How the richest people on Earth avoid paying taxes
Or how about this one: The rich get richer … because they don’t always pay their fair share into the community chest.
This is US tax law. And now we have a map of how the wealthiest people exploit it thanks to a bombshell report from ProPublica, the investigative journalism nonprofit, which claims to have obtained years of tax returns for the wealthiest people in the country from an anonymous source.
Its first report (it promises more to come) is on the richest of the rich, who in certain years claim losses that can wipe out their income tax bills. This should sound familiar; former President Donald Trump did the same thing.
But that doesn’t mean it shouldn’t be a scandal that Bezos, the richest person on Earth — who has used his vast wealth to start a spaceship company that will take him into space, where he will also be the richest person — has in multiple recent years told the federal government he owed no income taxes, according to ProPublica.
ProPublica also reports that Musk, the second wealthiest human on Earth, whose wealth has grown many billions in recent years and who also has a passion project space company, told the government he owed no income tax in 2018.
How is this possible? The report analyzes how this is possible, and the reasons are many. First, US tax law is focused on income and much of the superwealth is tied up in company stock or other investments that have real value but aren’t taxable year to year.
Wealth vs. income. ProPublica cites guesstimates from Forbes, but it’s an imperfect assessment. It lists Bezos as gaining $99 billion in wealth between 2014 and 2018. But his income was much lower — he reported $4.22 billion and paid $973 million in income tax in those years. So he paid more than 20% on his reported income. The issue is that his wealth skyrocketed at the same time. This is something that plays out on a smaller scale for your average American homeowner or 401(k) holder, whose wealth grows without being taxed by the federal government every year. The difference is in scale. Also, everyday Americans likely pay property taxes and utilized mortgages to buy their homes.
Tax avoidance strategies. The report does show how the wealthy finance their lifestyles with loans taken against assets, like real estate or stocks, rather than realizing the value of an asset. They’ll pay less to the bank in interest than they would to the government in income tax.
Carl Icahn, the investor, gave an interview to ProPublica about his tax returns and it printed this illuminating response:
“There’s a reason it’s called income tax,” he said. “The reason is if, if you’re a poor person, a rich person, if you are Apple — if you have no income, you don’t pay taxes.”
He added: “Do you think a rich person should pay taxes no matter what? I don’t think it’s germane. How can you ask me that question?”
But in these cases, the loans do act as the income.