Money talks: report reveals just how little America's wealthiest pay in taxes
Washington DC – A new report shows how the wealthiest Americans get by paying just a fraction of their fortunes in federal income taxes – legally.
We've long heard the refrain that billionaires don't pay their fair share in taxes, but a new ProPublica report confirms just how the ultra-rich manage to pay such a small percentage in federal income tax.
The report analyzed what they call the 25 richest Americans' true tax rate, or the difference between their wealth increase (according to Forbes estimates) and the amount in federal income taxes they paid.
The results showed that all together, these Americans saw their wealth rise by $401 billion from 2014 to 2018, but they only paid a total of $13.6 billion in federal income tax. That comes out to a true tax rate of only 3.4%!
Of the 25 individuals analyzed, Warren Buffett had the lowest true tax rate at 0.10%, followed by Jeff Bezos at 0.98%, Michael Bloomberg at 1.30%, and Elon Musk at 3.27%.
Compare that to the median American family, which earns $70,000 per year and pays 14% in federal taxes. Families who make above $628,300 pay around 37% in taxes.
The journalists laid out the current state of affairs in simple terms: "By the end of 2018, the 25 were worth $1.1 trillion. For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth. The personal federal tax bill for the top 25 in 2018: $1.9 billion. The bill for the wage earners: $143 billion."
The analysis begs the question: how do the ultra-wealthy get away with paying (comparatively) so little?
The ultra-rich use a variety of methods for avoiding taxes
According to the report, most of the people on the list operate outside of the normal tax system the rest of us find ourselves subject to.
Most Americans pay income taxes directly out of their wages, which are taxed at a higher rate than assets like stocks, bonds, and buildings.
Many billionaires, on the other hand, opt for ridiculously low salaries while holding onto their stocks. Some make up the difference by borrowing money since loans don't count as taxable income. They certainly have the collateral to receive large sums most normal Americans wouldn't have access to.
Corporate taxes, which have shot down in recent years, are generally paid by stockholders, workers, and consumers. They do not typically affect the nation's wealthiest individuals, the report says.
Charitable donations, often to their own foundations, and foreign tax credits can also reduce the tax burden of the ultra-rich.
These individuals may then pass their wealth to their heirs, using a variety of mechanisms to bypass estate taxes, which should place a 40% tax rate on incomes over $11.7 million. The study found that about a quarter of the 25 richest Americans inherited their fortunes.
ProPublica did not disclose its sources in obtaining the tax records. The IRS has launched an investigation into the leak.
Cover photo: Collage: 123RF/svl861, IMAGO / Future Image