He promised to follow up with more detail to lawmakers’ specific questions in writing.

The post Wyden renews wealth tax push after billionaires’ returns leak appeared first on Roll Call.

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