elon musk jeff bezos and warren buffett
three of the richest men in the world
and yet it's very likely that you pay
more tax as a proportion of your
earnings than they do in fact warren
buffett once said this but i'm paying
about the same percentage
of my income to the federal government
as my secretary does
leaked tax returns analyzed by
propublica found that jeff bezos paid no
federal income tax in 2007 and 2011
while elon musk didn't pay any income
tax in 2018
the rich have it different than the rest
of us they make their money
holding assets capital
and we tax capital very lightly so why
do the ultra wealthy pay so little tax
as a proportion of their wealth and why
can't politicians seem to do anything
about it
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people like elon musk and jeff bezos
didn't become the two richest people on
the planet by being paid a salary
instead they like to be compensated in
the form of shares in the companies that
they run shares though are very
different to a salary you only pay tax
capital gains tax when you sell shares
the top tax rate on capital gains is 20
by contrast wages salaries bonuses are
taxed at 37
and that's just the start of the
benefits many billionaires follow a
mantra called buy borrow die when it
comes to tax the simple idea is that
capital gains tax only applies when you
sell shares so simply don't sell them
ever a key part of the the by borrow
dies strategy is trying to to consume
potentially without uh having to unlock
a lot of cash or liquidity that is
mostly reinvested into you know a
business but there is an intrinsic
problem with this strategy because if
you're not being paid a salary and
you're not actually selling the shares
that you own how do you find the money
to buy yachts and private islands well
that's where the borrow part of the
strategy comes in you simply borrow
money using your shares as collateral
eon musk can borrow money from a bank
say and use that borrowed money to buy
whatever billionaires buy and a
borrowing in our system is not a taxable
event
and it gets even better than that
because if you borrow money from the
bank you may even be eligible for tax
breaks and then there's the final part
of the strategy the kicker
when they pass away they can then go
ahead and bequeath it to an heir who
does not pay tax when that
asset is given to them in the u.s we
call that uh the step up in basis almost
everywhere schemes like this are being
used by the uber wealthy to avoid paying
tax all perfectly legal
in the u.s joe biden tried to torpedo
the die part of the buy borrow die
strategy but the president's push simply
didn't get the support it needed in
congress another idea to tax a person's
net wealth annually didn't make it
either most scholars believe a wealth
tax
is questionable under our constitution
which limits the ability
to tax property directly and that's why
many tech billionaires who have made a
fortune during the pandemic may well pay
a lower tax rate than you do and the
chances of that changing anytime soon
are pretty minimal now at the end of the
day
the billionaires i think will win the
framework of our income tax rules will
not be changed in any fundamental
fashion
you