America's billionaires have often financed their lavish lifestyles by using their vast fortunes as collateral for loans, which can come with single-digit interest rates.
Borrowing money allows the ultrawealthy to earn minuscule salaries, avoiding the 37% federal tax on top incomes, as well as avoid selling stock to free up cash, bypassing the 20% top capital gains tax rate. Since loans aren't considered taxable income, the wealthy need only pay back the principal and interest, rather than the higher taxes that would accompany multimillion-dollar incomes and investments.
America's 25 wealthiest individuals saw their net worth grow by $401 billion from 2014 to 2018, according to Forbes. But they paid a total of $13.6 billion in federal income taxes in that same period, amounting to 3.4% of that newly acquired wealth, ProPublica found.
By contrast, a middle-class American in their 40s who had amassed a "typical amount of wealth for people their age," saw their net worth grow by $65,000 from 2014 to 2018, but paid $62,000 in income taxes, or 95% of that new wealth, according to ProPublica.
The US does not directly tax individuals' total wealth, unlike some European countries. Nor does it tax stock holdings until they are sold. And billionaires tend to have a lot of their net worth wrapped up in stocks.
However, ProPublica's analysis revealed in new detail how America's tax code allows the ultrawealthy to take advantage of a litany of tax loopholes and wealth-management strategies to increase their wealth without also increasing their tax bills substantially.
To illustrate the gap between wealth and taxes paid by the ultrawealthy, ProPublica created what it called a "true tax rate." ProPublica defined this as the total federal income tax a person paid, in this case from 2014 to 2018, compared to how much new wealth they acquired in that same time period.
ProPublica did not publish its source data or disclose how it obtained IRS data.
According to ProPublica, the top 25 wealthiest Americans paid a "true tax rate" of 3.4% — a result of tax avoidance strategies that are out of reach for most Americans.
Borrowing, it turns out, is one of those strategies.
Article continues beyond OP's quote.
Thought this one was worth posting.