Eli5 How does billionaires evade paying tax and not get arrested?.

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Eli5 How does billionaires evade paying tax and not get arrested?.

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Anonymous 0 Comments

What do you want to arrest them for? Buying tax free municipal bonds is legal. Buying a solar panel and taking a legal tax credit is legal.

Most ways that a billionaire avoids taxes is legal. For everything else they try hard to make it look legal.

Anonymous 0 Comments

They generally do pay taxes. But taxes are applied to cash events such as getting paid, a payout, or when selling an asset. They don’t pay taxes on anything that’s increased in value until it is sold (in the US).

If you take the founders of Amazon for example, they didn’t have net profit for well over a decade as all revenue was poured back into growing the business. When the business matured and started earning profits, taxes were paid by the corporation and any of those profits distributed to the owners were also taxed. When those owners started selling their stock, they paid a tax on that.

Edit to add:
The tax code recognizes that business cycles can be multi-year, so businesses that had huge losses may be able to offset that with gains in other years. Depending on the losses, there may be little or no tax in “good” years.

Anonymous 0 Comments

Short answer is they offset their “income” which can be taxed with either taking on debt (not taxed) or receiving dividends instead of income which are taxed differently (and less).

If I own 10 homes totally 1 milllion and they double in value I pay ZERO taxes on that but I am now worth 2 million. Now I can LEVERAGE 1 million of that value and buy 5 more homes and now have 3 million in total Home value and still pay zero tax.

Anonymous 0 Comments

Generally, taxes work like this:

* If you perform services in exchange for money (aka “have a job”), you get taxed on the value of the services when you perform them.
* If you own things and you sell them to get money, you pay taxes when you sell them.

You probably make your money doing the first thing and so you pay lots of taxes because every time you do your job, you owe taxes on that. But no one ever become a billionaire by doing a job.

Since you only pay taxes on things when you sell them, the trick to becoming a billionaire without paying taxes is to buy things that are cheap and then make them very expensive. When Jeff Bezos acquired one Amazon in 1994, it was not worth very much. In 2023, one Amazon is worth a lot. Jeff Bezos will owe taxes if he sells his Amazon, but he doesn’t owe taxes until he sells it. He’s a billionaire because he owns more than $1 billion worth of Amazon, not because he sold his Amazon and has $1 billion in the bank.

The next trick they play is how to have money to buy things like houses and fancy cars without having to sell their stuff. They can do that by taking out loans using their stuff as collateral. You don’t owe taxes for taking out a loan. Since the banks know they own lots of stuff, they’re more than happy to loan them as much money as they need. The billionaires can then choose when to take out more loans to pay off the existing loans and when to sell some of their stuff to pay them off, essentially getting to choose when they pay taxes and how much.

All of this is perfectly legal- they haven’t skipped paying taxes that they owe, they just haven’t done the thing that triggers the government saying “you owe taxes now”.

Anonymous 0 Comments

From a more macro perspective, you want to tax billionaires, but not too much. If you over-tax them, they can fund your opponent in the next primary (with an unlimited amount of dark money, without ever revealing the source, thanks Citizens United). They can also just become citizens of a rando carribean island to avoid taxes if they feel over taxed. And then you lose all the tax money, and your political career is over.

So you make the loopholes in the tax code everyone else is talking about.

Anonymous 0 Comments

A billionaire might have a legit tax bill of $500 million in a given year so instead, they will spend $10 million hiring a team of accountants and lawyers who help them:

– create a bunch of fake businesses around the world

– hire family members to fake jobs that pay hugely inflated wages so that they can claim their salaries as an expense to lower their tax burden even though the money is just going right back to the billionaire

– set up various bank accounts around the world and then moving their money constantly making it an extremely difficult and time-consuming process for the IRS to even track how much money there is or where it came from

– bribe politicians that in turn defund the IRS or cut inheritance, income, capital gains, property or other wealth taxes, or even write and pass new laws that make their tax fraud schemes and loopholes legal but only accessible to the ultra-wealthy

– spread pro-billionaire, anti-income-equality propaganda

Anonymous 0 Comments

They often stay within the law (using tax avoidance methods as explained by other answers) rather than outright evasion.

They often influence those laws in the first place which allow them to do so (usually by lobbying, or funding politicians who will support the laws they want).

Anonymous 0 Comments

Not evasion, because that’s unnecessary risk when you can do it legally.

There’s the increasingly talked about “Buy, Borrow, Die” where billionaires borrow using stocks as collateral, which allows them to access a small portion of wealth while dampening taxable income. On death, their inheritors have stepped up value which voids the tax on what would be their gains.

There’re charitable foundations, like Patagonia did, where they spend a minor pittance of tax to create a foundation they board that uses the money in the same way they always wanted, but it’s tax free

There’s the Roth IRA, like Peter Thiel did, where they got their IRA to invest in their company early. As tax is paid before withdrawing, he was able to collect all the gains with the tax already “paid.”

Some industries like oil are so absurdly lobbyist-bought that you can just write off much of the spending and take the profits.

Anonymous 0 Comments

Billionaires buy politicians to write the tax laws so the ways they acquire and hoard money aren’t taxed like regular people’s income.

Anonymous 0 Comments

I’m pretty sure all these answers are correct but they are a combination of the lot of them, but ill also add one more. When you hear about “[person] paid no taxes last year” its often because they didn’t get paid. A lot of rich peoples wealth comes from owning things like shares as opposed to just having money, as the shares grow in value the owners wealth does too, but this doesn’t get taxed until they are sold.