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03:47 Jesse Isinger Well, I mean, me, non-tax reporter, non-tax expert, it was all extraordinarily revelatory. 03:55 But even tax experts didn't understand this fully. 03:59 So, you know, I think there's a general lay understanding that the wealthy avoid taxes. 04:05 And that's the kind of eye roll thing that you would hear in a bar if you were talking about these stories with someone. 04:12 drinking next to you, but they didn't know that Jeff Bezos and Musk and Bloomberg and Carl Icahn and George Soros literally could pay zero in federal income tax in recent years. 04:27 They didn't know that Jeff Bezos got a child tax credit because his income was so low. 04:33 Experts understood that in the abstract, and no one understood it in the specific until we 04:40 proved it because we had the specific numbers and the names. 04:46 PJ Vogt So let's get into the actual specifics. 04:48 In this episode, we're going to dig into how it is that some billionaires end up paying zero dollars in federal income tax. 04:59 Chapter One, One Weird Trick. 05:02 I asked Jesse to walk me through, step by step, how the trick works. 05:07 I gave him Jeff Bezos as my hypothetical billionaire who might want to not pay his federal income taxes. 05:12 So let me tell you my dum-dum's view of what Jeff Bezos' life looks like. 05:17 My dum-dum view of Jeff Bezos is like... 05:20 He's working out. 05:21 He works out a lot. 05:22 He takes a lot of pictures with his beautiful partner. 05:25 And then every two weeks, his phone buses, and it's his Chase bank account. 05:30 And it says that his payroll deposit is in, and that Amazon.com... 05:35 pays him, I don't know, Jeff Bezos, $10 million a year. 05:40 So he gets like almost $200,000 a week. 05:45 So every two weeks, he gets like $400,000. 05:47 They take out like, you know, all the stuff the government takes out. 05:49 So after taxes, he gets like $200,000. 05:51 It goes into his checking account. 05:53 That's not what happens. 05:54 What happens instead? 05:56 Jesse Isinger No. 05:57 So what happens instead is he gets a small paycheck. 06:01 You know, a lot of these guys get $1 salaries. 06:05 Yeah. 06:05 And, you know, Steve Jobs sort of popularized that. 06:08 But the Google guys, Larry Page and Sergey Brin, they get $1. 06:12 It's very popular. 06:13 And if you got $1 divided by 52, you're not paying a lot in taxes. 06:19 And so what's happening with those guys is they're not really getting that kind of weekly paycheck, or they're getting very modest amounts of money. 06:29 PJ Vogt So there's nothing to tax in terms of wages. 06:31 Jesse Isinger There's nothing to tax in terms of wages. 06:33 They're keeping their wages low. 06:34 And the reason why they're keeping your wages low is that wages are relatively highly taxed. 06:39 They're taxed at about 40%. 06:41 The top marginal tax rate of 37% plus about 3% for payroll taxes. 06:47 And so you don't want wages. 06:48 It's stupid if you're a really wealthy person to get wages. 06:52 So instead what you're doing is you're getting money through gains on your asset. 07:00 PJ Vogt So obviously, anyone who is not taking income is not going to pay income tax. 07:04 But most people need some form of income to live. 07:08 What sets ultra-rich people apart is that they typically own at least one very expensive asset. 07:14 For instance, a business they made or inherited. 07:17 And there's actually a way to make money off of that asset without that money being taxed as income. 07:23 Jesse Isinger And so what Bezos... 07:25 It's very easy to think about what Bezos is doing, which is that most of his wealth is tied up in Amazon stock. 07:33 And so Amazon stock goes up several billion dollars a year, typically, or has for a long time. 07:39 And then if Bezos needed cash... 07:44 he could sell some of that stock and then he would get cash. 07:49 PJ Vogt But then he would have to pay taxes on selling the stock. 07:51 Jesse Isinger Right. 07:51 And then if he sold that stock, then he would have to pay taxes on it. 07:54 You're not paying 37%. 07:56 You're only paying 20% on that because that's what capital gains tax is. 08:00 But why pay 20%? 08:02 So what you want to do instead is borrow against that money. 08:06 PJ Vogt So he goes to the bank and he says like, hi, Jeff Bezos, you may have heard of me. 08:10 I only make $1 a year, but I do happen to own a lot of Amazon stock. 08:15 I want you to just give me a loan and the collateral will be my Amazon stock. 08:19 Jesse Isinger Yeah, so I don't actually know if Bezos specifically does this, but Larry Ellison, we know, does this. 08:25 He's the billionaire from Oracle, one of the richest people in the world, and a guy named Elon Musk. 08:30 We've talked about it on this very podcast. 08:31 He's literally borrowed against his stock to the tune of tens of, 08:36 PJ Vogt Billions of dollars. 08:39 Every person whose tax information was described in ProPublica's reporting was asked to comment. 08:44 Jeff Bezos' reps declined, as did Larry Allison's reps. Musk responded to ProPublica's email with a lone question mark. 08:52 After ProPublica responded with detailed questions, he did not reply. 08:57 Okay, so Elon Musk pays himself something like a dollar a year. 09:01 Crosstalk Yeah. 09:01 PJ Vogt Even though he works at like eight companies. 09:03 Yeah, very little. 09:04 So maybe it's $8 a year. 09:05 And when he wants money, he goes to the bank and he says, hi... 09:10 Elon Musk, I've ruined Twitter. 09:12 You guys are going to give me a loan, and the collateral for the loan is going to be my Tesla stock, presumably. 09:17 Jesse Isinger Yeah, exactly. 09:18 PJ Vogt And then you don't get taxed on a loan. 09:21 Jesse Isinger You don't get taxed on borrowings. 09:23 PJ Vogt But so then he, they give him, like, a bunch of money. 09:27 He, like, buys a bunch of social media companies. 09:30 Jesse Isinger Yeah, Larry Ellison bought a Hawaiian island. 09:33 But then what do you do? 09:34 You have to pay loans back. 09:36 No. 09:37 No. 09:37 Wrong. 09:38 Why? 09:38 You're so naive. 09:39 I am. 09:40 Yeah. 09:40 In a lot of ways. 09:41 Yeah. 09:42 So you basically borrow at almost no cost. 09:47 Yeah. 09:47 Because they know that the stock is there and they can call it at any time. 09:51 Yeah. 09:52 And you essentially never really have to pay it back. 09:55 The estate's going to pay it back when you die. 10:00 PJ Vogt What Jesse's saying is that billionaires, instead of funding their lifestyles with salaries or by selling some of their valuable assets, billionaires can just borrow money against their assets at extremely low interest rates available only to them. 10:14 Those rates fluctuate with the market, but according to Bloomberg, billionaires have in the past been able to borrow money at less than 1% interest, money that is completely untaxed. 10:24 And they can then use that money to buy whatever they want. 10:28 Islands, basketball teams, social media companies. 10:31 The government will tax billionaire assets when the billionaire dies through estate taxes. 10:36 Although, you won't be shocked to know that the ultra-wealthy are pretty good at working around the estate tax as well. 10:43 A USC professor named Ed McCaffrey coined the phrase for this, buy, borrow, die, which sounds like a confusing bumper sticker, but buy, borrow, die is the tactic that people like Elon Musk are employing, avoiding paychecks, living off of borrowed money. 10:58 Do you think his credit score then is high or low? 11:00 Because he has a lot of debt. 11:02 Jesse Isinger He's got a lot of debt, and they were a little worried about it at some point. 11:06 The reason we know this is that his lawyers forced him to disclose it in the SEC filings. 11:11 That's why we also know about Larry Ellison. 11:13 So you can't see everybody's borrowing, so you don't know how much Jeff Bezos is actually borrowing, if he's borrowing at all. 11:20 But this is an extremely common technique for ultra-wealthy people. 11:29 PJ Vogt So that is the one weird trick billionaires have come up with to not pay income taxes. 11:34 Don't have income or have as little income as possible. 11:38 It won't really work for me and it won't really work for you unless you're a billionaire. 11:43 If you are a millionaire and you're listening to Search Engine, I do want to say, 11:47 We could actually use help funding the show. 11:49 And I'm really sorry that Jesse was so rude about you and your friends. 11:52 I actually barely know him. 11:54 I happen to think you guys are great. 11:55 I'm very proud of your ability to allocate capital efficiently. 11:58 Anyway, where was I? 12:00 Right. 12:01 The loophole. 12:02 What if we wanted to close it? 12:04 What if instead of relying so much on the largesse of the middle class and the merely rich, what if we asked the ultra wealthy to get taxed like the rest of us? 12:16 After the break, new ideas from unexpected quarters. 12:41 This episode of Search Engine is brought to you in part by Framer. 12:44 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framer.com slash design and use promo code search. 13:40 framer.com slash design, promo code search. 13:43 Rules and restrictions may apply. 13:50 This episode of Search Engine is brought to you in part by MUBI, a curated streaming service dedicated to elevating great cinema from around the globe. 13:58 From iconic directors to emerging auteurs, every film on MUBI is hand-selected so you can explore the very best of cinema streaming anytime, anywhere. 14:06 And right now, to mark the 35th anniversary of Twin Peaks, you can stream the complete original series from 1990 and 1991, created by Mark Frost and David Lynch. 14:17 Plus, Twin Peaks, a limited event series from 2017, available for the first time on MUBI. 14:23 It is so good, and it is so scary. 14:26 Who killed Laura Palmer? 14:27 That question shook television history. 14:30 Twin Peaks rewrote the rules of TV. 14:32 Twin Peaks remains both wonderful and strange 35 years later. 14:36 From the visionary minds of Mark Frost and David Lynch, this is a chance to revisit, or discover, the show that influenced everything from true detective to severance. 14:45 To stream the best of cinema, you can try MUBI free for 30 days at MUBI.com slash search engine. 14:51 That's MUBI.com slash search engine for a whole month of great cinema free. 15:12 Welcome back to the show. 15:15 When ProPublica published a series about the secret IRS files, Jesse initially felt like their reporting hadn't really had the impact he would have hoped for. 15:24 But this past spring, he realized they'd reached at least one influential American. 15:29 Joe Biden Mr. Speaker, Madam Vice President, members of Congress, my fellow Americans. 15:36 PJ Vogt Chapter two, Joe Biden. 15:38 Listening back now, it's a little strange that this clip is only from March. 15:42 Biden, back then, still the Democratic candidate, and also sounding at the time fairly energetic as he addressed the nation. 15:49 Joe Biden Not since President Lincoln and the Civil War have freedom and democracy been under assault at home as they are today. 15:56 PJ Vogt He stood at the lectern, Kamala Harris behind him applauding his better lines. 16:00 And later in the speech, he began to talk about taxes. 16:03 As the crowd started to respond, you kind of felt like you were at a youth crew hardcore show. 16:08 Joe Biden Folks at home, does anybody really think the tax code is fair? 16:11 Do you really think the wealthy and big corporations need another $2 trillion tax break? 16:20 I sure don't. 16:21 PJ Vogt But then Biden went from this very standard fair, you know, the rich pay taxes, blah, blah, blah, and slipped in a way more radical idea. 16:29 I'm going to play you the moment he does this, although I will warn you, the radicalness of it is somewhat well concealed. 16:35 But listen, maybe you'll catch it. 16:37 Joe Biden You know, there are 1,000 billionaires in America. 16:41 You know what the average federal tax is for those billionaires? 16:45 No. 16:47 They're making great sacrifices, 8.2%. 16:49 That's far less than the vast majority of Americans pay. 16:55 No billionaire should pay a lower federal tax rate than a teacher, a sanitation worker, or a nurse. 17:04 PJ Vogt So the radical part is the number that Biden just used. 17:08 He said the billionaire tax rate is 8.2%. 17:10 To be clear, the federal income tax rate for a billionaire is actually almost 40%. 17:16 And Biden got a lot of pushback for saying 8.2. 17:20 From the Wall Street Journal, the Washington Post, the New York Times fact checker accused him of bending the truth. 17:26 But let me just explain to you how he got that number. 17:29 The logic Biden is using here is the exact same logic that you would find in the ProPublica series. 17:35 Remember the buy, borrow, die technique? 17:38 We know a billionaire like Elon Musk does not get a real salary. 17:42 Instead, he pays himself a dollar and then owns a lot of Tesla stock. 17:47 In most years, the stock gains value. 17:49 A stock, anything that gains value, that you then don't sell, we call that gain an unrealized gain. 17:57 An unrealized gain is anytime something you own becomes more valuable, but you hold on to it. 18:02 My unsold Eric Lindros rookie card that is somewhere in my parents' house is an unrealized gain. 18:09 In theory, it's worth more money than when I bought it, but I'm not benefiting from that gain right now. 18:15 I'm not, but we now know someone like Elon Musk can. 18:19 Billionaires like him are constantly borrowing against their unrealized gains. 18:24 Joe Biden is saying, when it comes to these billionaires, we should treat that gain in value as if it's real money, in their pocket that should be taxed. 18:32 And that, believe it or not, is an extremely, extremely controversial idea. 18:38 Jesse Isinger It's a religious tenant among tax accountants and lawyers that you cannot tax unrealized gains. 18:46 PJ Vogt And so people are very offended by the notion. 18:48 When you say people are offended by the notion, like of all the third rails in American culture, taxing unrealized gains was like a spicy topic that ProPublica was afraid to poke? 19:01 Jesse Isinger It's a very, very spicy topic. 19:03 In tax circles, this is as spicy as you get. 19:06 PJ Vogt Jesse's quick to point out that tax textbooks across the country do consider unrealized gains income, but the idea of taxing that income is a lot spicier. 19:17 Jesse and ProPublica got very similar flack to the flack that Joe Biden received. 19:22 Jesse Isinger People responded to us by saying, you idiots, we don't tax unrealized gains in this country. 19:29 And we had to say, you know, I responded to 150 emails from readers saying, yeah, that's the point of the article, is that we have a choice about what to tax, and we're not taxing this, and that's why billionaires are able to live outside of our tax system. 19:48 PJ Vogt Our government, since its inception, has been in this push and pull with the very wealthy. 19:53 The government typically tries to get them to pay more. 19:55 They mostly try to pay less. 19:57 Sometimes this push and pull is so strong, it actually changes the nature of wealth, changes in some ways the structure of our economy. 20:05 So what if, right now, you wanted to bring more billionaires more firmly into our tax system? 20:10 There's a few possible solutions. 20:12 Solution one, the one Jesse is getting so much crap for pointing to, is to just make a law that would let the government tax unrealized gains. 20:20 There's a bill that would do this. 20:21 It's based on Biden's proposal. 20:22 It's called the Billionaire Minimum Income Tax Act. 20:25 Here's Biden laying it out. 20:27 Joe Biden If you make a billion bucks, great. 20:29 Just pay your fair share. 20:30 Pay a little bit. 20:32 A firefighter and a teacher pay more than double, double the tax rate that a billionaire pays. 20:40 That's not right. 20:42 That's not fair. 20:44 PJ Vogt It's like he's trying to whisper directly into the troubled mind of Elon Musk. 20:49 This billionaire minimum income tax, it would actually apply not just to billionaires, but to any American whose net worth exceeds $100 million, meaning 99.99% of Americans would be unaffected by it. 21:01 Joe Biden It applies only to the top 100th of 1%. 21:05 One hundredth of one percent of the Americans will pay this tax. 21:08 The billionaire minimum tax is fair, and it raises $360 billion that can be used at a lower cost for families and cut the deficit. 21:17 PJ Vogt After Joe Biden left the race, Kamala Harris adopted his same plan. 21:21 Here she is on 60 Minutes, an hour-long television show, discussing it. 21:25 Kamala Harris I'm going to make sure that the richest among us who can afford it pay their fair share in taxes. 21:32 It is not right that teachers and nurses and firefighters are paying a higher tax rate than billionaires and the biggest corporations. 21:42 And I plan on making that fair. 21:45 PJ Vogt It's very easy for most of us to get on board with a plan like this. 21:48 More money for roads, no skin off our backs. 21:51 But I wanted to run it by a more skeptical expert. 21:54 Okay. 21:56 Are you all settled? 21:56 Are you good? 21:57 Alison Schrager Yeah, I'm good. 21:58 PJ Vogt Okay. 21:58 First of all, can you just say your name and what you do? 22:01 Alison Schrager Alison Schrager. 22:02 I'm a senior fellow at the Manhattan Institute and columnist at Bloomberg Opinion. 22:08 PJ Vogt And is Manhattan Institute technically a think tank? 22:10 Alison Schrager Yes. 22:11 I like how you put Think Tank in quotes. 22:13 PJ Vogt Think Tank always feels like a weird, I'm like, it always makes me think of Star Wars and the Bacta tanks. 22:17 Like everyone's put in like sort of amniotic fluid all day and forced to come up with policy ideas. 22:22 Alison Schrager Yeah, you know, I do spend a lot of time thinking, which makes me feel like I don't work that hard because the amount of hours in a day I'm actually doing something like writing or doing things like this is actually minimal, but I do think a lot. 22:36 PJ Vogt Honestly, that sounds completely lovely. 22:38 That sounds like a great way to spend your entire life. 22:44 Maybe I should have said this earlier, but ProPublica, where Jesse works, is a nonpartisan investigative journalism organization. 22:51 But the thrust of their reporting, to me, leans left. 22:55 The Manhattan Institute, where Allison sits in a tank and thinks. 22:59 Their thrust, generally conservative. 23:02 I would say Romney, not Trump. 23:04 But that means, in a sense, yeah, maybe it's not surprising that this person from this place is skeptical about an innovative new tax on the rich. 23:12 But the thing is, Alison does believe that billionaires need to pay more than they're paying. 23:17 Alison Schrager I agree they should be paying more in taxes. 23:20 Okay. 23:20 I'm not against that idea. 23:22 I just, how you structure your tax system is important to me. 23:26 In a perfect world, I wouldn't think anyone should pay any tax, but the fact is we do need a functioning government, and we've committed to a lot of things that people are counting on, and we need money. 23:35 And everyone's going to have to pay more taxes, and they have more money, so they should pay more. 23:40 PJ Vogt So Allison agrees on the problem, but she doesn't like the fix that the Democrats are suggesting. 23:46 Alison Schrager I don't agree with taxing unrealized gains. 23:50 There are credible economists who think differently. 23:53 This is a conversation we should have, but like, I think it's just impractical. 23:57 And the ability to collect a tax you levy is actually very important and it's important consideration. 24:03 First of all, it's very hard to tax wealth because it's really hard to put a value on wealth. 24:07 When you tax a capital gain, I mean, there's a financial transaction you can observe and you can tax that. 24:13 PJ Vogt Meaning like you can actually say like the stock was worth this on the day you bought it. 24:17 It was worth this on the day you sold it. 24:18 And so it's really easy to say what the value was and you just take the tax rate and you're out of there. 24:23 Alison Schrager Exactly. 24:23 It's like taxing income. 24:25 You know, you observe your income and then you pay a tax on it. 24:29 And this makes collecting it easier. 24:31 But how do you measure an unrealized gain? 24:36 So is it just like December 31st, the value of your portfolio and then what you pay the tax on April 15th? 24:43 What do you do if there's a loss? 24:45 Do they get a tax credit? 24:49 PJ Vogt After this call with Allison, we looked through the Biden-Harris proposal, all 256 pages of it. 24:55 Not me, we. 24:56 It does actually have pretty specific answers to many of these questions. 25:00 There's a specific date where you'd measure the unrealized gain, and if there's a loss, there'd be a credit. 25:05 Jesse Isinger told me that he's spoken to tax experts who say the details in this proposal actually seem quite thought through. 25:12 I do take Alison's point that the ease of collecting a tax matters, and I'm also moved by this idea she has that a new tax could be distortive, meaning taxing something we've never taxed before could have social consequences beyond what we imagine, some of which we might not like. 25:28 Alison does have some other competing ideas for ways to get more tax revenue from the wealthy, which brings us to solution two, get rid of step-up in basis. 25:37 Alison Schrager which is when you buy an asset, when you sell it, you pay tax based on what the price was when you bought it versus what you were when you sold it. 25:46 But if you die and leave it to your heirs, it's not based on when you bought it. 25:51 PJ Vogt Step up in basis. 25:52 God, when did this podcast get so in the weeds? 25:55 Step up in basis basically is another way that a wealthy person can give an asset to their kids and in doing so, avoid a lot of taxes. 26:03 Allison explained how that tax maneuver works right now. 26:06 Alison Schrager So suppose you start a company, suppose you're Jeff Bezos and you kept Amazon private and he died tomorrow. 26:13 PJ Vogt Yeah. 26:14 Alison Schrager And he left this private company to his children or even if it was public and they sold all their shares, they wouldn't pay a capital gains tax on it. 26:22 PJ Vogt So rather than paying the difference between what Amazon was worth when Jeff Bezos started it and what it was worth the day that they sold it, they would pay the difference between what Amazon was worth the day they inherited it from Jeff Bezos and the day that they sold it, which would be a much, much smaller taxable windfall for the government. 26:38 Alison Schrager Yeah. 26:39 And that actually is a distortion that does encourage people to never sell their assets because it's better just to leave it to your heirs. 26:45 PJ Vogt So that is one way you're like, okay, if you wanted to find a way to capture more tax revenue from the very wealthy, 26:50 You would do this. 26:51 And one of the reasons I'm assuming you like this plan better is because it feels easier to collect, easier to measure. 26:57 Alison Schrager Exactly. 27:00 PJ Vogt Allison also proposed a third solution, eliminating the carried interest loophole. 27:05 That's essentially a loophole that allows private equity executives to avoid income tax on most of their take-home pay. 27:12 If you don't like this fix and don't work in private equity, please send me an email. 27:16 I would love to know more. 27:17 But closing both of these loopholes seems like a pretty good start. 27:21 The Harris campaign supports both of these changes, but Allison pointed out that when push comes to shove, the politics here are actually kind of tricky. 27:30 Alison Schrager Step up in basis is something economists love to talk about getting rid of, but you know, you always get like the farmer who has the family farm, right? 27:40 And he leaves the family farm to his kids and all of a sudden they have this huge tax bill. 27:46 That's very compelling for people who are an economist. 27:49 PJ Vogt And then, like, I guess my question is, like, if the feeling is that there's not a lot of political momentum behind eliminating some of these loopholes, like, how do you think we solve the problem realistically of we need to collect more tax revenue? 28:01 Alison Schrager I have no idea because I don't see any political will. 28:05 I think everyone's looking for we can just take this money from rich people. 28:08 But the fact is we're probably all going to have to pay more taxes. 28:10 PJ Vogt And why is that? 28:11 Why can't we just take more money from rich people? 28:13 Alison Schrager They don't have enough money. 28:15 PJ Vogt But it seems like they have a lot of money. 28:16 Alison Schrager They got a lot of money, but not enough to pay for our debt and our functioning government moving forward. 28:22 PJ Vogt So you think everyone's going to have to pay more, but that that's a conversation that's politically a bit of a loser. 28:27 Alison Schrager Yeah. 28:28 You know, no one really wants to hear that. 28:31 PJ Vogt Raise the taxes not just on billionaires, but also nurses, teachers, firefighters, even podcasters? 28:39 You can imagine this idea tanking a presidential campaign. 28:43 But between Jesse and Allison, you can at least hear the range between the left and the center on how to fix the billionaire part of the tax problem. 28:52 The center thinks we can solve this problem mainly by closing loopholes. 28:55 As you move left, you find people who think the problem here is bigger, requiring more drastic solutions. 29:01 I can be persuaded that taxing unrealized gains might be risky or too complicated, but the notion that we need to do something drastic here, I still find persuasive. 29:11 And I partly find it persuasive because I now know we've done the drastic thing before. 29:16 The story that historian Molly Mitchell Moore told about creating the federal income tax in the 1940s about FDR, in that story, I hear us creating our modern country by getting everyone to pony up for it. 29:30 And for several decades after, our wealthiest really did pay extraordinarily high marginal tax rates, as high as 94%. 29:36 We had a country we all paid for, and the consensus was that that was the patriotic thing to do. 29:42 Taxes, the price of citizenship. 29:45 That belief decayed over time. 29:48 You can see that decay at its worst, actually, in 2016, during one of Hillary Clinton and Donald Trump's debates. 29:54 There's this famous moment where Hillary Clinton accuses Donald Trump of tax avoidance, saying that some years the self-proclaimed billionaire had paid zero dollars in federal taxes. 30:04 And Trump replies as if it's obvious. 30:06 That makes me smart. 30:09 This idea that paying taxes to the federal government is for suckers, expressed by a candidate for president. 30:16 Of all Trump's scandals, his tax avoidance and his refusal to release his tax returns to me did not seem like the largest. 30:24 But they did bother one person. 30:26 Bothered him a lot. 30:28 A former contractor at the IRS who would go back to that job expressly to try to leak the president's tax returns. 30:35 And later on, decide while he was there to go ahead and leak a lot more. 30:39 Eventually, to a reporter named Jesse Isinger. 30:47 After the break, our final chapter in this tax saga, we return to the person we started with, the whistleblower. 31:02 You know that moment when you're tracking down a lead and something just doesn't feel right? 31:06 Maybe it's a source that doesn't seem accurate, or a technical explanation that sounds impressive but falls apart under scrutiny. 31:13 That's when you need Claude. 31:14 Not to give you easy answers, but to help you think through what's actually happening. 31:18 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search. 33:00 That's J-O-I-N-B-I-L-T dot com slash search. 33:04 Make sure to use our URL so that they know we sent you. 33:50 Epilogue, the whistleblower. 33:53 Back in 2020, when Jesse had first gotten a signal message from an unknown person, he hadn't known who they really were. 33:59 He had guesses about their personality and motives, but this was mostly his imagination. 34:05 And then last fall, Jesse heard the news. 34:08 The whistleblower had been caught and charged with federal crimes. 34:13 Soundbite After a two-year investigation, a suspect has been charged with leaking tax returns of wealthy taxpayers. 34:19 Charles Littlejohn of Washington, D.C. faces up to five years in prison after being charged with unauthorized disclosure of tax information. 34:27 Including financial records from then-President Donald Trump. 34:30 As well as the leak of tax information on other public figures, such as Jeff Bezos, Elon Musk, the news outlet ProPublica. 34:38 PJ Vogt The whistleblower turned out to be a man named Charles Littlejohn. 34:42 In some of the news clips, you can see him. 34:44 Brown hair, slim, he looks like a lot of professional young men you might pass on the street in DC. 34:50 A consultant who'd worked at Booz Allen Hamilton, Booz Allen had a big contract with the IRS. 34:56 He'd been at the agency for two separate stints, collectively amounting to several years. 35:01 Littlejohn was arrested because investigators at the IRS were able to link his account to searches made in the IRS database. 35:08 They had him, and he pleaded guilty. 35:11 Journalism can be a good tool for understanding strangers. 35:14 It works intermittently well. 35:16 The legal system is another tool for sussing out human motive. 35:20 There was no trial here since Little John pleaded guilty, but in the sentencing, government prosecutors and Little John's defense attorneys offered competing visions of the man. 35:31 The portrait that emerges surprised me in some ways. 35:34 In the prosecution's memo, you don't learn much about Little John himself. 35:38 The prosecutors describe the damage he did to the private lives of 7,500 Americans who, however we feel about their tax bills, were following the laws as they're written. 35:49 The prosecution's memo highlights a clear pattern showing Little John's actions were premeditated. 35:54 He'd actually worked as a contractor at the IRS, left, and then specifically returned in 2017 with the goal of leaking tax returns. 36:03 It wasn't an impulsive choice. 36:05 The prosecution says Little John believed he was above the law. 36:10 In the defense memo, his legal team tells a fuller version of his story. 36:16 As a kid, an excellent student, a member of the church. 36:19 At college, UNC, a member of the campus social justice hub. 36:24 In the defense's version, what Charles Littlejohn did was still wrong. 36:27 This is a guilty plea after all. 36:30 They explain how he was partly inspired by this book about wealthy tax avoidance called The Triumph of Injustice, which lays out in part the story you've heard in these episodes. 36:40 But they also explain that a formative experience for Charles, Chaz, they call him, was the death of his sister. 36:46 She was a senior in high school when she was diagnosed with leukemia. 36:49 She died in 2013, only 19 years old. 36:53 He moved back home after that to help with his parents. 36:55 Later on, he donated bone marrow and T-cells to a person he didn't know from a donor list. 37:01 The defense, I think, is trying to establish a pattern in Little John's character, that he's a person who, when he experiences an injustice, will go to greater than normal lengths to repair it, even if that means self-sacrifice. 37:14 In the time preceding Little John's choice to go back to the IRS and leave these documents, a close family friend had died. 37:21 And in Little John's diary, which they quote from, he writes, life is so fragile and short, grieving for the years she will not see the friends and family that will carry her loss for the rest of their days. 37:32 We should all try to live our lives as if we will die tomorrow. 37:36 The next week, he contacts Jesse Isinger. 37:39 He sends him the USB drive, filled with the tax returns of America's wealthiest and most powerful people. 37:44 The articles are published, and later, Little John is arrested. 37:49 Little John spoke for himself in a deposition last spring. 37:51 He'd already been sentenced. 37:53 This deposition was part of a separate lawsuit against the IRS about these leaks. 37:57 The person who comes across is not who I was expecting. 38:02 He describes his time at the IRS as time at a job he really cared about. 38:06 He sounds proud as he explains the details of this anti-fraud program he built that could detect scammers sending in fake returns and stealing refunds. 38:14 He says they stopped a million of these cases with his fix. 38:18 He describes reaching out to the New York Times, then describes reaching out to Jesse. 38:22 He says he asked Jesse for his address to send the USB key, and that Jesse gave this stranger his address, but joked that Little John wasn't allowed to show up at his house and murder him, which sounds a lot like the Jesse I know. 38:34 One of the stranger details in the deposition, Little John relays how all the data he leaked, he made another copy of it, this one for the government, for when he got caught, so the IRS would know which taxpayers to reach out to, so they wouldn't have to guess. 38:49 Little John, in my view, behaved like a person who seemed to know he'd likely be caught, who expected to face consequences. 38:56 In the deposition, he says the thing the government got wrong about him is that he never thought he was above the law. 39:05 This January, a judge decided that Little John will turn 40 in prison. 39:09 It's a five-year sentence. 39:11 Jesse Isinger says that that is unusually heavy for a case like this. 39:15 Jesse Isinger It's the longest sentence, I believe, for anyone who did not leak classified information. 39:22 Yes, he did break the law, and it's up to society to punish people who break the law. 39:27 But understanding what he did and how that was a public service is very important. 39:33 We used his information to publish many, many stories in the public interest. 39:36 So I think what he did was a huge service to the American public to reveal things that would not have been revealed otherwise. 39:45 He took great risk and now is going to pay an enormous price. 39:51 PJ Vogt What was the moment for you that you knew 39:54 Did you find out that Charles Littlejohn was the person on the other end of your correspondence when he was arrested? 40:01 Did you find out before that? 40:02 Jesse Isinger That's when you found out. 40:03 Yeah, not when he was arrested, but when it first hit the public arraignment or something like that. 40:10 We never knew who it was before that. 40:12 And had you wondered about who he was? 40:13 Oh, of course. 40:15 What did you thought when you wondered? 40:17 Well, I wondered, am I ever going to know? 40:19 And if I do, can that circumstance be anything but terrible news? 40:27 PJ Vogt And did you, when you got more information about who he was, did it fit with the person that you'd imagined in your mind? 40:36 Jesse Isinger Yeah, it wasn't surprising. 40:38 Relatively young, someone who had principles, 40:43 I mean, I'm taking what they've attested to under the threat of perjury as true, and it rings true, what Little John and his lawyers have said, which is he didn't profit from it, he didn't sell the information, and he was motivated by the desire to do a public service. 41:02 And I think he did do a public service. 41:05 PJ Vogt You know, you kind of describe yourself as... 41:08 a funny mix of someone who is like somewhat cynical about American democracy in its present state, but also the work you do and the way you do it, it's idealistic. 41:18 It's like you get a hundred messages from people who are kind of nutty and you read all the messages and you respond to some of them. 41:26 Like, 41:28 At the end of this story, what does it do for you as an optimist and what does it do for you as a pessimist? 41:33 Jesse Isinger Well, so you talk about these billionaires saying that they're victims of this and 41:40 At the beginning, a couple of them felt like they had to respond to our questions about this and have some justification for how they avoided taxes or what they did, their techniques. 41:55 And by the end, we did about 50 stories. 41:59 By the end, we were almost entirely blown off. 42:03 So we would send our 50 questions to the subject of a story and hear nothing back. 42:11 No response. 42:13 And the reason I ended up concluding was that they feel they're untouchable in American society and they're right. 42:23 we didn't touch them at all. 42:26 We exposed the greatest injustice about American inequality in decades, and nothing happened. 42:37 PJ Vogt And why do you think, because I think people do care about inequality. 42:41 I think people do, if someone ran for president and they were like, my big policy is that billionaires aren't going to pay taxes, I don't think they would win. 42:48 Like, if everybody wants it to be different, then why isn't it different? 42:51 Jesse Isinger This is a policy. 42:52 People really want billionaires to pay more taxes. 42:55 It polls very well with Republicans, even. 43:00 But billionaires have disproportionate power in this country, and they have a lot more power than the 70% of people who want them to be taxed more. 43:09 I mean, you know, they wield extraordinary amount of influence and power in society. 43:15 And so they can bend public policy to their will. 43:20 That's a tough fight. 43:21 Yeah. 43:25 PJ Vogt So that's how the pessimist in you views the story. 43:27 If you can find him, what about the optimist in you? 43:33 Jesse Isinger A rare, rare emotion for me. 43:36 You know, we go back to Cordell Hull and a hundred years ago, there was extraordinary power from the wealthiest people who'd ever walked the earth. 43:48 And the government was relatively powerless at the time. 43:53 And somehow, coalitions cobbled together to reform the system and to start to bring billionaires to heel, not just with taxes, but with the advent of antitrust enforcement and eventually securities regulation. 44:11 And so there are ways to corral the power end. 44:16 bring billionaires, if not to heal, then bring them back into the fold where they have some sense of civic and social responsibility. 44:27 But you also think they should be paid a higher salary. 44:31 I wouldn't mind if they got paid a salary. 44:35 Or let's say they can keep their stock options. 44:37 We just tax their unrealized gains. 44:39 How about that? 44:41 PJ Vogt Jesse Eisinger, he's a grumpy idealist. 44:44 The series he worked on is called The Secret IRS Files. 44:47 You can find it at ProPublica.org. 44:49 And you can find Jesse on Signal. 44:52 Jesse, thank you. 44:54 You're welcome. 44:54 Thank you. 45:52 Search Engine is a presentation of Odyssey and Jigsaw Productions. 45:55 It was created by me, PJ Vogt, and Shruthi Pinamaneni, and is produced by Garrett Graham and Noah John. 46:01 Fact-checking this week by Mary Mathis. 46:03 Theme, original composition, and mixing by Armin Bazarian. 46:06 The team that worked on the ProPublica series includes Jesse Isinger, Paul Keel, Jeff Ernsthausen, Justin Elliott, James Bandler, Trish Callahan, Robert Federici, Ellis Simony, Ash New, and Doris Burke. 46:18 Our executive producers are Jenna Weiss-Berman and Leah Reese-Dennis. 46:22 Thanks to the team at Jigsaw, Alex Gibney, Rich Perello, and John Schmidt, and to the team at Odyssey, JD Crowley, Rob Mirandy, Craig Cox, Eric Donnelly, Kate Rose, Matt Casey, Maura Curran, Josephina Francis, Kurt Courtney, and Hilary Schuff. 46:37 Our agent is Oren Rosenbaum at UTA. 46:40 Follow and listen to Zerge Engine for free on the Odyssey app or wherever you get your podcasts. 46:46 Thanks for listening. 46:47 We'll see you next week.