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Comment by lhorie | Hacker News Reader

Reading the article, it says that the figures are looking at actual income, not changes in asset prices. It says the low figures come from a) lower tax rates from realized capital gain and b) deductions through charitable donations.

Capital gains in the US are taxed at a maximum rate of 20%[0] for long term holdings, vs income tax rates, which can go up to 37%.

Donations are also something that anyone can use to lower their own taxes, it's line 40 of the 1040 form.

So one can easily change the title to claim that the super wealthy donate more, but I suspect that's not as much of an eye-grabber of a headline.

There may be something to be said about donating to your own non-profits, but that's not what this article is about.

[0] https://www.nerdwallet.com/article/taxes/capital-gains-tax-r...

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> Reading the article, it says that the figures are looking at actual income, not changes in asset prices.

They used actual income... but not for the 3.4% figure that's in the headline. When using actual income (i.e. personal income and cap gains) to calculate tax rate, they ProPublica article said:

> Collectively, the top 400 paid an average tax rate of 22% from 2013 to 2018.

So... where did they get the 3.4% figure that's in the headline? By including unrealized cap gains:

> Then they pay very little in tax when it’s measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a “true tax rate,” as we called it, of 3.4%.

What's a "true tax rate?", you ask?

> To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period. We’re going to call this their true tax rate.

In other words, ProPublica invented the term 'true tax rate' to represent a fake tax rate that treats unrealized cap gains as income. The Guardian then wrote a headline that conflates the fake tax rate with the real tax rate.

Whenever you find yourself believing something that's not true, be sure to take a hard look at the source who mislead you. You'll find that it was rarely by mistake.

Interesting. I hadn't read the Propublica article (frankly the parallax BS was annoying as hell) and I was going by the 4.1% figure for Michael Bloomberg in the linked article, which for all intents and purposes is close enough of a tax rate.

But yeah "We’re going to call this their true tax rate" is amateur hour. Who even allowed this crap to be published?

Putting aside the way these figures are calculated (addressed in sibling comments), I'm always surprised at the lack of interrogation of the charitable contribution deduction in these conversations. The way that the tax code is currently structured, everyone who doesn't itemize their deductions effectively subsidizes the charitable preferences of the ultra-wealthy. If we wanted to promote charitable giving in a more equitable manner, why not simply eliminate the charitable deduction entirely and then use all the extra revenue to give each individual a "charity voucher" which they could donate to a charitable organization of their choosing?

"Donations are also something that anyone can use to lower their own taxes"

This is false. It used to be less false, but now is mostly false.

In order to get any tax advantage from donations, you must itemize as all hyper rich do. Full stop. If you take the standard deduction as almost everyone else does (more than 90 %) then you get nothing for your charitable giving.

Note that when the hyper rich do give and get credit it is very often not to organizations that are very "charitable" at all. If you don't believe this to be true simply look up what a how "private foundations" and particularly "donor advised funds" work.

You're entitled to a deduction of up to $300 (or $600 if married and filing jointly) for charitable donations even if you take the standard deduction.

I believe the comment is referring to the part of the report which explains the 3.4% figure is based on taxes paid relative to net worth growth. Specifically, it says :

“As we showed last year, the richest avoid income when they can. Then they pay very little in tax when it’s measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a “true tax rate,” as we called it, of 3.4%.”

Can someone explain the charitable donations deduction thing? I get the art appraisal example of getting it appraised more than its worth and getting a deduction for it. But assuming a person isn't doing that, how are charitable deductions even worth noting? Should you have to pay taxes for donating to charity? Am I missing some way of making money off donating?

This is what the article says

"Collectively, the top 400 paid an average tax rate of 22% from 2013 to 2018."

"The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a “true tax rate,” as we called it, of 3.4%"

There is also tax loss harvesting, paying yourself via loans against assets, and using LLCs to purchase items like houses etc. to avoid taxation.

It doesn't surprise me that billionaires pay substantially lower rates than long-term capital gains would imply they should.

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