Yes, the super rich are different from the rest of us. Many of them pay very little in income tax.
Some of the world’s richest leaders, including Warren Buffett, Jeff Bezos, Michael Bloomberg and Elon Musk, pay little or no tax on their wealth, a ProPublica report revealed on Tuesday.
“The tax law is not designed for the employee,” said Eric Pierre, an Austin, Texas-based certified public accountant and owner of Pierre Accounting.
Most Americans earn income through their work, such as wages, salaries, or other benefits provided by the employer.
However, the top 1
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The more a person earns, the greater percentage of capital income and less labor compensation they receive each year, the tax policy center has found.
While most people contribute tax through their paycheck, the top 1% may not see income on their tax returns. Here’s why: There are several ways to delay or avoid taxes on investments.
For example, if someone has $ 1 million in stock that grows to $ 2 million, they do not owe tax on the profits until they sell.
In addition, they can reduce tax bites by timing sales or offsetting profits with other losses.
Another strategy may be to use valued property as collateral to buy new investments.
The wealthy can have assets until they die, avoid taxes on capital gains and give heirs inherited property valued on the date of their death.
U.S. billionaires grew their fortunes by 55% or $ 1.6 trillion during the pandemic, according to analysis by left-wing American tax reform groups and the Institute for Policy Studies.
President Joe Biden wants to crack down on tax evasion from 1% by adding taxes on inherited wealth with gains of more than $ 1 million.
He has also called for raising the maximum capital gain to 39.6% from 20%, which is equivalent to his proposed income tax rate for top earners.
Tax strategies for the wealthy
While the report did not reveal in-depth strategies, there are lessons for Americans who want to reduce taxes and build wealth, Pierre said.
Some of these tactics may include borrowing from equity to buy more real estate or starting a side business and exploring legitimate tax deductions.
“It’s a shift in thinking,” he said.
Of course, not everyone has the means or appetite for these strategies, he said. But Americans may begin to think about how they can diversify income beyond their paychecks.
“You may not get billions or pay 3.3% [tax] rate, “he said.” But you can lower your taxes from say 25% to 20%, down to 12% to 14% with adjustments to how you spend your money. “
But everyone’s situation is different, so it’s important to talk to a CPA or financial advisor, he added.
Better ways to tax the wealthy
It is clear that the wealthy have found ways to avoid taxes, yet there are conflicting opinions on how to solve the problem.
Some politicians have called for taxing the wealth growth of wealth every year, known as a “mark-to-market” system along with a wealth tax.
“For politicians who want to increase the tax burden on the wealthy, there are better ways to do it,” said Erica York, an economist at the Tax Foundation’s Center for Federal Tax Policy.
Taxation of asset growth each year can be “extremely complex”, especially from an administrative point of view. There may be “difficult valuation issues” for assets and companies, York said.
“You also want to put a tax burden on savings and investment decisions,” she added.
Instead, legislators could consider a so-called progressive consumption tax applied by countries that are part of the Organization for Economic Co-operation and Development, she suggested.
Another option could be a VAT, a tax added to the sale of goods and services.
Legislators may also consider a national VAT. Both can avoid the challenges of trying to levy taxes on asset growth each year, York said.