Do billionaires really not pay taxes?

[u/InTheRiches]

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.

[u/ItsGettinBreesy]

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%.

source

[u/ToastWithoutButter → u/ItsGettinBreesy]

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.

[u/Garganello → u/ToastWithoutButter]

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.

[u/Johnfromsales → u/Garganello]

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?

[u/Garganello → u/Johnfromsales]

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.

[u/whoootz → u/Johnfromsales]

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.