Recently released secret IRS files have revealed what many Americans already knew: the tax system isn’t fair. The complaint isn’t a new one. For as long as taxes have existed, Americans have decried its pitfalls. However as wealth inequality continues to grow, tax critics are emphasizing just how much the system is beneficial to the rich and detrimental to the poor and middle-class.
Using tax records of some of the wealthiest Americans that were retrieved from the Internal Revenue Service (IRS), a recent article from ProPublica has shown just how gaping what we’ve dubbed the “reverse-Robinhood standard” is in American taxes. here are 5 things to know about how the super-wealthy escape paying any federal taxes.
According to ProPublica’s extensive investigative piece, one of the ways the super-wealthy escape paying taxes is by claiming losses on investments and deductions for business expenses, etc. This method is more commonly known as “writing off expenses” and it is one many business owners use. However, Amazon founder Jeff Bezos’ income tax records show the super-wealthy take the method to a different level.
In 2007, Bezos’ fortune increased by $3.8 billion, Forbes reported. However, he paid minimal taxes. “In that year, Bezos, who filed his taxes jointly with his then-wife, MacKenzie Scott, reported a paltry (for him) $46 million in income, largely from interest and dividend payments on outside investments,” ProPublica reported. “He was able to offset every penny he earned with losses from side investments and various deductions, like interest expenses on debts and the vague catchall category of ‘other expenses.’”
Another method very wealthy people use to minimize or avoid paying taxes altogether is to opt for menial salaries as low as $1 so their wages won’t be taxed. The secret IRs files of Bezos and his contemporaries like Facebook’s Mark Zuckerberg, late Apple founder Steve Jobs, Google’s Larry Page and Oracle’s Larry Ellison also illustrate this.
“For years, there’s been something of a competition among elite founder-CEOs to go even lower. Steve Jobs took $1 in salary when he returned to Apple in the 1990s. Aside from Bezos, whose Amazon salary was $80,000, the other aforementioned founders did the same,” Pro Publica reported.
“Yet this is not the self-effacing gesture it appears to be: Wages are taxed at a high rate. The top 25 wealthiest Americans reported $158 million in wages in 2018, according to the IRS data. That’s a mere 1.1% of what they listed on their tax forms as their total reported income,” Pro Publica found. “The rest mostly came from dividends and the sale of stock, bonds or other investments, which are taxed at lower rates than wages.”
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Though he is an outspoken proponent of higher taxes on the rich, Warren Buffet has benefited greatly from America’s current tax code. He is also a vivid example of how to “largely avoid transforming his wealth into income” so it won’t be taxed,” ProPublica posits.
“Buffett has famously held onto his stock in the company he founded, Berkshire Hathaway, the conglomerate that owns Geico, Duracell and significant stakes in American Express and Coca-Cola. That has allowed Buffett to largely avoid transforming his wealth into income,” Pro Publica wrote. “From 2015 through 2018, he reported annual income ranging from $11.6 million to $25 million. That may seem like a lot, but Buffett ranks as roughly the world’s sixth-richest person — he’s worth $110 billion as of Forbes’ estimate in May 2021. At least 14,000 U.S. taxpayers in 2015 reported higher income than him, according to IRS data.”
Another strategy the ultra-rich use to avoid paying taxes is borrowing money to dud their lifestyles and using their assets as collateral. Since loans have to be repaid, they are not considered income and therefore not taxed as such.
“For regular people, borrowing money is often something done out of necessity, say for a car or a home. But for the ultrawealthy, it can be a way to access billions without producing income, and thus, income tax,” the report states. “In 2014, for example, Oracle revealed that its CEO, Ellison, had a credit line secured by about $10 billion of his shares.”
Another example of this comes from Tesla CEO Elon Musk. “Last year Tesla reported that Musk had pledged some 92 million shares, which were worth about $57.7 billion as of May 29, 2021, as collateral for personal loans,” Pro Publica found.
Many Americans are appalled when they find out conglomerates like Amazon, Google, Microsoft and Apple paid little or no taxes. However, by sending profits abroad, these giants avoid owing U.S. taxes. Even if they did pay corporate taxes, Pro Publica said the secret IRS files show for some of them like Bezos and Musk, “adding corporate taxes to the equation would hardly change anything at all.”
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