Imagine earning $8 million every hour without paying taxes.
That's Jeff Bezos' reality.
Let's explore how he manages this and how it compares with the tax challenges of small businesses and typical earners.
Jeff Bezos' wealth comes mainly from Amazon stock, which grows as an “unrealized gain.”
He avoids taxes on this appreciation by not selling his shares.
In contrast, small business owners and employees pay annual taxes on their earnings.
For example, a local ice cream shop owner might earn $80,000 a year and pay about 22% in federal taxes, plus state and local taxes.
A teacher with a $60,000 salary faces similar deductions. Both have limited options for reducing their taxes.
Meanwhile, large corporations employ sophisticated tax strategies.
They might shift profits to low-tax areas or claim large deductions for research and development.
Corporations also benefit from deductions on asset costs over time, reducing taxable income.
Some even use tax havens to minimize taxes, often resulting in lower effective tax rates than small businesses or middle-income earners face.
Ultra-wealthy individuals like Bezos navigate complex tax scenarios.
Their wealth, often in assets like stocks, is not taxed until sold.
Strategies such as “buy, borrow, die” allow them to borrow against their assets, fund their lifestyles, and avoid capital gains taxes.
When these assets are inherited, their cost basis steps up to the market value, potentially erasing capital gains taxes.
Donating appreciated assets lets them claim full market value deductions while avoiding capital gains taxes.
Bezos' recent move to Florida is strategic.
Florida has no capital gains tax, which could save him a fortune when he sells his Amazon shares.
Florida also lacks an estate tax, protecting his wealth from significant future taxes.
He pays interest on loans, but it is minimal compared to his wealth.
He can also take new loans to repay old ones, deferring taxes indefinitely.
This legal strategy underscores the tax disparities between the ultra-wealthy and average citizens.
Reform proposals, like Senator Warren's wealth tax and President Biden's minimum tax for the ultra-wealthy, aim to address these disparities.
These proposals, along with a global minimum corporate tax, face challenges in implementation and potential economic impacts.
The U.S. tax system creates different effective tax rates for different groups.
While the average American pays taxes on their income as they earn it, the ultra-wealthy and large corporations use sophisticated strategies to minimize their tax burden.
