Tesla CEO Elon Musk, the world’s second-wealthiest person, didn’t pay any income tax in 2018, according to an investigation by Pro Publica. And Musk isn’t the only wealthy person to avoid paying income taxes in the last two decades.
Elon Musk, others avoid paying income tax
Pro Publica collected a "vast cache of IRS information" covering over 15 years that shows how little Elon Musk, Amazon founder Jeff Bezos, and Warren Buffett paid in income tax. The news outlet found that Bezos, a multibillionaire in 2007, didn't pay any income taxes.
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Elon Musk avoided paying income tax in 2018, and former New York City mayor Michael Bloomberg did the same thing in recent years. Billionaire hedge fund manager and activist investor Carl Icahn avoided income tax two times, while fellow billionaire hedge fund manager George Soros didn't pay any income taxes for three consecutive years.
The data obtained by Pro Publica offers an unprecedented look into the financial lives of America's wealthiest people, including billionaire philanthropist Bill Gates, Facebook CEO Mark Zuckerberg and more. The tax returns show not only how much these people had in income and how much they paid in taxes but also their stock trades, investments, gambling winnings and audit results.
The data collectively shatters the myth of the American tax system that claims the wealthiest people pay the most in taxes. IRS records show that the wealthiest Americans can legally pay income taxes amounting to a tiny fraction of the hundreds of millions or even billions their fortunes increase every year.
Pro Publica noted that many Americans live paycheck to paycheck and don't amass any wealth. Meanwhile, they pay the federal government a percentage of their income. The news outlet said that in recent years. The median household in the U.S. earned about $70,000 in a year and paid 14% of it in federal income taxes. The highest income tax rate is 37%, and it supposedly kicks in for Americans who earn more than $628,300 per year.
U.S. billionaires take advantage of tax-avoidance strategies that ordinary Americans don't have access to. Their wealth comes from the skyrocketing value of their assets, which aren't categorized as taxable income unless the billionaires sell their holdings.
Elon Musk's true tax rate
Pro Publica looked at the amount each billionaire's wealth increased, as estimated by Forbes, to how much they paid in taxes. Forbes said the 25 wealthiest people saw their net worth rise by a total of $401 billion from 2014 to 2018 and paid $13.6 billion in federal income taxes in those five years. That amounts to a true tax rate of just 3.4%.
On the other hand, middle-class Americans in their early 40s who have amassed a typical amount of wealth for people their age saw their net worth grow by an average of about $65,000 after taxes between 2014 and 2018, primarily due to home price appreciation. However, most of their income came in the form of salaries, so their tax bills amounted to about $62,000 on average over those five years.
Pro Publica said Warren Buffett avoided the most taxes during those four years despite his public comments about higher taxes for the wealthy. His wealth grew $24.3 billion between 2014 and 2018, but he paid only $23.7 million in taxes, amounting to a true tax rate of 0.1% or less than 10 cents for every $100 he added to his net worth.