Wealth and Taxes: The Strategies of America’s Richest
Ray Madoff, a law professor at Boston College, delves into the intricacies of the American tax system in her latest book, “The Second Estate: How the Tax Code Made an American Aristocracy.” In a recent conversation with Kara Miller, host of the “It Turns Out” podcast, Madoff explored how changes in taxation over the past four decades have exacerbated economic inequality.
Miller: Mark Zuckerberg’s nominal salary of $1 at Meta in 2024 raises questions about the practices of the ultra-wealthy. Why would billionaires choose such minimal salaries?
Madoff: The answer lies in the tax implications. Work income is subject to heavy taxation, including both income and payroll taxes. For example, a self-employed individual earning $60,000 might pay over $13,000 in taxes, while those earning $400,000 could see 30% of their earnings taxed. By minimizing their salaries, high earners can avoid these heavy taxes.
Notable billionaires like Elon Musk and Jeff Bezos illustrate this strategy. Musk reported a $0 salary from Tesla in 2024, while Bezos earned $81,840, qualifying him for the child tax credit, which he utilized in 2021. Warren Buffett, another billionaire, draws a modest $100,000 salary.
These figures compensate not through salaries but through stock appreciation. In 2024, Bezos’ wealth increased by $80 billion, Zuckerberg’s by $113 billion, and Musk’s skyrocketed by $213 billion. This wealth accumulation is untaxed until the stock is sold.
The Tax System’s Role
The tax system historically served to prevent wealth concentration. However, recent decades have seen changes that allow the wealthy to avoid taxes on investments and inheritances. Since 1982, companies have been able to repurchase their stock, boosting share value without issuing dividends, which were taxed heavily.
This method allows shareholders to profit from rising stock values without tax obligations. Wealthy individuals often avoid selling shares, instead opting to borrow against their stock value, which is tax-free and comes with low interest rates.
Estate Tax and Its Evasion
While the estate tax theoretically taxes gifts and inheritance over $15 million at 40%, it falls short due to numerous loopholes. During George W. Bush’s presidency, a campaign by 18 wealthy families pushed to repeal this tax, branding it as the “death tax.” Despite its portrayal as harmful to family businesses, it primarily serves as a facade, with Congress failing to close loopholes for decades.
Consequently, the estate tax generates meager revenue compared to the wealth it should target. In 2024, it collected about $30 billion, a fraction of what the wealthiest own.
Who Bears the Tax Burden?
The tax burden largely falls on high-income earners, who pay up to 50% in taxes, while the ultra-wealthy avoid taxes through non-salary income. Despite popular statistics suggesting that the top 1% pay a significant share of taxes, these figures often refer to high-income earners rather than the wealthiest individuals who accumulate wealth without taxable income.
Currently, the richest 1% control 30% of U.S. wealth, with no guarantee of taxation on this growing fortune under existing rules.
