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Masters of tax avoidance

The top federal income tax bracket in the U.S. is 37%. For tax year 2024, that top rate applies to individual single taxpayers with incomes greater than $609,350 (or $731,200 for married couples filing jointly).

But instead of paying their dues to the government, many of the nation’s wealthiest individuals pay a “true tax rate” in the single digits thanks to clever tax machinations that simply wouldn’t be an option for Americans with a more “normal” income.

For instance, they manage capital gains and losses strategically to shape how much income they have to report. They also cling on to their appreciating assets — like stock and property — and if they need cash, they can borrow loans against their shares. That borrowing is not taxable.

Wealthy individuals also dodge taxation by shifting profit to shell companies with no economic substance or by moving abroad to benefit from special tax regimes designed to attract wealthy individuals.

According to a report from ProPublica, billionaires like Jeff Bezos, Elon Musk and Michael Blooomberg paid no federal income taxes at all in certain years.

Last year, the Internal Revenue Service (IRS) announced it would use funding from the Inflation Reduction Act to increase scrutiny on high-income taxpayers.

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‘Tax me more’

Not all rich Americans are on the same page about this. While some will make every last ditch effort to hold on to their wealth, others are acutely aware of the unfairness of it all.

A recent survey from Patriotic Millionaires — the group of high net worth Americans behind the “Proud to Pay More” letter — revealed that many wealthy individuals would support higher taxation among their ranks.

In October 2023, the EU Tax Observatory suggested a global minimum tax on billionaires, equal to 2% of their wealth. If applied to the world’s 2,756 richest people, that 2% tax could raise $250 billion — revenue that could help countries deal with macro problems like aging populations and legacy COVID debt.

The Patriotic Millionaires survey — which quizzed people living in G20 countries with investable assets totalling more than $1 million — found that the majority (75%) would actually support a 2% tax on billionaires.

In fact, 58% of the surveyed millionaires would support a 2% tax on households with $10 million or more — with most agreeing that they would like the additional tax revenue to be used to provide better public services, a stronger workforce and a more stable economy.

Both Driscoll and Disney alluded to these challenges when explaining to the Daily Mail why they support a tax hike on the nation’s richest.

“The sad truth today is that if my grandparents came to America and tried just as earnestly to get ahead, it's unlikely they would succeed — let alone lay the groundwork for their grandson to become a millionaire,” said Driscoll.

Meanwhile, Disney expressed her desire to help sustain the planet for future generations: “In my unique case as a person of wealth, I can only fulfill this responsibility if lawmakers strengthen their resolve to tax me more.”

Washington’s attempt to narrow the divide

Unfairness in the U.S. tax code has not escaped the eagle eyes of Washington. President Biden has insisted he wants to raise taxes on America’s uber-wealthy, but his attempts so far have come up short.

November 2023 saw the reintroduction of the Billionaire Minimum Income Tax Act, which was revised to match a proposal President Biden included in this year's budget. If passed, this law would require households worth over $100 million to pay an annual minimum 25% tax rate on their full income, including regular income along with realized and unrealized gains.

Morris Pearl, former managing director of Black Rock and another co-signer of the “Proud to Pay More” letter, expressed his support for the billionaire tax, stating it will “compel billionaires to contribute taxes to the nation that made them so wealthy in the first place.” He added, “Congress made this mess by rigging the tax code against working people; now it's time for Congress to fix it.”

While the extra revenue may help to ease America’s whopping budget deficit — and improve fairness in the tax system — any proposals to impose higher taxes on the uber-wealthy have so far failed to move the needle in Congress.

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Bethan Moorcraft is a reporter for Moneywise with experience in news editing and business reporting across international markets.

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