Billionaires don’t pay taxes?

[Yarnstormer]

All the articles about super rich folks not paying taxes has me wondering - what loophole exists that they are using? I understand that stock gains are unrealized until sold (valid) and that they borrow money to live on instead of using theirs = no or low “income” on paper. (Brilliant)
I’m wondering about dividends tho. How do they avoid calling that income and taxes on it? Are they sheltered? Is it offset by the interest on the loans and the loan amount tweaked accordingly? Or are articles just not really telling the whole truth? I see they usually do pay *some* taxes.
Not gonna lie I’m wondering how I can play this game!
I do worry that all the articles about this will create a belief that investment gains “aren’t fair” etc and means testing in taxes will become a thing. If I want to hide billions under my mattress I think that’s my business.

 

[Time2]

I don't know about the billionaires and don't care if they pay taxes. I like to see their big projects in action.
But as the little guy earning under $100k, There are plenty you can do to pay low taxes. For years I paid 2% to 5% of my gross income on taxes.
I used the standard deduction, a Sep/IRA, a tIRA and an HSA and in some years I had a tuition credits getting me to very low rates.

 

[brett]

I have heard of one who apparently only paid $750.

 

[pb4uski]

I haven't delved into the articles but from what I've heard reported it was around no taxes on unrealized gains.... but everyone gets that benefit. I would suspect that they are paying taxes on dividends... but in Warren Buffett's case BRK doesn't pay dividends.

Reporters are not always the sharpest tool in the shed so I'm skeptical of the headlines.... but not enough to care to spend time digging into it.

 

[Sojourner]

I would guess this has a lot to do with the specific terminology being used. That is, "paying no taxes" could mean paying no net federal income tax, after all credits, deductions, and offsets (losses). I could easily see this being true for a billionaire whose wealth is held almost entirely in the unrealized market value of shares in his/her company.

I honestly don't see how anyone with diversified investments worth millions/billions of dollars could possibly be paying zero federal taxes. I mean, the alternative minimum tax exists to thwart tax avoidance by the wealthy, right?

 

[jollystomper]

This article related to the thread topic was published a few days ago:


The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax


https://www.propublica.org/article/...ds-reveal-how-the-wealthiest-avoid-income-tax

ProPublica has obtained a vast cache of IRS information showing how billionaires like Jeff Bezos, Elon Musk and Warren Buffett pay little in income tax compared to their massive wealth — sometimes, even nothing.
...

ProPublica has obtained a vast trove of Internal Revenue Service data on the tax returns of thousands of the nation’s wealthiest people, covering more than 15 years. The data provides an unprecedented look inside the financial lives of America’s titans, including Warren Buffett, Bill Gates, Rupert Murdoch and Mark Zuckerberg. It shows not just their income and taxes, but also their investments, stock trades, gambling winnings and even the results of audits.

Taken together, it demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most. The IRS records show that the wealthiest can — perfectly legally — pay income taxes that are only a tiny fraction of the hundreds of millions, if not billions, their fortunes grow each year
...

To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period.
We’re going to call this their true tax rate.

The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.
...

It then proceeds to walk through the methodology and results in great detail

 

[Gumby]

It was an article just like that one which led to the introduction of the Alternative Minimum Tax (AMT) in 1969, which in time came to paid by a lot of professionals with good salaries, but still didn't snare the ultra-rich.

https://historynewsnetwork.org/article/11819

 

[CardsFan]

This article related to the thread topic was published a few days ago:


The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax


https://www.propublica.org/article/...ds-reveal-how-the-wealthiest-avoid-income-tax

It then proceeds to walk through the methodology and results in great detail

I skimmed the article yesterday. Their methodology is skewed to get the results they wanted. They took total taxes paid and divided by total gain in net worth. Not just realized gains, but ALL gains. They call that the "true tax rate".

Very disingenuous, IMHO.

By their calculations, half the people on this forum are not paying their fair share either.

 

[Car-Guy]

Simple answer, really good (or bad?) tax lawyers....

 

[Midpack]

Our crack media know the public are way more likely to click on articles suggesting the little guy is getting screwed by the rich, so they're just giving us what we (collectively) want. A recent study of social media habits revealed users are 6 times as likely to click on provocative/bad news/misinformation than an article based on straight balanced facts - so that's what they give us, they are for profit businesses after all. [That's one of the big reasons why misinformation has become such a problem in today's connected world - but that's another subject.]

Billionaires and corporations pay lots in taxes, though it could little to nothing in any given year due to offsetting losses they can time as they see fit.

Billionaires make far more in equity/appreciation as compared to income, but only income is taxable in a given year. "Over the period from 2014 to 2018 - as Musk's wealth grew by $13.9 billion - he reported just $1.52 billion worth of taxable income to the Internal Revenue Service, ProPublica reported."

In the years when they pay $100's of millions in taxes, you won't see that reported because that wouldn't get our attention - even when articles are written. I wonder why no one posted anything about this article claiming Elon Musk paid 30% Federal income tax over a 5 year period? "From 2014 to 2018, Elon Musk paid $455 million in taxes on $1.52 billion in income."

It's easier to just assume someone is getting screwed than to think about it and do a little homework. Same with corporations that pay little in taxes in a given year (or more) - if they're profitable they will pay lots of taxes sooner or later.

If it sounds too good to be true, it probably is - cuts both ways (if it sounds too bad to be true, it probably isn't).

Most of the articles note that these billionaires are legally paying zero taxes in a given year. So if it upsets anyone, it's not the billionaires that write the tax code...

https://www.msn.com/en-us/money/mar...ng-to-a-new-report/ar-AAKQ2AD?ocid=uxbndlbing

 

[Sojourner]

Just quickly scanned the ProPublica article. A fair amount of what they're decrying is that people like Jeff Bezos are not paying any tax on unrealized gains in their wealth. For example:

Bezos’ wealth increased by $127 billion [between 2006 and 2018], according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune.

 

[Sojourner]

They took total taxes paid and divided by total gain in net worth. Not just realized gains, but ALL gains. They call that the "true tax rate".

Very disingenuous, IMHO.

By their calculations, half the people on this forum are not paying their fair share either.

+1

 

[lesjrp]

I skimmed the article yesterday. Their methodology is skewed to get the results they wanted. They took total taxes paid and divided by total gain in net worth. Not just realized gains, but ALL gains. They call that the "true tax rate".



Very disingenuous, IMHO.



By their calculations, half the people on this forum are not paying their fair share either.

+1000.

 

[Jenna]

The Go Curry Cracker Blog tells you how to pay very little taxes and explains exactly how to do it for smaller income early retirees. He's mostly living off of capital gains income from non retirement accounts. He has lots of great info but the forums wont let me link without it looking like spam.

 

[Dtail]

So perhaps a minimum tax on certain levels of income could work.

 

[CardsFan]

So perhaps a minimum tax on certain levels of income could work.

The problem with the ProPublica article is they are not USING income. They are using increase in net worth.

If you look at taxes paid on actual reported income, only Bloomberg appears to be grossly underpaying (about 3%). The others (Buffett, Bezos and Musk) paid 19%, 23% and 30%, respectively.

 

[Andre1969]

One thing I noticed that's getting pushed these days is the narrative that it's "unfair" that someone "made" obscene amounts of money but paid little to nothing in taxes, but they forget that asset appreciation is NOT income. It's only income, if you sell something off at a profit and then pay taxes on it.

So, if you started 2020 with $1B in net worth and ended up with a net worth of $1.5B at the end of the year, but you only cashed out $100K (or let it rise, but made $100K in some other fashion), then your taxable income is only $100K (minus any deductions). But with the narratives I'm seeing pushed in some of these "financial" articles, in their mind, that person made $500M.

Let's say this hypothetical person paid $10K in federal taxes. Regardless of what their top marginal tax rate is, their effective tax burden is 10%. But these financial savants would have you believe their effective tax burden was only 0.002% ($10k/$500M).

I'm oversimplifying it a bit here. It's possible that on its rise from $1B to $1.5B, that portfolio might have had taxable events such as dividends, capital gains distributions from mutual funds, etc., but for the sake of simplicity, let's pretend it didn't.

What really happened here, is that this person had assets that rose in value, from $1B to $1.5B. But then the next year, who knows? It could fall to $500M.

What a lot of these people are advocating, is actually a wealth tax, rather than an income tax. Whether they're doing that to be sneaky, or simply don't understand how math and taxes work, remains to be seen. But I have a feeling that, as time goes by, you're going to see more self-appointed experts post these types of articles. I have a feeling these are the same types of people that would short-circuit mentally if you tried to make them start a carbureted car that comes with two keys.

 

[foxcreek9]

I skimmed the article yesterday. Their methodology is skewed to get the results they wanted. They took total taxes paid and divided by total gain in net worth. Not just realized gains, but ALL gains. They call that the "true tax rate".

Very disingenuous, IMHO.

By their calculations, half the people on this forum are not paying their fair share either.

+1

 

[Texas Proud]

A horrible article that actually is comparing apples to oranges...


They talk about the WEALTH increase and then compare the taxes paid showing how little they paid... it is an INCOME tax people... you have to have income to pay it...


Now, if you want to start taxing the increase in wealth then you are going to go down a big rabbit hole... my wealth has increased a bunch over the last few years but my income is low...


Then throw in the increase in house values in high cost areas of California and New York... how many want to pay taxes on their wealth increase?


I think if you look at the taxes paid compared to the income it would show a high percent of taxes... but then it would not lead to a wealth tax to make them pay 'their fair share'...


As to the question on dividends... it has a lower tax rate even for the rich but they do pay taxes on them...

 

[Nick12]

I have heard of one who apparently only paid $750.

A guy would live very well in say a lower COL state. In NYC, one would just be another well off guy in the city.

 

[Popeye]

What a lot of these people are advocating, is actually a wealth tax, rather than an income tax. Whether they're doing that to be sneaky, or simply don't understand how math and taxes work, remains to be seen. But I have a feeling that, as time goes by, you're going to see more self-appointed experts post these types of articles. I have a feeling these are the same types of people that would short-circuit mentally if you tried to make them start a carbureted car that comes with two keys.

That’s exactly right. They are trying to pave the way for a wealth tax. I think it’s a combination of willful deceit and a willful refusal to comprehend. Of course even well educated, experienced people can have trouble understanding financial items. Reminds me of how hard it was for so many professionals at Megacorp to grasp the difference between cash flow and revenue.

 

[EastWest Gal]

A horrible article that actually is comparing apples to oranges...


They talk about the WEALTH increase and then compare the taxes paid showing how little they paid... it is an INCOME tax people... you have to have income to pay it...


Now, if you want to start taxing the increase in wealth then you are going to go down a big rabbit hole... my wealth has increased a bunch over the last few years but my income is low...


Then throw in the increase in house values in high cost areas of California and New York... how many want to pay taxes on their wealth increase?


I think if you look at the taxes paid compared to the income it would show a high percent of taxes... but then it would not lead to a wealth tax to make them pay 'their fair share'...


As to the question on dividends... it has a lower tax rate even for the rich but they do pay taxes on them...

It's a garbage article. Tax rate is based on income, not increase in NW. ProPublica is being disingenuous or really stupid. My guess is stupid. And the result is the AG just announced they are looked into leaked information. Another dumb distraction and waste of time and taxpayer dollars. It is private information but not classified.

I did the same garbage calculation based on my increase in portfolio value in the last year and I get 2% fake tax rate. Real tax rate was about 11% since most of the income was qualified dividends and cap gains, and would have been a lot less (close to 0%) if I didn't do a Roth conversion.

 

[Markola]

I enjoy the sport of seeing billionaires, the ones who act like jerks anyway, take their lumps as much as anyone. However, another analogy is how home prices have increased by trillions nationally recently for all of us who own homes, yet that wealth growth hasn’t translated into higher federal income taxes, nor should it.

 

[Time2]

This article related to the thread topic was published a few days ago:


The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax


https://www.propublica.org/article/...ds-reveal-how-the-wealthiest-avoid-income-tax

It then proceeds to walk through the methodology and results in great detail

The quote says, "those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%."


"Their worth rise" has nothing to do with income or income taxes.
So, what percent of their income is $13.6 Billion?

 

[CardsFan]

It's a garbage article. Tax rate is based on income, not increase in NW. ProPublica is being disingenuous or really stupid. My guess is stupid. And the result is the AG just announced they are looked into leaked information. Another dumb distraction and waste of time and taxpayer dollars. It is private information but not classified.

I did the same garbage calculation based on my increase in portfolio value in the last year and I get 2% fake tax rate. Real tax rate was about 11% since most of the income was qualified dividends and cap gains, and would have been a lot less (close to 0%) if I didn't do a Roth conversion.

And my guess is intentionally misleading, at a minimum, and probably intentionally dishonest. They clearly have an agenda to focus attention on the uber-wealthy not paying their fair share, as evidenced by this at the end of the article:

Help Us Report on Taxes and the Ultrawealthy

Do you have expertise in tax law, accounting or wealth management? Do you have tips to share? Here’s how to get in touch. We are looking for both specific tips and broader expertise.