Drew Angerer / Staff
On Tuesday, ProPublica published the first installment of a series based on leaked IRS information shedding light on how the richest Americans dodge taxes using complex strategies and methods unavailable to most people. These wealthy individuals effectively pay taxes at rates a fraction of the typical U.S. household, the leak shows, and sometimes none at all.
Among the leaks are tech billionaires. Elon Musk, chief executive of Tesla and SpaceX and one of the richest men in the world, saw his wealth grow by $13.9 billion between 2014 and 2018 and reported $1.52 billion as income, paying $455 million in taxes. According to ProPublica, that means Musk paid a true tax rate of 3.27 percent in that period. The taxes Musk paid do not reflect the size of his wealth, according to ProPublica, and Musk has even paid no federal taxes in the past. “In 2015, he paid $68,000 in federal income tax. In 2017, it was $65,000, and in 2018 he paid no federal income tax,” according to ProPublica.“The results are stark. According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018,” the ProPublica report states. “They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That’s a staggering sum, but it amounts to a true tax rate of only 3.4%.”Incredibly, Musk’s true tax rate, which measures the taxes paid in proportion to the growth of his total wealth (including things like unsold stocks), is among the highest of the billionaire class that ProPublica examined. Amazon founder Jeff Bezos saw his wealth grow by $99 billion between 2014 and 2018 and only reported $4.22 billion in income, paying $973 million in taxes for a true tax rate of 0.98 percent. Warren Buffet, the chairman and chief executive of Berkshire Hathaway, reported a total income of $125 million from 2014 to 2018 and paid $23.7 million of taxes on it―his wealth grew by $24.3 billion, however, giving him a true tax rate of 0.10 percent.
Musk isn’t alone in paying zero federal income taxes, either. Bezos was a billionaire the two years (2007 and 2011) he paid nothing in federal income tax, according to ProPublica. Failed presidential candidate Michael Bloomberg is in the club, ProPublica reported, as well as other luminaries such as investor and former Trump adviser Carl Icahn and speculator George Soros. ProPublica’s report shows that in 2018, the 25 richest Americans were worth over $1.1 trillion―the equivalent of 14.3 million “typical American wage earners.” While those 25 wealthy Americans paid $1.9 billion in taxes, the equivalent wage earner cohort paid $143 billion. One of the key strategies used by the ultrarich to legally avoid taxes relies on unrealized gains via assets such as property and unsold stock, as opposed to income subject to high tax rates. ProPublica cites a recent study by two economists at the University of California, Berkley that found more than half of the wealth held by US billionaires is unrealized, allowing billionaires to see their wealth grow by tens of billions of dollars while only reporting millions of dollars in income that can then be offset with a laundry list of losses, expenses, and deductions. Buffett, whose net worth is north of $110 billion, adds another twist: Berkshire Hathaway does not pay a dividend to shareholders. ProPublica points out that while Buffett insists the money may be better spent on investments that generate value, they also conveniently save him from earning well over $1 billion annually in dividend income and thus owing hundreds of millions in taxes each year. ProPublica notes that Amazon, Facebook, Google, and Tesla also do not pay dividends.
Another major strategy that the ultrarich use to avoid paying taxes is to simply borrow money. ProPublica's report lays out that while wages over $400,000 are taxed at roughly 37 percent and stock sales at 20 percent, loans are not considered income and thus taxed at 0 percent, while you only have to pay a single-digit interest rate.ProPublica points to two eye-popping examples of this: Larry Ellison, Oracle's chief executive, had a line of credit backed with $10 billion worth of shares as collateral in 2014; in 2020, Elon Musk pledged over 92 million Tesla shares worth $57.7 billion as collateral for personal loans.Tesla does not have a PR department to reach out to. SpaceX spokespeople were not immediately available to comment. Other methods for taxing the ultrarich fail to plug the loopholes being exploited here. Not only are corporate taxes a cost that can be externalized to workers and consumers, but they are a plummeting category as firms create complex networks of shell corporations and tax havens to send profits overseas where the US government can't tax them. The estate tax, in theory, is supposed to serve as a "backstop" by preventing dynastic wealth from accumulating, but ProPublica writes that "preparing for death is more like the last stage of tax avoidance for the ultrawealthy."The IRS data leaked to ProPublica affirms what has been clear for decades: the tax system works, but not for everyone. While ordinary earners dutifully pay what they owe, the wealthiest exploit the system to hoard their wealth.