Pro Publica explains how tax works for the wealthy.
.@ProPublica has obtained IRS records for thousands of America’s wealthiest people. To understand how some ultrarich stay that way without paying much in taxes, familiarize yourself with a strategy known as “Buy, Borrow, Die.” (THREAD)
2/ Most people need an income to pay for things like food and shelter. The richest don’t. They can just live on borrowed cash.
3/ Some of the ultra-wealthy BUY assets, build companies, or inherit fortunes. As long as they don’t sell these assets, they owe no taxes on them.
4/ And since every dollar they earn can be taxed, they may try to keep their incomes as low as possible.
5/ So how do these super-rich pay for all their stuff without an income? They can BORROW against their holdings, and the banks give them a really good deal.
6/ If you had the option of taking a $10 million salary and being taxed 37% by the IRS… OR borrowing $10 million against your assets at only single-digit interest, which one would you take?
7/ That’s how a billionaire can live the most luxurious life imaginable while reporting little to no taxable income.
8/ Sometimes billionaires set their businesses up so that the profits and losses fall through to their personal taxes. In those cases, they can deduct the interest on the business loans on their personal taxes, reducing or wiping out income.
9/ And when these billionaires ultimately DIE, they can use complicated trusts to avoid estate tax, allowing their heirs and others to inherit stocks & assets tax-free.
10/ This creates a new generation of ultra-wealthy, and the cycle starts all over again.
11/ Read the full story on The Secret IRS Files: