The ProPublica Piece is Dumb; Biden’s Proposed Taxes on the Wealthy are Smart
The case for taxing the wealthy doesn't require misleading bullshit.
The fact that our tax code lets wealthy people -- including pornographically-wealthy people like Elon Musk and Jeff Bezos -- pay shockingly-low taxes is a problem. Another things that’s a problem is biased news outlets using garbage social science to basically lie to people. So you can see why I’m conflicted about the ProPublica piece on billionaire taxation that’s everywhere on lefty Twitter this week.
Let me start with the ProPublica piece. The piece is, in my opinion, awfully damned impressed with itself. It has all the trappings of Big Important Journalism That Should Win Us A Pulitzer, Please, including a “snowfall” layout, dots representing quantities (people love dots!), and the obligatory black-and-white, eyes-scratched-out banner photo that tells you: “These people are baaaaaaaaaad!” It promises to “reveal how the wealthiest avoid income tax” and “demolish the cornerstone myth” - demolish it, they declare that their own article DEMOLISHES THE MYTH - that every American pays their fair share. They then completely fail to do either of those things, even though an honest analysis of our tax system would do them.
I don’t think ProPublica skipped an honest analysis of billionaire taxation because they’re lazy jerks; I think they skipped it because it can’t really be done until those billionaires die. And, since ProPublica wasn’t willing to wait a few decades or go on a mass killing spree, they invented a metric they call the “true tax rate”. The true tax rate is simple; it’s:
What’s silly about this is that it allows ProPublica to pick time frames - and boy oh boy do they cherry-pick timeframes! - in which most of the taxes in question didn’t come due. They then pee their pants saying “person X didn’t pay any taxes during this timeframe!” even though taxes will come due on that money1, just not during the time ProPublica chose to look at. This isn’t “avoiding taxes”; it’s “not paying taxes yet.” It’s also a publication being willfully ignorant in order to engineer a narrative.
To me, this article is like someone saying “O.J. killed five people.” Why did you say that? Because now you’re forcing me to say: “Well, he didn’t kill five people.” So now I’m basically on O.J.’s side - thanks a fucking lot! You didn’t need to exaggerate to make your case!
Before I get to how Biden wants to close the loopholes that the rich actually use, allow me to continue DEMOLISHING THE MYTH...actually, no, I shall SKULLFUCK INTO DUST the myth that Propublica’s “true tax rate” tells us anything important. The basic situation is this: The ultra-rich make most of their money through wealth appreciation, not wages. Payroll doesn’t issue Jeff Bezos a weekly check for $214,000,000.67 (or whatever); Bezos has a portfolio of stuff (mostly stock) that grows in value over time. That growth is, essentially, income. It should be taxed at some point; pretty much everyone agrees on this except for your weird libertarian roommate from college.
We currently tax capital gains - that is, growth on stocks, property, or other types of wealth - when the asset is sold. That timing makes some sense: You don’t really have the money until you sell the thing. I can’t walk into Walgreens and say “my house appreciated by five percent last year so I’m taking this Clark Bar” - I have to actually sell the house before I have the cash to buy the Clark Bar. You can argue that we should tax that money earlier - and I’m actually more open than most to some proposals that would do that - but this is how we currently do things. It’s not insane; most countries do it this way. So, we shouldn’t be scandalized that people aren’t paying taxes before selling an asset. We require A not B, and ProPublica spent 6,000 words saying “can you believe the rich aren’t doing B?” Yes, I can believe it, because that’s not the system. I think it’s fair to say that I have ANNIHILATED THAT MYTH AND PISSED ON ITS BONES!!!
I’m being rough on ProPublica, but I’m being rough for a reason beyond just that I’m an asshole: It’s also because there’s a growing ethic on the left that shoddy journalism and misuse of numbers is okay when “our side” does it. I’ve written about this, and so have other liberals. It’s a bad trend. Colbert’s classic “reality has a well-known liberal bias” joke from 2006 was funny because it was true; people who valued objectivity were clustering on the left, while the right was sinking into conservative media-built bizarro world. I don’t want the left to become the right, and I worry that we’re slipping. For what it’s worth, Fox News pulls this exact same “selective timeframe” trick when they want to smear Trump’s enemies. When you’re using tactics favored by Fox News, it’s time to look in the mirror.
Luckily, Joe Biden is in touch with reality. It’s his main selling point; his campaign slogan was practically “I am a person who is in touch with reality.” And there are, indeed, huge loopholes that the rich use to avoid taxes. Probably the biggest one is the “step-up in basis” loophole, which I will now illustrate using this monstrosity:
That little hellspawn - which to me looks like nothing other than a baby who has killed an Ewok and is wearing its skin - is an Anne Geddes doll. Long ago, I was married to a woman whose mother owned dozens of those things. They were freakish little gremlins - ostensibly babies dressed as animals - and it turns out that combining two cute things is like multiplying negative numbers, because those dolls were acid-induced nightmares straight from the fiery sphincter of hell. Some of the babies were sleeping, which made them look very...how do I put this?...dead. Or at least drunk - the best case scenario is that this baby hedgehog has really tied one on:
Now: That marriage didn’t last. I do not stand to inherit a fortune in plastic-baby-dressed-as-a-bumblebee wealth. But imagine that I had stayed married, and imagine that the 2020s end up being a decade that sees a surge in demand for creepy rubber infants in animal pelts. So, in this hypothetical - every element of which I find nightmarish, but we’ll soldier on - the $1,000 worth of Anne Geddes dolls my mother-in-law bought in the ‘90s is worth $10,000 when she passes away in, say, 2030. And let me tell you: The second I get my hands on those things, they are going out the fucking door! They’re getting liquidated, INSTANTLY - I’m not turning my house into a menagerie of dead-eyed Island of Doctor Moreau babies. If some sick fuck wants to pay me $10,000 for those, be my guest.
So, basically: Somebody - either me or my mother-in-law’s estate, depending on how you look at it - just made $9,000. That should be subject to capital gains tax (if we ignore exemptions that shield the middle class from any of this and I am because this is just an example). But the step-up in basis loophole allows me to tell the IRS: “I actually inherited $10,000 worth of passed-out babies, which I then sold for $10,000, netting me a profit of $0.” My taxable income is zero. Nobody paid any tax on my mother-in-law’s savvy cosplaying baby doll investment. This loophole gives rich people an incentive to hold on to assets until they die. Dying is always a smart move if you’re rich; I don’t know if Jeffrey Epstein committed suicide or was murdered, but either way it was a tax-avoidance master stroke and I’m sure his accountant was thrilled.
Biden wants to close the step-up in basis loophole. One benefit of doing that is that it would make it possible to raise the capital gains rate, which Biden also wants to do (for the wealthy). The capital gains rate is currently about half the rate for wages, and that’s criminal; it’s a major driver of low tax rates for the rich. But you can only raise the capital gains rate if you also close the step-up in basis loophole, because the loophole is so big that a higher tax rate would cause people to exploit it more. Think of capital gains taxes like candy prices in a movie theatre. If the candy is cheap, people will obey the “no outside food” rule, because, hey - prices aren’t that bad. Better to pay the theatre than suffer the indignity of getting caught pinching Red Vines between your buttcheeks. But if prices get too high, people start stuffing Raisinettes into their underpants. Closing the step-up in basis loophole is like instituting an “all customers will be strip-searched” policy; nobody can escape the “no outside food” rule, so the theatre can charge a higher price for candy.
The last big loophole relates to how deductions for charitable donations by the wealthy are calculated. It’s the rare topic that I am deeming “too boring for this newsletter”. If you want to understand how it works, well...you’re a sick bastard with too much time on your hands, but Josh Barro has an excellent explanation here. Biden wants to change the calculation in a way that tries to retain incentives for charitable giving while prohibiting ridiculously-large deductions. Bottom line: If you’re an old billionaire, you’d still be able to donate money to build an opera house for your minimally-talented mistress to perform in, and you’d still be able to deduct that donation, but you wouldn’t be able to deduct it a lot. And she’s still going to grow tired of being a kept object in your cacophonous mansion and leave - you can’t really blame that one on the I.R.S.
To its credit, the ProPublica piece does briefly touch on these three policies. Unfortunately, they do so after spending about 5,000 words playing with their nonsense “true tax rate” and - for some reason - discussing taxation during the Civil War. Ultimately, the piece is more about atmosphere than policy - what it brings to the party is cool graphics and scratchy-outy-eyes and dick-waving claims about DEMOLISHING arguments. I’ll try to remind myself that the point they’re making is that the rich pay obscenely-low taxes, which is true. But I won’t applaud them for using exaggeration and trash science to make that point.
It’s usually only possible to spot a misleading article when you know a lot about the topic. I used to enjoy pop-science articles about the human brain; it was only when I married a former neuroscience major - who, sadly, does not possess any doll-based familial wealth - that I learned that articles that make big claims about brain scan findings are usually bullshit. We all depend on journalists to deliver the truth. They should never exaggerate, and they should super-duper never exaggerate when the truth is sufficient to make a point. After all: O.J. did not kill five people, invent Jar Jar Binks, and then drive that ship sideways into the Suez Canal. And there’s really no need to say that he did.
Some taxes will come due on that money, and more taxes should come due on that money. But for that to happen, we need to close some loopholes - I’ll cover those loopholes in the second half of the article.
A superficial analysis of the ProPublica article but thanks for taking the time to mention the article. I would probably never have read it if it wasn't for your mention.