A Whistleblower Exposed Trump’s Tax Avoidance. Biden Should Pardon Him
A federal judge sentenced Charles Littlejohn, an IRS contractor, to five years in prison — the statutory maximum — for making unauthorized disclosures of income tax records. In her sentencing comments, that judge compared Littlejohn to rioters who stormed the U.S. Capitol on Jan. 6, 2021, as part of a bloody assault that led to the deaths of five police officers.
Astonishingly, Judge Ana Reyes concluded that Littlejohn’s actions were a greater threat to democracy than Jan. 6 rioters she herself had sentenced. Because those rioters “had not come to D.C. with the intent to riot at the Capitol,” the judge said, she did not sentence any of them to prison time. Littlejohn’s nonviolent conduct was a far bigger “threat to our democracy,” she reasoned, because he “carefully planned” his crime before committing it.
“I have reacted so strongly to your case because it engenders the same fear that Jan. 6 does — that we have gotten to [the] point in our society in which otherwise law-abiding, rational people believe that they have no choice but to break the law to further their political agendas,” Reyes said to Littlejohn, before concluding that “my Jan. 6 cases to-date are not appropriate comparators for the sentence I will hand down in your case.”
Littlejohn’s democracy-threatening crime? He shared the tax records of Donald Trump and many of America’s billionaires with reporters from ProPublica and The New York Times. For that act, he’s now serving over six times the four- to ten-month sentence the official United States Sentencing Guidelines recommend, after Reyes said she found it “necessary to impose an upward variance.”
The judge responsible for Littlejohn’s sentence — who was appointed by President Joe Biden — has embarrassed the entire American judiciary. Yes, Littlejohn’s actions did violate criminal statutes. But they also provided Americans a close-up look at the massive — and ongoing — tax avoidance of America’s richest, including Donald Trump.
We cannot overstate how huge a public service Charles Littlejohn has performed. We now know otherwise unknowable facts about the tax avoidance our billionaire class is practicing on a routine basis. These facts scream out the need for tax reform. Indeed, if Littlejohn’s disclosures lead to tax reforms that break up the massive concentration of America’s wealth — and political power — he may well have saved our democracy.
What do we now know thanks to Littlejohn?
We know (and learned before the 2020 election) that Donald Trump had either cheated on his taxes or lied wildly about his business acumen. As The New York Times reported, Trump avoided paying income tax entirely in 10 out of 15 years between 2003 and 2017, while pocketing massive fees from licensing deals and The Apprentice, which alone enriched Trump by over $400 million. When the Times first reported on Trump’s taxes, the IRS was pursuing Trump for about $100 million in underpayments. Recently, reporters at the Times and ProPublica determined that the underpayments were in significant part attributable to “double-dipping,” taking the same write-offs twice for a failed Chicago skyscraper project.
Which means that in two consecutive presidential elections highly relevant information that a major party candidate was actively concealing is available to voters only because of Littlejohn’s actions.
But that only scratches the surface. There’s much more.
We know, for instance, that billionaires often annually pay no income tax whatsoever. Just one example: In 2007 and again in 2011, Amazon founder Jeff Bezos paid not a penny of federal income tax.
We know that America’s billionaires typically pay a smaller share of their true economic income than nurses and firefighters pay. Between 2014 and 2018, the 25 richest Americans paid a paltry 3.4 percent of their true economic income in federal income tax. Over the course of those years, billionaire Warren Buffett grew his wealth by $24.3 billion. He paid tax on that increase at a rate of 0.1 percent.
We know that our richest are using Roth IRAs to shelter mega-billions permanently away from income tax. Billionaire Peter Thiel, for example, has used a Roth IRA to avoid all federal income tax on $5 billion in stock gains.
We know that one single, specific tax break created under the 2017 Trump tax law — the deduction for so-called “pass-through” income — has reduced the tax bills of individual super-wealthy Americans by tens of millions of dollars each. Michael Bloomberg currently controls over $100 billion of wealth. In the year 2018 alone, he avoided over $67 million of income tax thanks to that deduction.
We know plenty more, thanks to Charles Littlejohn. We know how our wealthiest — including Tesla Motors CEO Elon Musk — are using a strategy commonly known as buy-borrow-die to avoid paying any income tax on massive gains from their investments. Under this strategy, ultra-wealthy Americans hold on to highly appreciated assets until death does them in. They use these assets as collateral for the borrowing that funds their luxurious living expenses. Upon their deaths, current law wipes out the gains on which they’ve deferred tax through all that borrowing, in effect letting billions of dollars in income go entirely untaxed.
As a direct result of Littlejohn’s disclosures, Sen. Ron Wyden (D-Ore.), the chair of the Senate Finance Committee, has opened an investigation into tax avoidance by the ultra-rich. At a recent committee hearing, Wyden specifically highlighted the scam of buy-borrow-die.
All of which raises a question about Littlejohn’s prosecution and sentencing: Shouldn’t all this information about billionaire tax avoidance have been available to the public in the first place?
Would Americans ever have learned about the massive tax avoidance of our ultra-rich without Littlejohn’s help? Probably not. Yes, a scattering of tax experts have known all about the avoidance strategies our billionaires regularly employ. And, occasionally, facts about actual specific situations have hit the headlines. I discovered, for instance, how Nike founder Phil Knight avoided billions in estate and gift tax by analyzing filings with the federal Securities and Exchange Commission.
But one-off reports on billionaire tax avoidance like Knight’s would never have revealed the scope of tax-dodging activity by America’s wealthiest. We owe our new understanding of the enormity of billionaire tax avoidance to Charles Littlejohn. We needed a look at the tax returns of America’s wealthiest citizens, and we were never going to get that look unless someone willing to risk imprisonment stepped forward.
Over a half-century ago, during the Vietnam War, we faced a similar situation. Back then, one selfless hero stepped forward. Daniel Ellsberg disclosed the Pentagon Papers and helped change the course of history. Ellsberg understood the urgency of now.
Littlejohn does, too. He understands the urgency of reforming our porous tax laws while we still have time. The wealth and power concentrated in the pockets of our nation’s ultra-rich has not yet totally overwhelmed the political power of the rest of us. We now have new information to do battle for fair taxes. For that, we owe Charles Littlejohn a debt of gratitude, not an absurdly harsh prison sentence.
So what can we do now? For starters, we can call on Biden to pardon Littlejohn. That pardoning drive has just begun. Let’s join it.
Bob Lord, an Institute for Policy Studies associate fellow, currently serves as Senior Advisor, Tax Policy, at the Patriotic Millionaires.
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