IRS

The Big IRS Leak: from Elon to Warren Buffett, the US' richest pay little to no income taxes

Thursday, June 10, 2021 by Robinhood Snacks | Disclosures

Bombshell... The nonprofit publication ProPublica dropped an investigation revealing how the 25 richest people in the US pay little to no income taxes compared to their net worth. The story is causing a stir, partly since leaking tax returns is a federal crime. ProPublica says it obtained IRS data from an anonymous source. The data = tax returns of thousands of America's wealthiest, spanning 15+ years. The Treasury Department is investigating the leak. From 2014 to 2018:

  • Warren Buffett paid $24M in taxes on $125M of reported income, while his wealth grew by $24B thanks to investments. His "true tax rate" = 0.10%.
  • Jeff Bezos paid nearly $1B in taxes on $4B+ income, while his wealth grew by $99B. True tax rate: 0.98%.
  • Elon... Musk we say it? Elon shelled out $455M in taxes on $1.5B reported income, while his wealth grew $14B. True tax rate: 3.27%.

Here's how... In the US, income is taxed – net worth isn't. So while Elon's wealth grew by billions as Tesla stock rose, he wasn't taxed on investments that he didn't sell (aka: unrealized gains). ProPublica calculated “true tax rate” — taxes paid as a percentage of total wealth gains.

  • Still, ProPublica says that the 25 richest Americans paid an average personal federal income tax of only 16% from 2014 to 2018 — less than many "regular" people pay.
  • How: Billionaires avoid forms of income like wages, that are taxed at 37% for their income bracket. Also: accounting gymnastics.
THE TAKEAWAY

This scandal could help fuel Biden's policy... Many Americans are shocked to see billionaires' ultra-low tax rates. President Biden is seeking tax increases on the wealthy to fund proposed spending on infrastructure and social programs, including nearly doubling the capital gains tax rate to 39.6% for Americans earning $1M per year or more.