If you’re a billionaire looking to squirrel away your money from the tax man, then it’s better to be a tech billionaire.
A new ProPublica report published Wednesday divulges precise metrics for the wealth of America’s top 400 earners. According to a trove of leaked IRS tax receipts, Jeff Bezos paid a 23.2% tax rate from 2013 to 2018, far below the top tax rate of 37% that applies to the ordinary income of high-earning Americans. Elon Musk paid 27%. Microsoft’s Bill Gates and Oracle’s founder Larry Ellison saved $125 million and $106 million respectively on their annual taxes, paying effective rates of 18.4% and 21.8%. The report also makes special mention of Michael Bloomberg, who only had a 4.1% average effective tax rate from 2013 to 2018, thanks to well-timed charitable deductions. The billionaires offered no comment to ProPublica with the exception of Bloomberg, whose spokesman said the failed presidential candidate “pays the maximum tax rate on all federal, state, local and international taxable income as prescribed by law.”
The data shows that tech billionaires comprise a large percentage of the richest people on earth and stay that way with a vast bag of tricks for skirting taxes. The techies are in good company, with hedge fund managers making up the next set of wealthiest, especially since both groups make most of their money by selling stock. Heirs are the third-largest group of ultra-wealthy.
In The U.S.’ supposed progressive tax system, a graph of how much each group pays in taxes should look like an incline, with those at the top paying more, but instead it’s more like a bell curve. Those in the $2-3 million bracket are paying the most at 29% in federal income taxes. The top 400 are paying 22%. And that’s only on average, with some of those wealthiest easily paying much, much less than a quarter of their income to the federal government.
Because many of those same billionaires are getting taxed based on stock sales, which are handled by a long-term capital gains rate of just 20%, much lower than the top tax rate on ordinary income—37% since 2018.
That lower rate for stock sales has been around for over a century, but it wasn’t until 2003, when President George W. Bush signed in a law that allowed the lower rate to apply to most stock dividends, that the wealthiest Americans began having a field day reducing their total taxes. Since the start of the 21st century tech boom, moguls have been taking heavy advantage of that low rate.
The ProPublica report focuses on tax data from 2013 up until 2018, so the total wealth has changed a good deal since then. Just four years ago, Tesla founder Elon Musk was earning $254 million annually while Amazon head Jeff Bezons was making $823 million. Now, the two have jockeyed for the top richest man in the world over the past few years, while Bill Gates, who was richest in 2018, has slipped to number 4.
What differentiates this report from similar studies in the past is that it’s based on quantitative data, that being the IRS data acquired by ProPublica.
The richest tech billionaires have other means of protecting their money from taxes. They make good use of deductions through charitable donations through their stock holdings. This means they can deduct the stock at its current price without needing to pay that capital gains tax in the first place.
But there are still several more takeaways to be gleaned from the data. While that average of 22% is still higher than the average tax rate of those making around $40k annually, it doesn’t account for how taxes on Social Security and Medicare hit harder the less money you make, not to mention how payroll taxes take more out of lower-income earners than those with bigger bank accounts.
The report also mentions that the level of income inequality has risen dramatically over the past few decades, and thanks to the pandemic, it’s not getting better.
If this could conclude with epilogue that you might see in a “based on a true story” movie, the ones making it big four years ago are making it even bigger now. Musk is reportedly worth $262 billion. Bezos is edging close to $177 billion. It’s not like those previously at the top of their game have slipped up, moreso that the newest wealthiest have simply made that much more. Bloomberg, who was the number 2 top earner on Propublica’s list is now only worth $82 billion and has slipped to the 13th wealthiest.