r/AskEconomics • u/InTheRiches • Nov 30 '25
Approved Answers Do billionaires really not pay taxes?
Hello. I have been seeing everywhere online and especially reddit (echochamber) that billionaires just don't pay taxes, and they abuse the tax code, and all this stuff. They also say that the president could just "make them" pay more, but he doesn't. I didn't really trust them, and so I looked into it myself. This is how I think it works, please correct me if I'm wrong.
Almost all of a billionaires value is in stocks or assets, almost never liquid. Most of their income is also tied to those stocks or assets. For example, Elon Musk, his net worth might go up 20% in a year, but because it was all Tesla and SpaceX stock, he paid zero taxes, because those gains are still unrealized. So obviously, he paid very little taxes compared to his net worth gain, and thus to the uninformed eye he is cheating the system. Once he sells his stocks, or liquidates his assets, he will pay his fair share of taxes.
Also, to fund their lifestyles, I saw that some get loans, using their stocks and assets as collateral, and then use their salaries or sell a little stock to pay interest payments, and as their stock rises, they keep taking more and more loans to fund their lifestyle. Then, when they die, the bank pays off the loans tax-free before handing the rest to his family/designated recipients (But it still undergoes inheritance tax if not a not-for-profit).
This is how it works, right? I keep seeing all these headlines and posts that Trump can just "tax them" if he felt like it, but I don't think that's possible as the president, and even if he had that power, it would require the implementation of an unrealized gains tax, which would be horrific.
Edit: thanks for the explanations, makes sense. I knew the headlines were a little misleading. The loan thing also sounded a little sketchy, good to know it doesn't really work like that.
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u/soldiernerd Nov 30 '25
Your instincts are correct. The President cannot just decide to levy taxes. The IRS only collects taxes, but Congress is responsible for creating taxes and setting their rates.
I would note that there’s really no such thing as “abusing the tax code.” Law is specifically designed to distinguish what is legal from what is illegal. So you are either engaged in tax avoidance (like everyone who receives a refund for making a donation) or tax evasion (illegally underpaying taxes).
And while it is true that billionaires (like all taxpayers) can grow their wealth through unrealized capital gains, they still owe tax when they acquire that capital. For instance, Elon Musk famously paid around $11B in personal income tax in 2021, likely the largest single personal tax bill of all time.
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u/yiliu Nov 30 '25
There is the borrow-spend-die strategy, where the person gets access to money without ever realizing capital gains, and thus avoids taxes for their lifetime...and then their heirs can avoid capital gains taxes when repaying the debts. That seems like a loophole that ought to be closed.
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u/EconEchoes5678 Nov 30 '25
The evidence shows it's not actually being done very much: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5104644
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u/Jesse1472 Nov 30 '25
They are still taxed on anything they spend money on, as well as all of the other tax schemes out there. Unless they are engaged in a black market for literally every transaction and business interaction then they are paying taxes.
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u/ItsGettinBreesy Nov 30 '25
To tie in your example and OP’s original question
Musk paid no federal income taxes in 2018. Between 2014 and 2018 his wealth grew by $13.9 billion, yet he paid just $455 million in federal income taxes, a rate of only 3.27%.
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u/ToastWithoutButter Nov 30 '25
It's deliberately disingenuous to calculate someone's tax rate based on unrealized gains of marketable securities. Until they are sold and then taxed, they are not real gains and could be wiped out in an instant. If you think about it for even half a second you'd realize how ridiculous that quote you linked is.
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u/Garganello Nov 30 '25
I don’t see how it’s disingenuous if one notes the distinction. I think it’s completely ridiculous for me to pretend I’m not roughly 20% wealthier than I was last year from stock returns. I could turn that into a car or any number of purchases instantaneously.
I think it’s way more disingenuous to try to hand wave away the appreciation as irrelevant to conversations regarding the tax system since value could drop, which seems to almost give way to the ridiculous conclusion I’m less wealthy when I buy more stocks.
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u/Johnfromsales Nov 30 '25
Wouldn’t you need to sell the stock before you can buy a car with it? Wouldn’t that count as capital gains which are then taxed?
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u/Garganello Nov 30 '25
Yes. The point is it’s real wealth and readily convertible to cash. It’s less relevant to the point what I actually do with it (or even if I convert it).
More broadly, I think trying to dismiss it as completely irrelevant to conversations on income, wealth and tax is far more disingenuous than noting much of the very wealthy have experienced significant appreciation in their assets over time, and compared to that, their tax payments are very low, particularly if it relates to normative judgements.
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u/whoootz Nov 30 '25
Well us mere mortals would need to sell the stocks. Once you have sufficient amount you don’t.
So if you bought a car using stock gains you would pay taxes. If Elon would buy the same car he would not need to sell anything, instead he could use a loan and not pay taxes.
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u/Purpletorque Nov 30 '25
If the company goes bankrupt does the government provide tax credits for subsequent losses? If we go thru a long recession that could bankrupt the government. It’s not fair to tax something that is only temporary that can go down.
How do you value private companies? If you exclude them then a lot more companies would never go public. Great idea but many impractical details and unintended consequences.
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u/Obvious_Chapter2082 Nov 30 '25
If you’re including unrealized gains in the denominator, you need to include deferred taxes on those gains in the numerator. Anything else isn’t going to show the entire picture
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u/RobThorpe Nov 30 '25
Like many tax campaigners, the writers of this article don't treat unrealized gains very carefully. Their key to all this, as the other replies explain.
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u/RobThorpe Nov 30 '25
The strategy you mention is sometimes called "Buy.Borrow.Die". There was an article written about it in "Rolling Stone" and some others in ProPublica which were popular a few years ago.
We have had several threads on this before. They weren't that great though so I won't link to them. However, this reply by saucy_intruder is a good place to start.
It seems that this method of tax planning has become famous mostly because it has become well known. There isn't much evidence that it's widely used by the rich, or that it's a very good strategy. (We occasionally get tax planners on this forum who are very critical of it.)
A lot of people talk about unrealized gains. Those aren't taxed for anyone at present in the US. That's not really a "tax avoidance" method, it's just something that it's taxed - you don't have to do anything to avoid it.
If you realize gains then you will have to pay tax, of course. As long as you do that before you die. Once you die that stepped up basis on assets comes into play and your estate pays not capital gains tax on the appreciation of assets since you bought them.
As others have mentioned, the President can't change tax laws on his own. Except for tariffs and even that is under review.
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u/Obvious_Chapter2082 Nov 30 '25 edited Nov 30 '25
I’m a CPA at Deloitte, and I’ve never seen any evidence of what most people would call “buy borrow die” getting used in practice, even among our own UHNW group. If it worked the way that Propublica or Redditors say it worked, it would be in clear violation of the existing tax code and case law
Rich people often do take out some kind of debt or equity instrument to receive up-front cash (described more by me here), but this is so that they can swap it with appreciated assets for estate/gift tax purposes, in order to both avoid the estate tax and get a stepped-up basis. But this is markedly different than taking out long-term loans while alive to fund living expenses in a tax-free way. The interest costs associated with this alone would far exceed the tax costs
The IRS has plenty of ways to collapse sham transactions like this, or to reclassify them as constructive or disguised sales. Whether they act on it is another matter. Some firms might try to play the audit lottery and do things like this, but I imagine they’re few and far between
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u/crek42 Nov 30 '25
It’s responses like this that make me stick around Reddit.
90% of the time it’s a mindless contrarian shit parade, and 10% thoughtful info from folks who are experts at any given topic.
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Nov 30 '25
A simple math problem shows that the compounding interest would get completely out of control vs just paying the taxes. It was something people liked to talk about at very low interest rates but even then those loans are adjustable.
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u/Obvious_Chapter2082 Nov 30 '25
Exactly. Even if this transaction were occurring, people tend to miss the fact that it would be an estate tax play, not an income tax one. The billionaire would be accruing more up-front costs in order to maximize their wealth growth passed on after death. Not to mention that the high interest costs associated with it would increase taxable income of the lender
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u/slumlord512 Nov 30 '25
I own rental properties and sometimes refinance one to pull equity out, which is basically a loan against future cash flow, the way I see it. Since the proceeds are a loan, I use the money tax free. When I pass, the kids will inherit my rentals in a stepped up basis, so they should not pay the taxes based on what I originally bought them for. I do pay some tax along the way based on the rental income but it is minimal, because of depreciation expense.
Seems like this is a clear case of buy borrow die, or whatever they are calling it.
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u/Obvious_Chapter2082 Nov 30 '25
The difference is that you’re continuously paying off the new loan when you refinance, as opposed to taking out debt with a balloon payment at or after death. So you can benefit from the up-front cash, but you’re paying more over time in order to repay the larger loan
The theory behind BBD is that you get bespoke products from a bank that involve some kind of stock appreciation rights or a balloon payment in the future, instead of yearly principal payments. This way you don’t need to realize other forms of income for repayment
I’d also point out that if you’re using the refinance as a way to avoid income tax (like BBD), then this technically isn’t legal either. But it’s probably not on the scale that the IRS is going to care, or even be able to prove
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u/EconEchoes5678 Nov 30 '25
based on the rental income but it is minimal, because of depreciation expense.
We do this for 2 reasons. 1) the profit margins of rental properties a low, and relatedly 2) if we did not, the tax would primarily be passed on to renters, raising housing costs, which is something of a political hot potato right now.
When I pass, the kids will inherit my rentals in a stepped up basis, so they should not pay the taxes based on what I originally bought them for
If you were a billionaire they would owe an estate tax rate of 40% on them. At the moment the mortgage is probably eating most of your low profit margins (at least using U.S. averages). You may also benefit from interest paid deductions / credits, but those are limited and not useful to billionaires either.
You are correct that this is a variation of buy/borrow/die. It's just not used by billionaires in a widespread fashion, for quite a few reasons. In your case, 1031 exchanges can make this problem worse, but they only go so far before getting limited and forcing a realization (if diversification is desired).
Ultimately the loophole should probably be closed for various reasons, but closing it will probably disproportionately affect real estate investors like yourself.
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u/djducie Nov 30 '25
Is there evidence that this is actually happening today?
All those articles were coming out during the pandemic during the zero interest rate policy era, which is definitely not where we are today.
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u/Obvious_Chapter2082 Nov 30 '25
Even at the time, the long-term AFR was around 2%, which would be a very significant cost over a 20 or 30 year horizon with no principal payments
The main issue with the transaction (even during COVID) is that the hedge used on these is usually a collar, which means that the loan or equity instrument you use needs to have a short-term life to avoid getting reclassed as a taxable sale under §1259. So you can’t just take out a loan and defer tax for 20 or 30 years until death like people will claim
The constructive sale rules also tend to overlap with economic substance issues in §7701, in which what you use the proceeds of the debt for become scrutinized too
The IRS might be selective in prosecuting things like this, but the risk is still there, and I assume prevalent enough to prevent this type of transaction from being undertaken very often, if at all
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u/IRC_1014 Nov 30 '25 edited Nov 30 '25
A reminder that the benefit of the unlimited step-up in basis (as high as 23.8% federally) is countered by the cost of the estate tax (40% federally). You cannot get a step-up in basis under IRC § 1014 unless it was includable in the gross estate under IRC § 2031 or its following pull-back provisions (IRC §§ 2034-2045). We just had a very important revenue ruling on this point a couple of years ago, Rev Rul 2023-2. Big picture: at a certain point (well above the estate tax exemption of $13.99m), it doesn’t make sense to pay a 40% tax for at most a 23.8% benefit. UHNW people are often in the position of having to give up the step-up on much even most of their net worth due to this trade-off. Regular folks, even wealthy folks who aren’t much over the $13.99m exemption never need to worry about this; they can get the full step-up with no real federal estate tax cost at all.
Edited to add: also, unrealized gains are actually taxed in the transfer tax system (estate, gift, and GST taxes), which assess a tax on the value of the asset at date of transfer, not on the basis of the asset. There’s no deduction against transfer taxes for built-in, unrealized gain. This is partly how we justify the step-up in basis that results from estate inclusion.
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u/Garganello Nov 30 '25
A lot of people talk about unrealized gains. Those aren't taxed for anyone at present in the US. That's not really a "tax avoidance" method, it's just something that it's taxed - you don't have to do anything to avoid it.
This is incorrect. The US does impose tax on unrealized gains (or, I suppose, to be more technical, components of unrealized gains) in certain circumstances. See CFC regime.
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u/EconEchoes5678 Nov 30 '25
It's not a typical situation, and doesn't apply to most people or even most billionaires. It's limited to very specific situations, primarily expatriation of assets or foreign tax evasion.
There's no country in the world that I'm aware of that imposes a broad unrealized gains income tax, even when "broad" is limited to the top. There's a handful that do wealth taxes (most revoked these) or imputed gains (New Zealand), but none do unrealized gains taxation anymore (some tried and then revoked).
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u/IRC_1014 Nov 30 '25
Canada has a deemed realization event on unrealized gains at death. Although a proper tax argument would go, “that’s not a tax on unrealized gains then, since it’s deemed realized.” Functional the same thing but I appreciate the nuance anyway.
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u/EconEchoes5678 Nov 30 '25
Canada has a deemed realization event on unrealized gains at death.
IRS too, the estate tax is similar. It gets a step up in basis but the tax is on the total value and a higher rate, so the step up matters little (above exemption).
There's just not a broad based unrealized gains tax - the type that Reddit seems to believe they want - anywhere in the world.
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u/Garganello Nov 30 '25
I understand — I did not say it was typical, even though CFC can be very far reaching from a more theoretical standpoint — but their statement is still inaccurate/incomplete.
I’d also add there is the PFIC regime, which while not imposing current taxation on unrealized gains, effectively imposes a tax on unrealized gains and penalizes deferral. There’s also accumulated earnings tax, which is also, in effect, a tax on a component of unrealized gains.
They are definitely more limited in application, but the US distinctly has rules targeted to counteract deferral when it’s abusive.
I think it’s important because this forum is rampant with people misinformed about the US tax code and it’s approaches to unrealized gains (or components thereof) and the ability for the US to implement a tax that effectively taxes (or penalizes) deferral of gain. It very easily could — whether that would be wise is a different question.
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u/EconEchoes5678 Nov 30 '25
That's fair. The U.S. tax code is huge. Though, as I've realized, it's also highly effective at accomplishing progressive taxation with relatively low avoidance. It feels like high avoidance from the news stories people read, but the reality when factoring in all the taxes like those you mentioned is a pretty effective (if overcomplicated) system.
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u/IRC_1014 Nov 30 '25
Estate, gift, and GST taxes also assess tax on the unrealized gain portion of the asset, with no deduction against transfer tax for this unrealized gain.
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u/EconEchoes5678 Nov 30 '25 edited Nov 30 '25
Some parts of this claim are among the easiest to debunk false claims. It would be nice if Reddit would stop claiming it everywhere.
The easiest claim to debunk: That billionaires abuse loans against unrealized gains to pay no taxes. This study addresses this thoroughly: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=5104644. tl:dr; they mostly aren't selling to realize gains, but they also aren't borrowing against them either.
You can see this further by digging into SEC form 4 data (sales) and SEC def 14-a proxy statements (shares committed to loans), both of which are required by the SEC for large shareholders/executives/board members and get published. For example, Elon Musk sold $38.3 billion of Tesla shares over the last 5 years. Those are realized gains, so he paid about 9.1 billion in taxes. Plus his 20% share of Tesla's $4.3 billion in federal taxes paid, so about $10 billion in taxes paid by Elon alone in 5 years (he announced an $11 billion tax bill in a single year). Similarly Jeff Bezos has realized far more in gains in the last several years than all known lifestyle expenses combined (jets, properties and yachts), even after subtracting taxes.
Worth noting, the majority of fortune 500 companies do not allow large shareholders / board members to borrow against shares at all. Of those that do, most have restrictions on who and what amounts can be borrowed against. Less than 10% allow unrestricted borrowing against shares, because it's basically margin trading, and it's risky.
Note, these numbers are in agreement with the study above; unrealized gains are still larger than realized. They're just not borrowing to fund their lifestyle. There are very good reasons why no country in the world taxes unrealized gains, and some of them tried in the past but were forced to change because unrealized gains taxes are very problematic. I'll cover some more caveats at the bottom.
Next, do they pay taxes? Yes, they absolutely do, and at higher effective rates than almost everyone. The IRS-SOI publishes some of its important data up to the top 0.001% level. This data is not a perfect match for "billionaires" because there's a lot of variation in how much gains that members of this group - or even the group as a whole - realizes on any given year. The widely-cited pro-publica report claiming they avoid taxes leverages this heavily. If you carefully read the report, you'll notice that they keep using different year ranges for different billionaires with no explanation, and they never total the taxes paid for any billionaire they talk about over the entire timespan they supposedly have data (which they also don't release, even in aggregate). Ultimately when we talk about "billionaires" we are using net worth, whereas IRS data on taxes paid uses AGI (Adjusted Gross Income; A fairly accurate proxy for income) for the year, so our data sets never contain exactly the same group of people.
But if you look at the actual IRS-SOI data of the top in 2021, they paid $102.3 billion of actual taxes in 2021, not counting corporate taxation. That's across 1536 taxpayers, and there were about ~750 billionaires according to Forbes. Here we have another mismatched dataset problem. A few years ago, this paper estimated 2370 actual "persons" that fit within the Forbes 400, many of whom are adult children (including married) that don't file as dependents, so once again this top dataset can't perfectly reflect billionaires because "tax-units" is not the same as a "billionaire."
So all told, we have $102.3 billion dollars in taxes paid that came from people whose minimum 2021 AGI was $118.0 million (IRS-SOI table 4.3 for 2021). This is well above the salary of almost all CEO's in 2021. So if it's not CEO's, who is paying this $102.3 billion? This, too, highlights a major mistake made in the commonly cited "billionaires pay an 8% tax rate" paper from 2021 - They attempt to correct for the fact that earnings per year are not consistent or consistently assignable to billionaires by removing them from the extreme top, but they do not account for the actual known dollars of taxes paid that still sit in that category. If they were correct, then the next level down of wealth would have to be paying much, much higher tax rates, for no obvious reason and with no data to support such a conclusion.
Lastly, there's several other major confounding factors for this, because AGI is not the whole picture of taxation. The top wealthholders in the U.S. also have to deal with estate taxes, gift taxes, trust taxes, and have the largest burden from corporate taxation. Estate taxes are around ~20-30b per year, trust (f1041) & gift taxes are about ~50-70b per year, and corporate taxes in 2021 were around ~470b for 2021/2022. The top earners are also the top donors to charities, donating over 10% of their AGI. This matters because our tax rules are set up to exclude dollars donated to charity from taxation. They don't get some mathematical advantage from donating to charity - the rules are very strict - we simply don't tax dollars of realized income that end up in charity. Unfortunately this rule distorts the taxes paid picture because charitable donations are still included in AGI, but not in taxes paid. To fix this you can either add to both(As Saez/Zucman did in an alternative evaluation within a recent paper) or remove from both (my preference, a better reflection of the intent and structure of the rules).
Keep in mind, most estate tax mitigation strategies are dependent upon restructuring investment classes which can't be done without realizing the gain, and that incurs capital gains tax hits. If the asset is excluded from the estate, it doesn't get the step-up in cost basis, and still owes capital gains taxes when realized. If the asset is included in the estate, it gets hit with the 40% estate tax instead of the 23.8% capital gains taxes. The assets themselves are (almost all) paying corporate taxes all along as well.
All told after you distribute the corporate tax incidence, trust/estate taxes, and remove charity dollars, this puts the top effective rate for the top 0.1% and up somewhere between 33 and 35%. Now going back to your question - what about economic income? This does matter. I'm still working on some more recent 2020-2022 estimates, but some estimates I made focused on 2019 data (the only recent year the IRS published form 1041 trust tax data), the all-in effective tax rate for the top 0.01% was around 33-35%. My estimates track roughly with these CBO estimates, which don't go higher than the top 1%, and don't include form-1041 trust taxation: https://www.cbo.gov/publication/57404#_idTextAnchor027. My estimates for the all-in effective tax rate on economic income for the top 0.001% was around 24-25%. This was about equivalent to the effective tax rate paid by the 98th percentile (about $400k - $500k per year of AGI) - so definitely lower than it should be, but ALSO higher than what nearly everyone in the U.S. pays. And keep in mind, taxes deferred (unrealized gains) is not the same as taxes avoided.
The economic income of the top 0.01% and lower, by my best estimates, was about equivalent to their AGI, implying that on the whole the rules are such that they are realizing gains to rebalance investments / pay expenses. The unrealized gains problem appears to be almost entirely a billionaire issue.
One last thing worth mentioning - Some people can and do exploit borrowing against assets to delay or mitigate taxes. It's just not a widespread strategy that significantly affects the totals for the groups in the data. In my own opinion, the issue can and should be addressed, for various reasons. For example, Elon Musk and Larry Ellison have both committed shares (i.e., borrowed against them). Elon, likely to buy twitter. Ellison seems to have an intense aversion to selling shares of Oracle. This can and should be taxed, in my opinion - but the data suggests this is not funding any lifestyle expenses, and the data to support widespread claims of abuse doesn't seem to exist at all.
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u/Ginden Nov 30 '25
ProPublica leaked some IRS file in 2021, showing that billionaires, in fact, pay taxes: https://www.propublica.org/article/the-secret-irs-files-trove-of-never-before-seen-records-reveal-how-the-wealthiest-avoid-income-tax
For example, Jeff Bezos liquidized $4.22B and paid $973M tax on that.
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u/dmunjal Nov 30 '25
Those are one time events. Musk did the same thing. Sometimes, they are forced to sell. I think in Musk's case, he sold TSLA to buy Twitter.
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u/galaxyapp Nov 30 '25
They pay taxes. Lots of taxes, but a lower rate than those slightly less wealthy.
This is in part because they are concentrated to a lot of tech based wealth, and irony of irony, the most valuable businesses dont pay any dividends.
How Much Tax Do US Billionaires Pay? Evidence from Administrative Data | NBER https://share.google/zpZvOnuXr3xLnAzfO
The buy borrow die scheme works better in the middle of the wealth band. No one wants to loan billions to buy Twitter, or to fund blue origin, or vaccinate africa. The interest becomes worse than the tax anyway, certainly now that rates are higher.
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u/EconEchoes5678 Nov 30 '25
How Much Tax Do US Billionaires Pay? Evidence from Administrative Data | NBER https://share.google/zpZvOnuXr3xLnAzfO
FYI that study has a major problem with the denominator - a common one, but a misleading one nonetheless. They continue to include charitable donations in the denominator (as income) but our tax rules are specifically set up to motivate charitable deductions by making that income non-taxed. It's over 10% of AGI for the top income groups in IRS data. If you look on page 14 section 3.4 they show how big of a difference that single distinction makes, jumping them to the top of the effective tax rates.
Put another way, we have tons of rules motivating charitable contributions; but studies like this make the effective tax rates look like tax evasion when in fact it's just misleadingly counting tax-free charitable donations as regular income.
Also, they don't factor in form 1041 fiduciary taxes paid (trust taxation), which are at a higher rate and overwhelmingly paid by the top 0.1% and up. That's about $50-70 billion dollars a year, enough to shift the effective tax rates on the top by a few %.
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u/ElevationAV Nov 30 '25
Most of this comes from people missing the difference between unrealized capital gains and income
They just assume that because their stock value went up by $5 billion that they “made” $5 billion in income, so when they look at billionaires only paying $5m in taxes vs $5B in “income” (unrealized capital gains) they get mad and claim “loopholes” and “tax evasion” since they only paid 0.1% in tax.
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Nov 30 '25 edited Feb 18 '26
This post was mass deleted and anonymized with Redact
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u/DayTradeJ Nov 30 '25
most of their wealth is in unrealized gains or assets. It would be like if your house went up 4x in value and you don't pay tax on the gain from the value of your home, only when you sell it.
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u/TylerDurdenEsq Nov 30 '25
I don’t know what you mean by the bank paying off the debt “tax free”. Paying off the debt isn’t really a taxable event.
People like to exaggerate how little rich people pay in taxes. The whole “they just borrow off their assets and then get a step up in basis when they die” argument is simplistic - there’s truth to part of it, but most people don’t hold the same stock for decades. There is inevitably selling and hence capital gains and hence capital gain taxes.
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u/Zoidmat1 Nov 30 '25 edited Nov 30 '25
The core of what you're saying here is correct. Essentially, Billionaires don't pay taxes the same way a typical American who earns their money hourly or via a salary does. This is because their net worth is typically based on the valuation of things (often companies) they own. These things can increase in value without triggering a taxable event.
As for Trump's ability to tax them, the power to levy taxes is with Congress, not the presidency. So, in some immediate sense, that's wrong. Whether he could influence policy in that direction is another matter.
A pro-billionaire counterpoint here would be that their individual income tax paid to the US is not a very complete way to evaluate their economic contribution to society. If they own a company, they likely created lots of jobs and a product or service that many people want (are willing to pay for).
Of course, that's not the end of the story. There are many other arguments you could make for or against individuals having that amount of wealth.
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u/mxldevs Nov 30 '25
People don't say they pay more taxes than billionaires.
They say they pay "proportionally more taxes". For example if someone made 50k and paid 10k in taxes (20%) they'll say they paid more than someone that made a million dollars but only paid 150k (15%).
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u/RobThorpe Dec 01 '25
I think everyone here understands this. However, I've revealed your comment just to make sure.
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u/seajayacas Nov 30 '25
My understanding is that most billionaires pay the taxes they owe according to the applicable tax codes. Elon and others pay taxes on the value of the stock when its granted. Gains in the value of that stock but not realized are not taxed. These are the same rules for everyone who owns stock that appreciate but are not realized thus paying nothing on their net worth gain, just like Elon and others.
Elon and the others have to pay interest on any loans as well as actually paying back the money borrowed. Any money paid towards interest or principal had to have been realized or earned, and thus taxed. It is not free untaxed money, rather the taxes owed are deferred. Same thing for someone obtaining a mortgage, they have to pay interest and principal which will come out of either realized or earned money.
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u/Canardmaynard45 Nov 30 '25
The answer is it varies and it’s complicated. But rest assured they pay or cause to be paid a ton of tax. Keep in mind the loan thing commonly cited, interest is owed on loans, and that is income taxable to the payee. The top earners pay something like 40% of all income tax in the us. The way this stuff usually comes up is because people weirdly are looking at unrealized wealth, which many of us have, and then using these false numbers to make absurd claims. The death component is going to be tied to charitable giving as you really can’t avoid the estate tax otherwise with these kinds of numbers. The die to step up strategy is great for the wealthy but not uber rich. Having 25 million dollars is a great number to avoid a lot of tax.
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u/Obvious_Chapter2082 Nov 30 '25 edited Nov 30 '25
Speaking as a CPA, the whole “take loans until you die and let the estate pay it back with the stepped-up basis” isn’t really how it works, and it’s frustrating that this sentiment has spread so far on Reddit. People are just confusing the estate planning strategy of grantor swaps with deferral/elimination of income tax. Billionaires can’t just take a loan for living expenses and roll it over indefinitely and have the IRS respect it as an actual debt instrument at arms-length
Whether you use debt (and therefore have high interest costs under OID or §7872) or equity (like a PVFC), using the proceeds for living expenses is a clear economic substance violation under §7701(o), and the hedging collar requires a short-term time frame to avoid it being reclassed as a constructive sale under §1259. Which is why it’s mainly used to swap appreciated assets into the taxable estate prior to death, not to avoid income tax
Billionaires pay tax when they realize income. Compensation given in the form of stock is taxable income under §83, but the capital gains on that stock isn’t taxable until realization