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