Why Do People Say Billionaires Don't Pay Taxes?

It depends on who’s saying it.

Not Understanding Taxation

Most of the time, it’s people who just don’t know any better parroting what other people have said. This fits with the narrative that billionaires are getting away with something, as if they are avoiding taxes while the rest of us are doing plenty of work. Other times, it’s politicians, many of whom are themselves multimillionaires, using it to get people to think that other politicians are favoring billionaires at their expense in order to try to get votes. At still other times, it’s people who don’t know the difference between wealth and income.

Why Billionaires Do Pay Taxes

Because they do not understand taxation. If you mean the top 10% of wage earners, they pay 71% of the income tax. How much more would you think is fair? 72%? 80%? You just don’t want to pay any tax … neither do they.

Envy and Resentment

Because they are envious and resentful and unaware of the facts. Here are some facts:

Myths and Realities

I’ve never heard anyone claim that billionaires never pay any taxes. What people do say is that billionaires don’t pay their fair share of taxes, which is debatable, and that due to stepped-up basis at death, billionaires can avoid paying income taxes entirely if they choose to do so. That is definitely true.

Historical Scenario: The Billionaire Millionaire

Let me give you an example. Suppose you bought 10,000 shares of Berkshire Hathaway Inc. (BRK-A) on January 1, 1985, when trading opened. The shares would have cost you $1275.00 each, for a total cost of $12,750,000. That’s a lot of money. As of a few days ago, those shares were worth $471,200.00 per share, or a total of $4,712,000,000. Berkshire Hathaway Inc. BRK-A Stock Historical Prices: Data - Yahoo Finance

Because of stepped-up basis at death, if you die today, your heirs can sell the stock at the current price and put a gain of $4.7 billion in their pockets without you ever paying a penny in federal income taxes.

Of course, you could have, along the way, borrowed against the stock and spent $20 million every year, including interest on the loans, for a total of $740 million over 37 years. After your estate paid off the loans, you would be leaving almost $4 billion to your heirs, with nobody paying a penny of federal income tax.

Note that in this scenario, you lived off of $20 million per year doing no work and paying no income taxes. All you needed to do was to have $12,750,000 in 1985 and invest it in Berkshire Hathaway Inc. (BRK-A) on January 1, 1985, when trading opened. Some people argue that you should be required to pay some reasonable share of income taxes in that situation.

These examples and arguments highlight the complexities of taxation for individuals of extreme wealth, further emphasizing the need for a balanced perspective and understanding of tax policies.