ProPublica used IRS documents to carry out a damning investigation into the tax affairs of America’s wealthiest individuals and it found that they paid next to nothing in taxes over a five-year period. Between 2014 and 2018, the 25 richest people in the U.S. grew their collective fortunes by $401 billion and they paid $13.6 billion in federal income tax. While that remains a huge amount of money, it amounts to a true tax rate of just 3.4 percent. The data highlights flaws in what is supposed to be a progressive tax system that extracts more money from people with higher earings. ProPublica cites a married couple as paying 10 percent on their first $19,900 in taxable income after deductions with the rate rising to 37 percent on all earnings over $628,300.
Effective tax rates do climb in line with income and people earning between $2 million and $5 million pay 27.5 percent, a point where the climb stops and rates descend in line with rising income. The wealthy have become adept at keeping their tax rates low and utilize a variety of techniques to do so, according to ProPublica, such as avoiding forms of highly taxed income. This can include forgoing wages and and making money through alternative channels like capital gains and dividends from investments. Large charitable donations are another technique that reduces taxable income while deductions are also known to be taken from interest payments. The investigation states that the 25 wealthiest Americans apply these strategies on an epic scale, choosing when to take income, matching up deductions to reduce bills and using their vast stock holdings to make massive charitable donations. That allows them to avoid tax on stock growth while they receive tax deductions for the full value.
Strategies such as the ones outlined above enabled Warren Buffet to pay $23.7 million in taxes on the $24.3 billion he added to his fortune between 2014 and 2018, a true tax rate of 0.1 percent or less than 10 cents for every $100 added to his wealth. ProPublica has more complete data for Jeff Bezos who paid zero dollars in tax in 2007, a year when his fortune grew to $3.9 billion. He even stated he lost money in 2011 and applied for and received a $4,000 tax credit for his children despite his overall wealth remaining steady at $18 billion. Between 2006 and 2018, the Amazon CEO grew his wealth by $127 billion, reported $6.5 billion in income and paid $1.1 billion in federal income taxes. That works out as a true tax rate of just 1.1 percent on his vast fortune. Tesla boss Elon Musk grew his fortune by $14 billion during the same period and he paid $455 million tax on a reported income of $1.52 billion which works out at a true tax rate of 3.27 percent.
This chart shows wealth growth and taxes paid by America’s 25 wealthiest individuals from 2014 to 2018.
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