According to a recent report by ProPublica,
many billionaires in the United States pay little to
no income tax relative to the vast amount of
wealth they have accumulated over the years.
This is because most billionaires build their
wealth from assets, such as stocks and real
estate, which are subject to lower tax rates than
wages and salaries.
The report highlighted some notable examples,
including Amazon.com Inc. Founder Jeff Bezos,
who reportedly paid no federal income taxes in
2007 and 2011, and Tesla Inc. CEO Elon Musk,
who paid no federal income tax in 2018.
Investing legend George Soros was also noted as
having paid no federal income tax "three years in
a row."
However, it's important to note that billionaires
do still pay taxes, just at a lower rate compared
to their overall wealth. For instance, the
ProPublica report revealed that between 2014
and 2018, Bezos paid $972 million in total taxes
on $4.22 billion of income, resulting in a true tax
rate of only 0.98% during this period. Meanwhile,
his wealth grew by $99 billion.
The reality is that the U.S. tax system is not
designed to capture gains from assets, which is
how many billionaires build their wealth. Capital
gains are typically taxed at lower rates than
wages and salaries, which allows the wealthy to
keep more of their earnings.
In conclusion, the report by ProPublica sheds
light on the disparity in the U.S. tax system and
how it benefits the ultra-wealthy. While
billionaires do pay taxes, the amount they pay is
significantly lower compared to their overall
wealth. This raises important questions about
the fairness of the tax system and the need for
reforms to ensure that everyone pays their fair
share.
Getting A Piece Of The Action:
Many well-known billionaires have built their
wealth through the companies they founded. For
instance, if you want to invest in Amazon and
follow in Jeff Bezos’ footsteps, you can purchase
shares in Amazon (AMZN). Similarly, if you’re a
fan of Elon Musk and want to invest in his
company, you can look into buying Tesla (TSLA)
stocks.
The benefit of investing in stocks is that
investors only have to pay taxes on realized
gains when they sell their shares. This means
that even if their stocks have increased
significantly in value, they don’t have to pay
capital gains tax until they sell. Some billionaires
choose to borrow against their assets instead of
selling them, as it allows them to defer taxes on
capital gains indefinitely.
Real estate is another popular investment option
for billionaires. Investors who earn rental income
from investment properties can claim deductions
on expenses such as mortgage interest, property
taxes, property insurance, maintenance, and
repairs. Additionally, real estate investors can
claim depreciation, which refers to the
incremental loss of a property’s value as a result
of wear and tear, and accumulate significant tax
savings over time.
Fortunately, retail investors can also access real
estate investments. Real Estate Investment
Trusts (REITs) are publicly traded companies
that own income-producing real estate and pay
dividends to shareholders. Crowdfunding
platforms also allow retail investors to invest
directly in rental properties through the private
market.
It’s worth noting that when billionaires sell their
shares, they can still face a substantial tax bill.
Elon Musk, for example, tweeted that he would
pay over $11 billion in taxes after selling a ton of
Tesla shares in 2021.
In conclusion, billionaires have various
investment options that offer tax advantages,
allowing them to accumulate wealth and defer
taxes. While retail investors can follow in their
footsteps by investing in stocks and real estate,
it’s important to consider the tax implications of
each investment and consult with a financial
advisor.
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