ProPublica obtained a trove of confidential IRS records that provide a glimpse into just how little tech billionaires pay in federal taxes. The nonprofit newsroom estimated what it called tech billionaires' "true tax rate" by comparing the amount paid in federal income tax against year-over-year changes in Forbes wealth calculations.
Here are some of ProPublica's key findings relating to two of the world's wealthiest individuals:
- Jeff Bezos paid a true tax rate of less than 1% between 2014 and 2018. During this period, his wealth soared $99 billion while he reported just $4.22 billion in income. Bezos ended up paying just $973 million in total taxes. In 2011, Bezos didn't pay any federal income tax — in fact, he reported a loss that year and even claimed a $4,000 tax credit for his children.
- Elon Musk paid a true tax rate of 3.27% between 2014 and 2018. His wealth grew $13.9 billion in that period and he reported $1.52 billion in income. Musk ended up paying $455 million in total taxes during that period. For several years, including 2015 and 2017, Musk paid less than $70,000 in annual federal income tax.
So how is this happening? ProPublica emphasizes that this is all above board — the U.S. tax system taxes income and capital gains, not increases in wealth. That means the ultrawealthy can pay lower effective tax rates than a single mother earning $45,000 annually.
There is some hypocrisy here. Many of these megabillionaires talk the talk about taxing the rich, while still funding political candidates who take no initiative to close the most significant tax loopholes available to them. The ProPublica report showed, for instance, that Biden's tax proposals would have a negligible impact on the effective tax rate paid by the top 25 billionaires.
Taking out loans collateralized against stock compensation was one of the most significant tax loopholes exposed by ProPublica. It's common practice for tech CEOs and founders to earn most of their money through stock compensation rather than salary: Steve Jobs, Larry Ellison, and Larry Page have all taken $1 salaries to minimize income tax. But the new IRS documents show how tech billionaires can take it a step further — by taking out a personal loan collateralized against owed stock compensation, tech billionaires avoid tax altogether rather than having to pay the capital gains rate. Elon Musk used this practice to take a loan out against some $57.7 billion worth of shares, while Larry Ellison did the same for approximately $10 billion worth of shares.
ProPublica said that it will continue to release information in the coming months based on the IRS documents. In particular, it hopes to "explore in detail how the ultrawealthy avoid taxes, exploit loopholes and escape scrutiny from federal auditors."