This week an organization that could benefit from high tax burdens for rich people is launching a campaign to advocate higher tax burdens for rich people.
“The IRS Secret Files: Treasure Trove of Never-Before-Seen Records Reveal How the Richest Avoid Income Taxes” reads the headline on a Story this week from ProPublica, which also avoids income tax. The story is deeply disturbing because someone or maybe more people broke the law by disclosing private tax return information that eventually ended up on ProPublica. This appears to be either a case of criminal hacking, appalling abuse by Internal Revenue Service staff, or perhaps abuse by foreign government actors who unduly mislead the IRS. Under tax treaties, the IRS may disclose taxpayer information to some overseas governments if the information is “foreseeably relevant” to tax issues in overseas jurisdictions.
As for the content of the article, it’s nominally about income taxes, but it’s really a long argument that the US Constitution prohibits property taxes unless they are divided according to state population. In the absence of a wealth tax, U.S. entrepreneurs who hold shares in the businesses they set up and then donate them to causes they sponsor can pay very little federal tax relative to the value of the businesses they set up. This is especially true if your growing companies pay little or no dividends on the side, but use existing money to invest in new equipment and new products, which often creates new jobs.
For some reason this bothers the ProPublica crowd, but they have to be credited for being ready to bite into a hand that is feeding them. The article scores with investor George Soros by claiming that he has “paid no federal income tax for three consecutive years”.
One reason Mr. Soros has not paid higher taxes over the years is because he donated billions of dollars to his nonprofit, the Open Society Foundations, which in turn helped fund various leftist causes, including ProPublica. What would the organization do without billionaires rationally trying to evade tax collectors?
When readers scroll down the webpage of this week’s much-discussed Pro Publica article, they will be presented with a red “Donate” button. what links to another page with a different button that leads to this message:
ProPublica is a 501 (c) 3 non-profit organization and, as such, donations to our organization are tax deductible to the extent permitted by law in your personal circumstances. To find out what this means for you, we recommend that you contact your tax advisor, auditor, or the IRS directly. If you intend to use this donation through your US taxes, please keep your email donation receipt as an official document. We will send it to you after your donation has been successfully completed.
This column does not assume that tax deductions are the only reason people donate to nonprofits. In many ways, Americans are the most generous people in the world and often give without taking advantage of tax breaks. But incentives are important, and the higher the tax burden, the more incentives people have to consider in order to reduce them through deductions such as those available to ProPublica donors. On the side, high tax rates can encourage more donations.
For an organization like ProPublica, there is not only a tax break for donors when they donate, but also for the organization when it receives more than it spends. According to the IRS:
Organizations organized and operated solely for religious, charitable, scientific, public safety testing, literary, educational or other specific purposes and meeting certain other requirements are exempt from tax under Internal Revenue Code Section 501 (c) (3).
Full disclosure, your humble correspondent is a regular consumer of ProPublica stories and often finds them informative and well-written. However, it is not immediately clear why ProPublica should enjoy a tax break over its media competitors simply because it has no shareholders. There is no doubt who is funding the work. Unless entrepreneurs are looking for a reason to donate their wealth instead of simply handing it over to the government, ProPublica might not even exist. The organization Website notes Donors include the Ford automotive dynasty foundations, steel magnate Andrew Carnegie, Silicon Valley pioneer William Hewlett, and Home Depot co-founder Arthur Blank. The Hollywood Foreign Press Association is also among the donors, although that relationship may now be terminated.
But there is one organizational donor who is above all others in the history of ProPublica. In a 2019 obituary in the New York Times Neil Genzlinger noticed:
Herb Sandler, a banker and philanthropist who provided initial funding for ProPublica with his wife Marion, died Wednesday at his San Francisco home. He was 87 … Mr. Sandler and his wife, who died in 2012, made their fortune building a small bank in Oakland, California to become Golden West Financial, a billionaire lender. They have long been a supporter of progressive causes when their Sandler Foundation provided almost all of ProPublica’s initial funding in 2007 … Mr. Sandler was the chairman of the board from its inception through 2016.
As for the wealth that ProPublica made possible, Mr Genzlinger described the end of the Sandlers’ Golden West adventure:
When the couple finally sold the business to Wachovia in 2006 – for a reported $ 25 billion – they put a large portion of their share of the proceeds, about $ 2.4 billion, into the Sandler Foundation, which they founded in 1991 .. Mr. Sandler’s support for progressive causes has been criticized from the right, particularly after some news outlets, including the New York Times, published articles suggesting that certain types of mortgage loans from Golden West after the Sandlers sold the business to Wachovia, on the 2008 financial crisis. The Sandlers denied that their loans played such a role … In 2008 “Saturday Night Live” aired a skit about the bank bailout that the Sandlers, portrayed by actors as “people who shot should be “labeled.” Following complaints, the show took the unusual step of editing the online version of the skit n. Lorne Michaels, executive producer on the show, told the Los Angeles Times he didn’t realize the Sandlers were real people.
It really was you. In the depths of the October 2008 financial crisis, Dan Fitzpatrick. of the journal reported:
Wachovia Corp., likely last earnings report before takeover
, posted a quarterly loss of $ 23.88 billion, confirming the bank’s appreciation of the acquisition of mortgage lender Golden West Financial Corp. was affected at the height of the real estate market. The quarterly loss is among the largest ever posted by any US company and signals the likelihood of further pain for other US financial institutions.
In this week’s article, the ProPublica team describes a “true tax rate” that they propose to pay, even if it’s not required by applicable law. Given the nature of its funding, perhaps ProPublica should now lead by example and finally start paying its fair share of federal taxes.
James Freeman is the co-author of “The Cost: Trump, China, and the Revival of the US.”
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