The Highly Questionable Tricks of the Uber-Rich to Avoid Paying Taxes

It is an insidious disease of the wealthy to take advantage of the laws and loopholes that deprive the very country that has supported their wealth

We all love a good rags-to-riches story. We admire entrepreneurs who pioneer the way in engineering, technology, or business, gathering vast fortunes on the way.

Then we fall out of love with them when they get weird.

What do they have in common with each other? I’ll tell you, it’s taxes. They pay less of a percentage of their wealth in tax than we do. In some cases, the uber-rich pay no tax whatsoever.

Jeff Bezos, founder, and former president and CEO of Amazon is now the world’s richest man. In 2007, and again in 2011, he paid nothing in federal income taxes.

In those years, he did not contribute a single cent towards repairing the roads his Amazon delivery trucks drive on.

In 2018, Elon Musk paid zero federal income tax. Today, Musk is worth $237.8 billion. An American earning an average wage paid $13,200. That’s $13,200 more than he did.

Here’s how one billionaire did it

In most countries, governments set up tax-free investment vehicles to encourage saving for retirement. In the US, it’s called an IRA (Individual Retirement Account).

You can invest a maximum of $6,000 a year into an IRA.

So there is this guy who started a business. In the beginning, he issued shares in his company and valued each share at 0.001 cents.

He then put $2,000 worth of his private company shares into his self-directed IRA. As long as he doesn’t touch his IRA investments until he is 60, the money remains entirely free of tax.

This isn’t illegal. Anyone can do it.

As soon as sets up his tax-free investment, he seeks investors to plow money into his company. They add millions to its value and the shares jump to $34.69.

For the next 30 years, his earnings and dividends are re-invested into his IRA and grow in this tax-free shelter. Today, his investment is worth $5 billion.

The guy is Peter Thiel, co-founder of Paypal. In 2027, Peter will be 60 and can access his IRA having avoided more than a billion dollars in tax.

What would you do with $5 billion? Could you spend it all? How much better off would your country be if a fair proportion of that wealth was used to fund services?

The difference

“The rich aren’t like us — they pay less taxes.” — Peter de Vries.

The economic and political power of the uber-rich stems from their wealth. The more money they have, the greater their influence on legislators and elected officials.

But you have to get rich first. Not all billionaires have a rich uncle to call upon to fund their ventures.

In 2021, Forbes estimated that 70% of the richest people in America were self-made. Although they had some advantages in life, most came from a middle-class or upper-middle-class background.

The difference between the ordinary citizen and the rich is they don’t fund their wealth growth with their own money, they fund it from borrowing.

“I love money, other people’s money.” — Donald Trump

They buy assets; they borrow money on their assets, and these assets become tax deductible. They buy more assets; they borrow more on these assets.

“If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” ― J Paul Getty

The rich borrow billions at low rates from the banks and that funds their lifestyle. They can afford to employ accountants to look after their money and use every means possible to reduce their tax liabilities.

They even avoid paying taxes when they die. They cross the ‘T’s and dot the ‘I’s on their wills. Use lump sum equity release plans, which is like giving an interest-free loan to their children. And give them their properties in advance to avoid capital gains tax.

They tie up assets like property and businesses into trusts that also shelter their kids from paying inheritance tax. They use shell companies and offshore accounts in tax havens to protect their wealth.

And the bottom line is, it’s perfectly legal. Who do you think made those laws?

The big problem

We tax income, not wealth.

The rich are smart with their money. That’s why they are outside the tax system. They occupy a different universe.

Warren Buffett, the mild-mannered multi-billionaire from Omaha, has advocated higher taxes for the rich.

Yet, between 2014 and 2018, Buffett’s riches rose by $24.3 billion and during that time, he only paid $23.7 million in taxes. That’s the equivalent of the average American paying $54 per year.

Buffett only pays money on his income. He doesn’t pay taxes on his asset growth or what he has wrapped up in his company.

Rich individuals, and the large corporations they own, are incurring tax rates well below those of average taxpayers and it’s pissing us off.

A National Audit Office (NAO) reported on the concerns about the uncontrolled way that the UK tax office has been doing secret deals with large companies. These companies are negotiating lower tax rates.

I wonder how the average Joe would get on if he turned up at HMRC and started haggling.

The rich consider the tax office to be greedy little money grabbers.

Except, they aren’t being greedy. Our taxes go to support healthcare, roads, schooling, education, and all the other necessary services the public cannot provide for themselves.

Final say

We all would like to pay less tax. Everybody wants to avoid paying taxes. But that is so much easier to do if you have more money coming in than you know what to do with.

Perhaps if we all paid a fair and proportionate level of tax from all sources of our wealth, the world might be in a better position.

And if you are rich and you disagree, I only have one question: What good is your money doing?

Malky is a lifelong learner and he finds journeying is a masterly method of cementing his knowledge. Here you get that knowledge condensed.

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