"ProPublica & The IRS Leak"

 

 

Sydney M. Williams

 

Thought of the Day

“ProPublica & The IRS Leak”

June 13, 2021

 

“The hardest thing in the world to understand is the income tax.”

                                                                                                                Albert Einstein (1879-1955)

                                                                                                                Comment to his tax preparer Leo Mattersdorf

 

In a criminal act, some person (or persons) at the IRS leaked confidential information on some of the nation’s wealthiest people. It was given to ProPublica, an independent, non-profit newsroom based in New York City, which reported that they had “obtained” a “vast cache of IRS information” on “thousands of the nation’s wealthiest people,” which they then published. 

 

In the report dated June 8^th, Jesse Eisinger, Jeff Ernsthausen and Paul Kiel wrote: “ProPublica is not disclosing how it obtained the data, which was given to us in raw form, with no conditions or conclusions.” They claimed to have “verified” the information by “comparing elements of it” with dozens of already public tax details. They claim all people mentioned in the article were asked to comment. Those who responded, unsurprisingly, said they had paid whatever taxes were legitimately owed.

 

The incident raises questions: It is illegal to pass on confidential IRS data. Will the guilty party be exposed and punished? If unrealized capital gains should be taxed, as the report infers, would it be a recurring tax? And if unrealized gains can be taxed, what about unrealized losses? Could they be deducted against ordinary income? After all, there are years when stocks decline. Would future investment be inhibited by taxing unrealized gains? After all, expanding economies rely on capital investments, be it from a pension plan, the savings of an individual, or a business. But there is a broader question. What is the purpose of the IRS? Is it to levy and collect taxes so to fund the federal bureaucracy, or is its mission to redistribute income? ProPublica claims to investigate “abuses of power,” but the abuse they highlight is not the IRS, which a few years ago during the Obama Administration targeted conservative non-profits. Nor will they identify the unnamed leaker who abused his position by disclosing confidential information. No, they highlighted the assets of four wealthy individuals who had taken advantage of legitimate loopholes, all laid out in the 6,550-page Internal Revenue Code, which was passed by Congress. 

 

Of the four – Warren Buffett, Elon Musk, Michael Bloomberg and Jeff Bezos – the sanctimonious Mr. Buffett is the most off-putting. Fond of virtue-signaling, Mr. Buffett has argued that his tax rate is too low, that as a percent of his income he pays less than his secretary. What he doesn’t complain about are the deductions he is able to take, for example charitable gifts and interest expense on personal borrowings. Nor does he explain that if he wanted to pay more in taxes, he would pay himself a bigger salary, rather than relying on borrowings, capital gains and dividends. Watch what he does, not what he says. On a positive note, Mr. Buffett is among the most generous with his own wealth. Over the past fifteen years, he has donated $37 billion, or roughly one third of his net worth. Americans, as a group, donated $449 billion to charitable causes in 2019, or roughly three percent of their income – a higher rate of giving than the citizens of any other country. Are the people of the United States better off for these tax-deductible gifts? Of course. 

 

As Albert Einstein noted in the rubric above (and as Congress knows full well), the tax code has been written to add complexity to the incomprehensible. Members of Congress also know that the convoluted language of the tax code provides job security for lawyers and accountants. Complexity, as members of Congress realize, is friend to the wealthy, as they are the ones with the means of chasing every loophole and deduction, some of which Congress designed specifically for favored industries and individuals. If Congress wanted to simplify the tax code and ensure that everyone paid their “fair share” they could impose a flat tax on all income, with no exemptions or exceptions. That would be a truly progressive tax, with no place to hide. Lawyers and accountants would be up in arms, but so what? Nevertheless, I have no expectations that such a policy will ever become law. It is more likely that I will live to be 150 than Congress passes a flat tax.

 

It is the broader question, however, that is most disturbing. The IRS is a collection agency, which enforces tax laws and collects monies that fund the federal government. It is not a social-engineering organization. Its employees have access to the privileged, private information of individuals and businesses, requiring discretion, along with legal and ethical restraint. There is broad disagreement among people and politicians as to how big government should be, the size of its funding needs, and how deep into our personal lives its tentacles should reach. That is a decision for the people and Congress. It is not for employees of the IRS to decide if assets should be taxed, or which deductions should be permissible. It is possible that the leaker may have felt that, like Henry David Thoreau, his act was one of civil disobedience, that his obligation was not to obey the law, but to do what he thought was right. Thoreau argued that if the law was clearly unjust, it deserves no respect and should be broken. But there are differences. Thoreau wanted smaller, less intrusive government. The leaker wants to increase its size and clout. Thoreau was open about his dissent and was willing to go to jail, which he did for tax evasion. He never put others at risk. The leaker has remained hidden behind the skirts of ProPublica, while exposing thousands of innocent individuals.

 

According to the Heritage Foundation, the top one percent of taxpayers (approximately 1.4 million filings) earned 21% of all income and paid 40% of all taxes in 2018, and the top ten percent of taxpayers (approximately 14 million filings) earned 48% of all income and paid 71% of all taxes. Another point that went unreported by ProPublica is that all four men who were highlighted are self-made. It is the ladder to success that should always be accessible to those who are hard-working, talented, aspirant and willing to take risk. What that requires is a comprehensible legal system, the sanctity of private property and better and more competitive schools, which encourage individual initiative regardless of race, religion or gender. The nation needs more such men and women, not fewer. In focusing on increases in wealth, there is little doubt that the motivating factor behind this release was to influence the debate surrounding President Biden’s tax plan, and to endorse Progressives’ goal of redistributing money through a wealth tax.