Why can’t a middle class individual use the same tax avoidance methods as the ultra rich to pay little to no income taxes?

Question

Why can’t a middle class individual use the same tax avoidance methods as the ultra rich to pay little to no income taxes?

In: Economics

Answer 1

The biggest reason is that banks won’t let you borrow a hundred million dollars.
If you take out a loan, any kind of loan, the interest you pay is deducted from your taxes.
So if you pay more in interest than the income your tax bill is based on, then you end up paying zero taxes.
Now imagine you own shares worth 150 billion dollars, and while you do have a regular income, it’s nowhere near that big. The shares are where your wealth is at.

Now, like all the other super-rich, you’ve decided that you need your own private space program. You can’t buy one of those with your regular income, and you don’t want to have to sell a couple billion worth of shares (both because that would leave you with fewer shares, but also because you’d then have to pay taxes on the sale, and as a multi-billionaire you really think that “contributing to society” is beneath you. Taxes are for poor people!)

So instead, you go to a bank, and say “Hi, I’d like to borrow a billion dollars. I can put up a billion dollars’ worth of shares as collateral, so there’s really no risk to you”

To the banks, this is a really good deal, so they accept, and lend you a billion dollars at a very low interest rate.

But with a loan that size, even a low interest adds up, so you end up paying quite a lot in interest, possibly more than your actual income. So you declare this as a tax deductable, and the taxman goes “oh no, it must be so hard being you. Don’t worry, you won’t have to pay any taxes”.

So at the end of the day, you’ve paid a bit of money to the bank, sure, but you got to keep all of your shares, and you avoided those icky taxes.

The reason normal people can’t do the same is that we don’t have enough wealth to be able to take out such huge loans. Even if you buy a house, the interest you pay on your mortgage is much smaller than your total annual income, so the resulting deductable only cancels out a small part of your taxes, not all of them.