Progressive news organization ProPublica has made a great deal of hay recently by pretending that public, widely-known, and intentional elements of the tax code are secret loopholes for the rich. The game plan is always the same: take a tax deduction, find an application of the deduction used by a wealthy taxpayer, then heavily imply that it was inserted purely for the benefit of these rich individuals’ checkbooks. Now it’s gone back to the well with yet another “exposé,” this time claiming that amortization of business expenses is somehow a nefarious handout to the well-to-do.
ProPublica doubtless has been encouraged by the credulous media reaction to its previous “bombshell.” After gaining access to the tax returns of hundreds of wealthy taxpayers through an illegal leak, ProPublica exposed the fact that people — even really rich ones! — pay taxes on income, not wealth. This is not exactly a bombshell revelation, given that our code has never taxed on-paper wealth. Nevertheless, it received a full red-carpet rollout from media outlets quick to jump on board with anything that amplified the popular misconception that the tax code is rigged in favor of the wealthy.
This time, ProPublica is targeting sports team owners — specifically, Clippers owner and former Microsoft CEO Steve Ballmer, whose tax records ProPublica acquired in the aforementioned “bombshell” report. Ballmer, ProPublica claims, paid a 12 percent tax rate in part due to amortization of assets acquired in the Clippers purchase.
The implication here is that this is a sneaky loophole that Ballmer is exploiting. But while countries handle cost recovery of capital investments differently, it’s a mainstay of tax systems the world over.
When Ballmer acquired the Clippers, he also invested in a great deal of assets with depreciating values. Buildings, for example, such as the stadium in which the Clippers play, degrade over time and eventually require replacement. As such, the tax code allows a deduction for a portion of these assets from taxable income each year over the useful life of the asset, known as amortization.
That’s true for businesses of all types. Depreciation of capital investments (and the superior policy of full expensing) is crucial not only for a fair tax system, but also to encourage the investments that power economic growth. Taxes on businesses are generally levied on profits, not total revenue, so allowances for various types of business expenses are necessary.
Absent this system, businesses would be far less likely to pursue capital investments, which make workers more productive and therefore more valuable. This even translates to professional sports — the ability to recover some of the cost of the investment in the Clippers’ proposed new arena is doubtless crucial to the project moving forward, creating jobs and revenue which eventually reaches the players through NBA revenue sharing agreements.
There’s plenty more examples of ProPublica stirring up nonexistent controversy by misunderstanding the tax code. Just in the last few years, they’ve claimed the 2017 Tax Cuts and Jobs Act (TCJA) was corrupt because it created growth in the stock market, criticized the TCJA for paring back a deduction that was inflating home prices for the most expensive homes, and portrayed the capping the state and local tax deduction that primarily benefits the very wealthy as a hit to the middle class.
Of course, the only thing that will discourage ProPublica from doing this sort of thing is if people stop paying attention to it. Sadly, there are lots of readers that would rather be misled than informed, and ProPublica stands at the ready to oblige them.