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Tax secrets of the rich and famous

Tax secrets of the rich and famous

Good morning! This Wednesday, a look into ProPublica's tax data, the Senate passed the Endless Frontier Act, why Fastly is responsible for a big chunk of the internet, Timnit Gebru's last days at Google, and how to go viral on LinkedIn.

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The Big Story

Why the rich stay wealthy

People always assumed that billionaires didn't pay their fair share of taxes by paying an army of financial consultants to find the necessary tax loopholes and exploit them. But ProPublica's publishing of a trove of private IRS tax return data is the first real glimpse into the hard numbers of just how much someone's "wealth" doesn't match what they pay in taxes and how they do it.

  • Jeff Bezos reported $4.22 billion in income between 2014 and 2018 and paid $973 million in taxes, according to ProPublica's data.
  • Elon Musk claimed $1.52 billion in income for the same time period and paid $455 million in taxes.

Those figures are tiny compared to how much their wealth grew at the time. Bezos's fortune over that same period grew $99 billion — giving him what ProPublica calls a "true tax rate" of 0.98%. Musk's rate was a smidge higher at 3.27%. Warren Buffett had the lowest "true tax rate" at 0.1%.

  • They were able to pay so little through a combination of recording investment losses, donations to charity and interest on debt. Both Musk and Bezos had years where they paid nothing in taxes, ProPublica says.
  • In 2011, while Bezos was worth $18 billion, he reported losses so he was able to both claim and receive a $4,000 tax credit for his children.
  • Tech billionaires like Musk and Oracle's Larry Ellison are also taking advantage of low interest rates to secure loans, using their stock holdings as collateral.

Before you grab a pitchfork, there is a difference between someone's wealth and their income, and the tech industry in particular thrives on the distinction between the two. Most of the "wealth" of leaders like Musk and Bezos is tied up in their stock holdings. Those are unrealized gains.

  • It's how startup founders can go from nothing to being billionaires overnight.
  • It's also how people like Theranos's Elizabeth Holmes grew to be worth $4.5 billion before Forbes revised her net worth down to nothing when her company imploded. (Full disclosure: I used to work at Forbes and calculated several billionaires' net worths for the magazine.)

The U.S. taxes the income (or losses) the billionaires derive from their wealth, not the wealth itself. If Amazon's stock doubles, Bezos's net worth also jumps up, but that doesn't count (in taxable terms) as income until Bezos sells the shares. Same goes for a startup that goes from a $1 billion valuation to a $10 billion valuation. ProPublica's decision to measure wealth versus income tax as a "true tax rate" has certainly raised a few eyebrows.

The world's wealthiest people are still paying less than many Americans, even if you look just at income levels, according to ProPublica's calculation. And that difference — along with the cognitive dissonance of Bezos being worth billions and still paying nothing — will only continue to drive wealth inequality in the country.

Meanwhile, ProPublica is sitting on a trove of tax records from an unknown source, so the next big story might be the investigation into who gave the news organization raw financial data on the world's wealthiest people.

— Biz Carson (email | twitter)

A MESSAGE FROM AMAZON

The most recent elections made it clear: Voters in both political parties support higher wages. The federal minimum wage hasn't changed in 12 years, despite significant cost-of-living increases. Amazon saw the need to do more for their employees and communities and in 2018 raised their starting wage to at least $15 an hour.

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People Are Talking

Cyberattacks are happening at an absolutely massive scale, Johnson & Johnson CISO Marene Allison said:

  • "We're seeing what I would consider 15.5 billion incidents a day … We're bringing in logs and detections from around the world continually. And then we're looking at it with machine learning and AI, as well as other alerts, to know if we have a problem or not."

On Protocol | Fintech: Derek White is the new CEO of Galileo, and said he left Google Cloud because open banking's moment is now:

  • "It's very clear the industry is heading in this direction. ... If anybody is starting a neobank, they know about Galileo. The underlying technology is there. The trends are there, and the opportunity to scale it is there. That's why I joined."

Apple's 30% App Store commission is too high, Bill Gurley said, and he has a new number in mind:

  • "I think it was a bad decision back then and hard to recover from. I think they'd probably be best off just picking something like 10[%] and taking it down for everybody."

Spatial audio is a bigger deal than you think, Apple's Eddy Cue said:

  • "To me, when I look at Dolby Atmos, I think it's going to do for music what HD did for television. Today, where can you watch television that's not in HD?"

Mitt Romney took issue with Microsoft's censoring of the Tiananmen Square-related "tank man" searches:

  • "When your team described the censorship of Tiananmen Square anniversary language as 'accidental human error,' was this censorship unintentional or intentional on the part of an employee or employees? Was the source of this 'accidental human error' in the United States or in the People's Republic of China?"

Making Moves

A shakeup at Magic Leap: CTO Paul Greco, COO Henk Vlietstra and Chief Patent Officer David Lundmark are all leaving the company. Meanwhile, former CMO Daniel Diez is coming back to reprise his role.

Tim Chen is Discord's new head of corporate development, joining from Twitter.

SoftBank's Emerge accelerator is coming to Europe. It's already running in the U.S., with the aim of helping back underrepresented founders.

There's a new in-crowd for business tycoons. Mike Bloomberg is helping set up the Bloomberg New Economy Catalysts, a group of about 400 bigwigs who can work together to solve the world's biggest problems. Look out, Davos.

Tencent is on a hiring spree in Seattle. Its TiMi Studios wants to build AAA games, and has at least 15 open jobs in the area.

In Other News

  • On Protocol | Policy: The Senate passed the Endless Frontier Act, which would approve hundreds of billions of dollars in spending for science and tech, and billions more for the U.S. chip industry. Now it heads to the House, where it may have a difficult fight.
  • Also on Protocol | Policy: Big Tech also wants AI regulation. The Software Alliance, an influential trade group, is pushing Congress to enact legislation that would require companies to assess and minimize bias in "high-risk" uses of artificial intelligence.
  • Were you on Twitter Spaces last night? El Salvador President Nayib Bukele joined a space talking about Bitcoin; it had more than 20,000 participants and felt a lot like one of those platform-defining moments. And of course it was about Bitcoin.
  • Richard Branson is racing to beat Jeff Bezos into space. Virgin Galactic will run one more test with human passengers, Ars Technica reported, before putting Branson into orbit over the July 4 weekend.
  • Yesterday the world learned how important Fastly is. Here's a good rundown of how the company works, and how its CDN came to be responsible for so much of the internet. All it took for people to notice was it breaking!
  • The FBI used a messaging app for an incredible sting operation. During a three-year operation involving an app called Anom, it intercepted 20 million messages that led to the arrest of at least 800 people.
  • Is Google a public utility? Dave Yost, Ohio's attorney general, thinks so. He's suing to treat the company like a railroad or electric company, in a suit that may be designed to go to the Supreme Court.
  • Don't miss this Instagram blog post, in which Adam Mosseri gives more insight than we've ever seen into how the company's algorithm works. There's not much terribly new here, but it's an interesting dive nonetheless.
  • The IRS wants more visibility into crypto. Commissioner Charles Rettig told Congress that the agency needs more tools to regulate and keep track of what happens on the blockchain.
  • MoviePass was even more of a scam than you thought. The FTC accused the company of forcing people to reset passwords and sneakily limiting their accounts in an attempt to keep its most active customers from using the platform.
  • Don't miss this Wired story about Timnit Gebru's last days at Google. It's a look at what happened inside the AI team and how big tech companies respond — or fail to respond — to employees.

One More Thing

I'd like to add you to my professional network

Dan Vitale was the star of LinkedIn yesterday after the NFL fullback announced his retirement in a post. "I'm looking for a new role and would appreciate your support," he said, before listing his credentials and goals for the future. He went semi-viral, which is about the best thing you can hope for in a job search!

Experts everywhere think this summer is going to be full of job changes and turnover at practically every company. And as Fast Company reported, it turns out there's a lot to learn from Vitale's post, like using the #OpenToWork hashtag and generally over-communicating what you're looking for and where. You should do the same on all your platforms, too, not just LinkedIn.

Question, though: If you're looking to start a career as an NFL fullback, should you also post that on LinkedIn? Asking for a friend.

A MESSAGE FROM AMAZON

"This is the first time in my life that I have dental insurance, vision insurance, [and] life insurance." Making more than $15 an hour and comprehensive benefits gives Leonardo and Amazon employees like him peace of mind and the freedom to do more — like go back to school.

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