Why do I see this so much, and how is it possible?
In: Economics
Often when a billionaire doesn’t pay taxes, or any significant taxes, it is simply because they didn’t have any income in the taxation period. No income, no income taxes. Surely it isn’t surprising the very wealthy can live off their own wealth over many years, right?
But they can still get way more wealthy without any income. How does that work?! Consider if this wealthy person owns a lot of a huge growing company. As the company grows and becomes more valuable the wealthy person’s share of the company becomes more valuable, meaning they become more wealthy. But even though their wealth is increasing they aren’t paying taxes on that growth because it isn’t “realized”; owning something that is worth $1 one day and $1000 the next doesn’t mean that there is any more money in your pocket if you haven’t sold it! The next day it might drop right back down to being worth $1 so if you held it the whole time what would be the justification for taxing you for the brief period you *might* have made $999 in profit?
For the very wealthy you can assume basically all their wealth is in the form of such investments. For daily expenses they likely just have an unlimited line of credit with any bank they want, they are definitely good for settling up whenever. They don’t live off paychecks, they don’t even get paychecks (maybe a symbolic $1 or whatever), so they don’t pay taxes like normal people do.
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