What methodologies did ProPublica use to calculate the "true tax rate" for billionaires?
Executive summary
ProPublica defined a billionaire’s “true tax rate” as the ratio of federal income taxes paid to the change in their estimated net worth over a given period, using leaked IRS tax records and Forbes wealth estimates to compute that figure [1] [2]. Their headline finding — that the 25 richest Americans paid about $13.6 billion in federal income taxes on roughly $401 billion of wealth gains, a 3.4% “true” rate for 2014–2018 — rests on that direct comparison and generated both policy debate and methodological pushback [3] [4] [5].
1. How ProPublica built the numerator: leaked IRS records and reported federal income taxes
ProPublica’s tax totals come from a trove of private IRS data the newsroom obtained and analyzed, which provided the amount of federal income taxes paid by individuals in the sample years; that IRS material underpins the dollar amounts ProPublica used as the numerator in the “true tax rate” calculation [6] [2]. The organization also published the underlying tax-record-based numbers in stories and follow-up methodology notes, and for related pieces produced a conventional effective income tax-rate comparison of the same group [2] [7].
2. How ProPublica built the denominator: Forbes wealth estimates and year-to-year changes
To measure wealth growth — the denominator — ProPublica relied primarily on Forbes’ annual billionaire wealth estimates and used year-to-year changes in those estimates to represent how much an individual’s fortune grew in each tax year [1] [2]. ProPublica acknowledges a timing mismatch because Forbes releases its list in March, which does not align perfectly with the calendar tax year, and states it nonetheless used the Forbes series to construct the time series of wealth changes [2].
3. The headline metric: “true tax rate” and representative examples
ProPublica divided the federal income-tax amounts (from the IRS files) by the annual increase in Forbes’ estimated net worth for each billionaire, and called that ratio the person’s “true tax rate” — a measure intended to show taxes paid relative to wealth accumulation rather than to reported taxable income [1] [4]. The reporting highlighted striking examples: Warren Buffett’s taxes versus his estimated wealth growth produced a “true tax rate” near 0.1% over an examined period, and ProPublica reported similarly low true rates for individuals such as Jeff Bezos and Elon Musk across 2014–2018 [1] [8] [3].
4. What ProPublica did and did not count — and why critics raised flags
ProPublica’s calculation explicitly compares federal income taxes paid to estimated wealth growth and therefore does not treat unrealized gains as taxed income (ProPublica uses the legal reality that appreciation is taxed when realized) — a deliberate choice that exposes the divergence between what the tax code taxes and how wealth accumulates [1] [9]. Critics and commentators pointed to limitations: Forbes’ estimates can be volatile and imperfect as a proxy for true economic gain, ProPublica’s metric omits capital gains tax liability that would arise only upon sale as well as other taxes like property, state, and consumption levies, and some analysts argue the methodology conflates book wealth with realizable income [10] [11] [12]. Advocacy groups and follow-on analyses used the same core dataset to press policy changes (for example calls for a wealth tax or minimum tax on unrealized gains), noting that the methodology helps illuminate how the current code treats unrealized appreciation [3] [13] [14].
5. The methodological takeaway: an intentionally provocative but bounded metric
ProPublica’s “true tax rate” is best read as an intentionally provocative, transparent ratio: federal income taxes actually paid (from leaked IRS material) divided by Forbes’ annualized wealth gains [2] [6]. That design spotlights the gap between realized, taxable income and paper wealth growth under current law, but it depends on Forbes’ estimates, the timing choices ProPublica disclosed, and a normative decision to treat wealth gains as the relevant base — choices that informed both the impact and the critiques of the reporting [2] [1] [10].