Eli5 How does billionaires evade paying tax and not get arrested?.
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Billionaires don’t really earn income. Their money works for them and they access it in ways that legally avoid being taxed as income.
There’s a distinction between tax avoidance and tax evasion. Tax evasion is a crime, while tax avoidance is more using tax laws in specific ways that aren’t obvious or necessarily available to everyone.
Billionaires generally don’t evade taxes, since that’s an unnecessary risk and could wind them up in jail (in theory). Tax avoidance is far simpler, and it just costs money to hire accountants and tax lawyers to do – it’s not cost effective for a little person, but for a billionaire saving a couple percent on taxes can far outweigh the cost of hiring the people who know how to do it.
It isn’t so much that they evade paying tax, as much as it is that they utilize the rules of the system to their advantage.
With income tax, you are able to reduce your taxable income by doing things like donating money to charities. So for example, if you make 1 million dollars of taxable income, but you donate 50K to charity, you won’t have to pay any income tax. (I don’t know the exact math here, but that’s the gist of what they do). They still are making money, but they reduce their taxable income through donations and the like.
They don’t. Billionaires have dedicated accountants that know the tax codes inside-out. This allows them to minimize their taxes owed. They aren’t (usually) evading paying taxes like you mean. They pay what they are legally required to pay.
Whether the laws are requiring an appropriate amount is a whole other issue.
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