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Jeff Bezos’s True Tax Rate Is 0.98%
Let that sink in for a minute
Let that sink in for a minute
“There’s been class warfare going on for the last 20 years, and my class has won.” — Warren Buffett
Earlier last week, ProPublica dropped an investigation that revealed — surprise, surprise — the wealthiest 25 Americans pay almost zero income tax compared to their net worth. We’re talking Warren Buffett, Bill Gates, Rupert Murdoch, Mark Zuckerberg; all the big names.
It’s an especially gutsy move when you remember that leaking tax returns is a federal crime.
ProPublica is a nonprofit newsroom that investigates abuses of power, and they say they got the data from an anonymous source — likely a patriot at the IRS who’s sick and tired of watching the elites take over their country. The leak contains the tax returns of thousands of American’s richest folk over a period of fifteen years. ProPublica says that the report, “demolishes the cornerstone myth of the American tax system: that everyone pays their fair share and the richest Americans pay the most.”
The Treasury Department is investigating the leak, though my guess is that if America was a democracy most Americans would rather have the department investigate the actual tax avoiders and evaders and bring some real justice to the tax system instead of trying to jail a pro-transparency whistleblower.
Let’s dig into the leak and discover exactly how the world’s richest Americans avoid paying their fair share like the rest of us.
The biggest takers on earth
The report reveals some shocking facts:
Jeff Bezos paid $0.00 in federal income taxes in 2007 and 2011.
Elon Musk paid $0.00 in federal income taxes in 2018.
Carl Icahn paid $0.00 in federal income taxes twice.
George Soros paid $0.00 in federal income tax three years in a row.
I’ll give you a minute to go outside and scream.
Let’s look at Jeff Bezos in 2007.
He paid $0.00 in federal income taxes despite adding $3.8 billion to his net worth.
He reported $46 million in income, but offset every single penny with “losses” from side investments, scams like “interest expenses” on supposed debts, and the gloriously vague catchall category of “other expenses.”
In 2011, he did the exact same thing, even claiming he made so little money that he received a $4,000 child tax credit.
Here’s what Jeff’s tax profile looks like compared to the average American household’s:
Doesn’t seem very fair, does it?
That’s because it isn’t.
In America, the top personal federal income tax bracket is 37% if you make over $628,300… but the 25 richest Americans paid an average of just 13.3%.
As ProPublica points out, that’s lower than the rate a single worker making $45,000/year when you include their automatically-withheld Medicare and Social Security taxes.
How is this even possible?
By avoiding wage income.
Salaries are taxed. That’s why Steve Jobs, Larry Ellison, Larry Page, and Mark Zuckerberg all received $1 in annual salary from their companies.
The rich don’t like income tax.
So the rich bankroll their lavish lifestyles in three main alternative ways:
1. Extractive income
Instead of taking fat salaries, billionaires take some of their income as capital gains and investment dividends which are usually taxed at just 20%.
It should come as an extremely frustrating surprise to most people to realize that the richest people on earth actually get a tax discount for extracting passive profits, rather than getting slapped with a hefty surcharge for all non-active income, but when you realize that the elites control the folks who write and enforce the tax code, it all starts to make a little more sense.
Make a mental note: The game is rigged against you and your small business.
2. Mega debt
The ultra-rich stay rich by never selling their stock. And most often, they hold stock in companies that don’t pay annual dividends. (It’s telling that many giant companies have followed the Berkshire Hathaway model — Microsoft, Oracle, Google, Facebook, Amazon, and Tesla all don’t pay dividends.)
Think about it for a second:
If the rich took the money as income, they'd have to pay 37%.
If the rich sold stock, they’d have to pay capital gains at 20%
If the rich take it as dividends, they’d have to pay 20%.
So they borrow money instead. Cheap money. Single-digit-interest money.
Loads of it.
Larry Ellison, CEO of Oracle, owner of an entire Hawaiian island, had a line of credit secure by $10 billion worth of his shares.
Last year, Elon Musk put up $57 billion in Tesla shares as collateral for personal loans.
Carl Icahn held a $1.2 billion “mortgage” which allowed him to write off the interest.
Instead of ever cashing in their stock and paying a portion to the public purse, they simply carry debt forever, letting inflation work to their advantage (making the debt becomes smaller each year) while the wider world suffers.
How do the richest families stay rich? They buy, borrow, die, repeat.
3. Fake charity
The richest people on earth also love a good “charitable donation.”
But rather than cashing in their stock, paying taxes, and then donating the remainder to charity, they donate stock directly to their own foundations.
This way, they don’t have to contribute to the commons via taxation, but instead, they get a massive tax write-off and they get to maintain control of their wealth via the shuffling of a few papers.
Paying their fair share
Many billionaire apologists insist that the hyper-elites are, indeed, paying their “fair share” of the tax burden, but this shoddy argument was quickly put to rest when ProPublica looked at the actual mathematical facts:
Our analysis of tax data for the 25 richest Americans quantifies just how unfair the system has become:
By the end of 2018, the 25 were worth $1.1 trillion.
For comparison, it would take 14.3 million ordinary American wage earners put together to equal that same amount of wealth.
The personal federal tax bill for the top 25 in 2018: $1.9 billion.
The bill for the wage earners: $143 billion.
Read that again.
The wealthiest people in American history are paying less than 1/75th of their actual fair share.
Why tax avoidance is a problem
The billionaires who responded to the ProPublica leak — including Buffett, Bloomberg, and Icahn, all said the same thing: That they paid all the taxes they legally owed. This is true, of course, but not one was honest enough to admit that the billionaire class has rigged the tax system in their own favor.
In my mind, tax avoidance at Bezos-scale is a problem for three reasons:
He’s breaking the law.
Not the letter of the law, but certainly the spirit of the law. There’s an incredibly fine line between tax avoidance and tax evasion, especially when you’re the one creating loopholes and flooding Washington with more lobbyists than there are Congresspeople.
He’s not paying his democratic fair share of the costs of society.
Most reasonable people subscribe to the philosophy that if you receive more benefits, you should pay higher costs. VIP seats at the cinema cost more for a reason. Front row seats at the World Cup cost more than the nosebleeds at a Pittsburgh Pirates game. If you’re making billions off the backs of others, you should be paying a significantly higher percentage compared to Covid nurses.
He’s distorting the level playing field.
This is the biggest problem with tax avoidance/evasion. Bezos and other billionaires have a wild advantage over smaller businesses and competitors. Imagine if you and I both started a business, but I had a 20–30% cost advantage on every single dollar spent or received.
I’d crush you.
And that’s why Amazon, Airbnb, Uber, and LVMH are crushing smaller companies.
We need the best companies to win. That’s why we need a global minimum corporate tax rate. We also need a global minimum personal tax rate, too, and a wealth tax, aggressive inheritance taxes, and a zero-loophole progressive taxation system that includes a heavy tax on extractive passive profits.
No matter which we choose, we have to level the playing field.
Otherwise, the world’s wealth will continue to tilt into the pockets of billionaires, and pretty soon, the rest of us will have nowhere to stand.
PS- I encourage everyone to follow ProPublica’s Secret IRS Files as they continue to inform the public about these egregious financial corruptions.