The rich often pay lower effective tax rates than middle-class families because their wealth grows through investment appreciation rather than taxable salary, and they utilize specific tax-advantaged strategies. Key reasons include lower tax rates on capital gains, the ability to defer taxes on unrealized gains, and using "buy, borrow, die" tactics to avoid taxes on wealth.
“The ultrawealthy pay very low tax rates because their affluence derives primarily from the soaring value of their assets. Our current tax code lets billionaires avoid taxes on gains unless and until they sell their assets," Congressman Cohen said.
Taking Advantage of Capital Gains, Not Salary
One of the biggest reasons Bezos pays little in personal income tax is that he doesn't rely on a traditional salary. Instead, he holds most of his wealth in Amazon stock. Here's why this matters: Capital gains taxes are much lower than income taxes in most cases.
According to ProPublica, Musk paid no federal income taxes in 2018. He stated his 2021 tax bill was estimated at $12 billion based on his sale of $14 billion worth of Tesla stock. Musk has repeatedly described himself as "cash poor", and has "professed to have little interest in the material trappings of wealth".
In some years, billionaires such as Jeff Bezos, Elon Musk and George Soros paid no federal income taxes at all. Billionaires avoid these taxes by taking out special ultra-low-interest loans available only to them and using their assets as collateral.
Jeff Bezos pays a very low effective federal income tax rate, often under 1%, because most of his wealth comes from untaxed stock appreciation, not taxable income like wages; a 2014-2018 analysis showed he paid roughly $1.4 billion in federal taxes on a $127 billion wealth increase (a ~1.1% rate). He has even paid zero federal income tax in certain years (like 2007 and 2011) by using investment losses and deductions, legally deferring taxes on stock growth until sold, which he often avoids by taking low-interest loans against his shares.
Billionaires often employ the “buy, borrow, die” strategy to avoid income and capital gains taxes. First, they acquire appreciating assets like stocks or real estate. Instead of selling these assets when they need cash (which would trigger capital gains tax), they borrow against them at favorable interest rates.
Yes, Jeff Bezos famously paid himself a modest salary of around $80,000 per year at Amazon for about two decades, choosing equity over large paychecks to align with his founder's mindset and drive wealth through increased company value, not more salary. He felt his significant ownership stake provided ample incentive, and he was proud of this decision, which allowed him to avoid higher taxes while his stock value soared.
Bill Gates Answers Why He Doesn't Just Voluntarily Pay More In Taxes – 'People Pay Taxes As An Obligation Of Law ... Not Out Of Charity' Bill Gates doesn't shy away from paying taxes.
But how people define “upper class” differs. Some say you'd need to be making twice the median income, or around $167,460. Even more elite are those who find themselves in the top 5 percent of earners. In the U.S., you'd need to be making about $336,000 to find yourself in the top 5 percent, according to Census data.
Jeff Bezos graduated from Princeton University in 1986 with a 4.2 GPA in electrical engineering and computer science, graduating summa cum laude and earning memberships in honor societies like Phi Beta Kappa and Tau Beta Pi.
Jeff Bezos, through his Courage and Civility Award, granted $100 million total in March 2024, splitting $50 million each to actress Eva Longoria and retired Admiral Bill McRaven for their philanthropic efforts, supporting causes like Latino education for Longoria and veterans' families for McRaven, as part of Bezos' ongoing philanthropic initiative to fund societal unifiers.
Backdoor IRAs, carried interest, and life insurance are just some of the loopholes you can use to reduce your tax bills. It's important to plan correctly and use the right loopholes, credits, and deductions for your unique situation.
Borrowing to Create Wealth
This is called “gearing.” Providing you invest wisely and your assets increase in value, gearing helps you create wealth, as the income (and capital growth) from the investment pays off the debt and exceeds the costs of servicing that debt. Property or shares are often a good strategy here.
We thought Michigan residents might be interesting in learning how Facebook founder Mark Zuckerberg and several company insiders are using a legal tactic called a “grantor-retained annuity trust” to avoid paying hundreds of millions of dollars in estate and gift taxes on their Facebook shares.
Amazon CEO Jeff Bezos and Tesla CEO Elon Musk, for example, are the two wealthiest people in the world, according to the Forbes Billionaires' List. But in 2007 and 2018, Bezos didn't pay a dime in federal income tax, even though he was already a multi-billionaire. The same was true in 2018 with Musk.
How Tesla Legally Avoided Federal Taxes. Accelerated depreciation: By rapidly depreciating assets like factories and equipment, Tesla reduced its taxable income, saving approximately $500 million in 2024.
Levying means that the IRS can confiscate and sell property to satisfy a tax debt. This property could include your car, boat, or real estate. The IRS may also levy assets such as your wages, bank accounts, Social Security benefits, and retirement income.