Tech billionaires like Bill Gates make up 10 of the top 15 incomes among the top 400 American income-earners and yet, they do not pay high taxes as their income generally came from selling stock amid their ability to muster large deductions, a new ProPublica investigation has revealed.
The report, which scanned secret Internal Revenue Service (IRS) files, revealed the top US income-earners and how their tax rates vary more than their incomes.
Collectively, the top 400 Americans paid an average tax rate of 22 percent from 2013 to 2018.
Tech titans, hedge fund managers and heirs dominate the list, while the likes of celebrities like Taylor Swift and LeBron James didn’t even make the top 400.
“In an era of widening gaps between the rich and everyone else, the analysis shows that the US tax system is making inequality worse,” said the report that came out on Wednesday.
Many of the top 400 hit the sweet spot of high incomes and low taxes on much of that income.
“Their income mostly stems from stock sales taxed at the lower rate. Since 2013, that long-term capital gains rate has been 20 percent, about half the top rate on ordinary income (37 percent in 2018),” the findings showed.
Tech billionaires made up 10 of the top 15 incomes and their income generally came from selling stock.
“This pattern is especially true of tech billionaires like Bill Gates, whose income came predominantly from sales of Microsoft stock during this period. Every penny of Gates’ taxable income was eligible for the lower rate. That was generally true of the other tech billionaires as well,” the report mentioned.
Jan Koum, Co-founder of WhatsApp; Laurene Powell Jobs, widow of Steve Jobs who was co-founder of Apple; Larry Ellison, Co-founder of Oracle; Michael Bloomberg, Co-founder of Bloomberg; Jeff Bezos, founder of Amazon; Steve Ballmer, former CEO of Microsoft; are other tech billionaires who pay less taxes while earning more.
About a fifth of the top 400 earners were managers of hedge funds. Executives and founders of private-equity firms also stood out.
According to the ProPublica investigation, heirs of large fortunes also make appearances. Among the top 400, there are 11 heirs of Walmart founders Sam and Bud Walton and four of Amway founder Richard DeVos.
The report said that apart from selling stock, the rich and the famous often take huge deductions that reduce their income subject to tax.
“Tech billionaires stood out in this regard. They often made large charitable donations from their stock holdings. A generous provision of the tax code allows them to deduct the full value of the stock at its current price — without having to sell it and pay capital gains tax,” the report said.
Those two factors — the amount of income taxed at the advantageous rate and the ability to muster large deductions — are the main drivers of lower tax rates for those with the highest incomes, the report emphasised.
To make it into the top 400, each person on this list had to make an average of at least $110 million each year.
A typical American making $40,000 would have to work for 2,750 years to make what the lowest-earning person in this group made in one year.
Each of the top 11 averaged over $1 billion in income annually from 2013 to 2018.
The typical American would have to work for 25,000 years to make $1 billion. Free Press Journal