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How Billionaires Get Away With Not Paying Taxes

Condé Nast 3-4 minutes 10/15/2021

This story is published as part of Teen Vogue’s 2021 Economic Security Project fellowship.

The numbers are almost incomprehensible. According to an ongoing report called Billionaire Bonanza 2020, in the first 17 months of the COVID-19 pandemic, Amazon founder Jeff Bezos increased his already massive fortune by $75 billion. In that same time period, fellow aspiring astronaut and Tesla CEO Elon Musk reportedly added $150 billion to his own wealth, while Facebook cofounder Mark Zuckerberg gained $74.2 billion.

The report, copublished by the Institute for Policy Studies and Americans for Tax Fairness, examines pandemic-era wealth accumulation by U.S. billionaires. Since it was last updated in August, the estimated wealth of all of these astoundingly rich individuals has only exploded further. But despite their individual economic growth, the country’s richest people often manage to pay exactly $0 in federal income taxes. ProPublica’s widely read, ongoing, in-depth reporting on “a vast trove” of recently leaked Internal Revenue Service (IRS) documents revealed that billionaires like Bezos and Musk have all avoided paying any federal income taxes in previous years — some for multiple years, in fact.

Even before the IRS leak, investigating the legal ways wealthy people regularly circumvent paying federal income taxes was a familiar journalistic endeavor. After all, if tens of millions of Americans pay federal income taxes every year, why don’t the country’s wealthiest people have to do the same? How do people with inconceivable fortunes manage to owe the IRS nothing in federal income taxes? Chye-Ching Huang, executive director of the Tax Law Center at NYU School of Law, chats with Teen Vogue about some of the main ways the richest Americans keep the bulk of their financial empires out of IRS coffers.

Income from wealth and income from work are taxed differently

The vast majority of working Americans get their income from hourly wages or a regular salary. In both cases, it's typical for income taxes to be automatically deducted. But people with a high net worth, Huang explains, often collect the majority of their income from assets like stock holdings, property, or other investments. As those assets increase in value — the stock market goes up, pieces in their art collection get more expensive, the real estate market shifts in their favor — their total wealth increases too.

“That income [is only] subject to taxes if they actually sell the asset that generated that income,” Huang says. “So, unlike the ordinary wage and salary owner who's paying taxable income in real time, very high net worth people can choose whether and even when to pay taxes on the growth of their wealth.”

The current federal income tax rate, at its highest, enforces a tax rate of 37% for individual taxpayers making $523,600 or more and for married couples making $628,300 or more. To avoid the tax rate in this income bracket, it’s not uncommon for business owners with a high net worth to pay themselves lower salaries. For example, Bezos collected just $80,000 per year as the CEO of Amazon. Apple founder Steve Jobs, former CEO of Hewlett-Packard Meg Whitman, Google cofounders Larry Page and Sergey Brin, and Facebook’s Zuckerberg all accepted a salary of $1 per year, likely for the same purpose.