Democratic senators call for investigation of tax avoidance by the ultrawealthy

Sens. Elizabeth Warren and Sheldon Whitehouse demanded an investigation into how the rich use “legal tax loopholes to avoid paying their fair share of income taxes.”

SOURCEProPublica
Image Credot: California Free Press: Wealth

Two prominent members of the Senate Finance Committee are calling for an investigation into tax avoidance by the ultrawealthy, citing ProPublica’s Secret IRS Files series.

In a letter sent today, Elizabeth Warren (D-Mass.) and Sheldon Whitehouse (D-R.I.) wrote to the committee’s chairman, Ron Wyden (D-Ore.), that the “bombshell” and “deeply troubling” report requires an investigation into “how the nation’s wealthiest individuals are using a series of legal tax loopholes to avoid paying their fair share of income taxes.” The senators also requested that the Senate hold hearings and develop legislation to address the loopholes’ “impact on the nation’s finances and ability to pay for investments in infrastructure, health care, the economy, and the environment.”

Last month ProPublica began publishing a series of stories about tax avoidance among the ultrawealthy, based on a vast trove of tax data concerning thousands of the wealthiest American taxpayers and covering more than 15 years. ProPublica conducted an unprecedented analysis that compared the ultrawealthy’s taxes to the growth in their fortunes, calculating that the 25 richest Americans pay a “true tax rate” of just 3.4%.

The wealthy pay so little in taxes primarily because they keep their incomes low, the article explained, often borrowing against their fortunes to fund their lifestyles. Amazon’s Jeff Bezos, Tesla’s Elon Musk, Bloomberg L.P.’s Michael Bloomberg and other billionaires have each paid no federal income taxes in one or more recent years. The tax avoidance techniques described in “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Taxes” are legal, and routine among the ultrawealthy.

In a subsequent article, ProPublica highlighted how some rich people, such as Peter Thiel, have been able to use Roth individual retirement accounts, intended as vehicles to bolster middle-class savings, to create vast untaxed fortunes. A third article showed how billionaires use a provision in the tax code to reduce their taxes after buying sports teams.

Banks and financial institutions are lending more to the rich than ever, according to a story in The Wall Street Journal last week. The senators called for an investigation of banks and wealth management firms to understand the techniques, strategies and products offered to the wealthy that enable them to avoid paying taxes. Morgan Stanley’s wealth management clients have $68 billion worth of loans backed by securities and other investments, more than double the amount they had five years ago, and Bank of America has loans worth over $62 billion, the Journal reported.

In March, Warren introduced a bill, co-sponsored by Whitehouse, that would create a tax on the wealth of the richest Americans. Most Republicans and some Democrats oppose such a measure.

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Jesse Eisinger is a senior reporter and editor at ProPublica. He is the author of the “The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives.” In April 2011, he and a colleague won the Pulitzer Prize for National Reporting for a series of stories on questionable Wall Street practices that helped make the financial crisis the worst since the Great Depression. He won the 2015 Gerald Loeb Award for commentary. He has also twice been a finalist for the Goldsmith Prize for Investigative Reporting. He serves on the advisory board of the University of California, Berkeley’s Financial Fraud Institute. He was a regular columnist for The New York Times’s Dealbook section. His work has appeared in The New York Times, The Atlantic, NewYorker.com, The Washington Post, The Baffler, The American Prospect and on NPR and “This American Life.” Before joining ProPublica, he was the Wall Street Editor of Conde Nast Portfolio and a columnist for the Wall Street Journal, covering markets and finance. He lives in Brooklyn with his wife, the journalist Sarah Ellison, and their daughters. Jeff Ernsthausen is a senior data reporter at ProPublica. He previously worked on the investigative team at the Atlanta-Journal Constitution, where he investigated sexual abuse by physicians nation-wide, police misconduct in Georgia and evictions in metro Atlanta. Prior to his career in journalism, he studied history and economics and worked as a financial and economic analyst at the Federal Reserve. Paul Kiel covers business and consumer finance for ProPublica. His focus this year is on the IRS and its ability to administer the nation's tax laws. In recent years, his work has helped spur a $135 million settlement by a subprime lender for alleged abuses against service members, legislation in Congress, a federal investigation of a high-cost lender, state rule changes and the forgiveness of $17 million in medical bills by a nonprofit hospital. Past areas of focus have included the foreclosure crisis, high-cost lending (particularly installment and payday loans), the widespread use of lawsuits and garnishments to collect consumer debts, and the consumer bankruptcy system. His work has appeared in several newspapers, including The Washington Post and The New York Times. He has also produced stories for National Public Radio and American Public Media’s Marketplace, as well as appeared on This American Life. Among other honors, his work has been awarded a Philip Meyer Award by Investigative Reporters and Editors, a Scripps Howard Award, a Best in Business Award from the Society of American Business Editors and Writers, the Online News Association’s Al Neuharth Innovation in Investigative Journalism Award, and a National Press Club Award. His e-book on the foreclosure crisis was featured in The Best Business Writing 2013.

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