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
Different type of wealth building. Take somebody like Jeff Bezos… most of his wealth is Amazon stock. It’s value climbs to $100B but he only pays taxes on gains when he sells. So even as his stock has gained 10’s of billions in value over the past year, he isn’t taxed on that. Let’s say he sells $10m worth of shares to cover living expenses, he pays capital gains taxes on that, which are lower than income taxes at top income bracket — only 20% for incomes over $441k. So in this example, assuming Bezos’ shares had 0 cost basis, his $10m sale would trigger a $2m tax bill. Not nothing, but basically a rounding error vs. his wealth.
The other way that some wealthy reduce taxable income is through a business. By deducting expenses “for the business” they can cut their taxable income and buy things with pre-tax dollars. Say you’re a dentist who wants to vacation in Hawaii… find a Dental Conference going on there, attend and tack on a vacation after the conference — deduct some of the hotel, meals, all the airfare, etc. to cut your true cost of vacationing in Hawaii. Maybe he leases his Mercedes through his dental practice, too, reducing his income and paying for the car with pre-taxed dollars. And that MacBook Pro he sometimes uses to update patient notes from home? Same thing…
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