Low-Taxed Billionaires

 

Between 2014 and 2018, the 25 wealthiest Americans collectively earned $401bn, but paid just $13.6bn – about 3.4% of that – in taxes, according to a ProPublica investigation into the finances of the wealthiest Americans.

ProPublica looked at the tax records of the top 0.001% wealthiest Americans, using a trove of tax filings from 2013 to 2018 to dive into the wealth of the 400 richest Americans, all of whom earn more than $110m a year.

 It found that the wealthy benefit from lower tax rates on financial assets and deductions from charitable contributions to keep their taxes low.

The difference in tax rates between the wealthiest Americans and the average worker comes down to two critical factors.  

First, the wealthy have their income taxed at a lower rate because much of their wealth is accumulated through investments, like stocks; and second, the wealthy are able to use large charitable donations to get huge deductions.

Instead of the standard paycheck that most American workers get, which includes deductions for social security and Medicare taxes, the wealthiest Americans get their income through financial assets, like stocks, that are generally taxed at a lower rate. The long-term capital gains rate has been 20% since 2013.

Billionaires in tech pay the lowest tax rate, an average of 17% of their income, largely because their wealth comes from such investment income. Bill Gates, whose income from 2013 to 2018 was an average of $2.85bn a year, paid an average effective federal income tax rate of 18.4%. Lauren Powell Jobs, the widow of Apple co-founder Steve Jobs, earned an average of $1.57bn and paid an average tax rate of 14.8%. Ten of the top 15 earners on the list are billionaires who made their money in tech.

In comparison, the average single worker earning $45,000 paid an average tax rate of 21%. A married couple with one child who earns $200,000 paid a rate of 26%. In 2018, the highest top rate on ordinary income, which excludes investments, was 37%, yet the average tax rate for the 400 wealthiest Americans was 22% from 2013 to 2018.

Executives and founders of private equity companies, of which there are 43 on the list, can get taxed at a lower rate through a loophole that allows them to report fees from managing clients’ money as an investment income, which is taxed at a lower rate than ordinary income.

Along with getting taxed at a lower rate through having an investment income, the wealthiest Americans can also write off huge chunks of their income by deducting large charitable donations. Michael Bloomberg, who earned an average of $2.05bn a year from 2013 to 2018, had 66% of his income deducted, giving him one of the lowest tax rates of the group – 4.1%.

Wealthiest Americans pay just 3.4% of income in taxes, investigation reveals | US income inequality | The Guardian