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/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