Why do I see this so much, and how is it possible?
In: Economics
*tl;dr* Billionaires are not rich from the work they themselves do (income) but from the wealth they control, especially to make other people work (capital). Unfortunately, the tax system has been upended by technology, global finance, and legal loopholes, which currently allow really rich companies and the billionaires who control them to hide their wealth and profits from being taxed fairly.
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The US and many other countries have historically made political decisions to tax income and not wealth.
Many posters responding to your question have described the mechanics of this in the tax code. These are all technically correct.
However, it is important to note that there is nothing inherently better or economically more efficient about taxing income (which usually comes from labour, i.e. work) rather than wealth (which usually arises from capital, i.e. extracting rent from others who actually work). In fact, many economists like Saez or Piketty would point out that our current bias in taxing income rather than wealth is likely to be economically inefficient, discouraging hard work and competitive enterprise and rewarding political corruption, cronyism and nepotism (which favor rent extraction in unequal societies).
Wealth taxes are nothing new or surprising to anyone: Taxes on land based on its appraised value are way older than the history of the US and most Americans who own their home are used to these taxes.
What the tax code has not yet caught up with is how to effectively tax other forms of wealth (for example the vast quantities of data and social networks that make up the value in a huge monopolistic tech firm, which are to a large extent generated by users rather than founders or even developers).
Additionally, in modern globalised finance, lots of laws have been rewritten for short-term national or jurisdictional gains (cf tax havens in Delaware or Ireland or the Caymans) that end up screwing over all of us in the long run.
For example, one of the classic ways that businesses avoid paying taxes is “transfer pricing” through different subsidiaries in different countries that arbitrarily charge “fees” for the use of the firm’s own technology. Imagine I am a fancy biotech company. If I create an entity in Luxembourg or Switzerland that technically owns the patents supporting a lot of my drug development work and then I charge really high fees to my subsidiaries in other countries like the US or France. This is a brilliant if devious accounting trick: legally speaking my Luxembourg operations are very profitable and happen to pay very low taxes because that country sets very low business tax rates, whereas the US and France operations have deflated profit margins and might even operate at a “loss” so that I can claim back refunds from those governments. Under current laws, it doesn’t matter if the vast majority of my actual paying customers are in the higher-tax countries, or even if the original technologies were developed (including with taxpayer-funded university research) in the higher tax countries. It’s still perfectly legal to book the vast majority of profits in Luxembourg (and then pay it out to shareholders) even if my office there has something like 10 of my 100,000 global employees. Because the vast majority of my company’s money passes digitally in € through bank accounts in Luxembourg and that is how “value” is assigned under current laws.
This kind of “tax efficiency” is very common by very large companies today, and of course benefits the shareholders in those companies, including extremely wealthy billionaires. That wealth often comes at the expense of customers, suppliers, and employees, who would receive net benefits (eg better universities or other public services) if tax rates reflected business operations and requirements more realistically, rather than based on documentation and legal fictions.
This is why global tax reform is so important, because otherwise governments will never catch up to these legal loophole “innovations” and we will lose the ability to mobilize the huge public funds that are needed for vastly important coordinated efforts like fighting climate change or responding to pandemics or caring for the ageing population, which are all public goods and services that only governments can procure efficiently.
The inequality of wealth in the modern age is truly unimaginable. That is politically useful. Otherwise too many people would question why they slave away and pay off ever-mounting debt to make rich people richer, even while a large part of that wealth ends up making global problems (cf environmental pollution, global mental illness) more prevalent and worse.
Edits: detail, tldr, fixed typo.
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