It is no secret the super-rich pay little to no income taxes. Doesn't seem fair does it? Well the fact is, most Americans earn income through labor. However, the top 1% receive income from interest, dividends, and property. These investments are not considered taxable income until they are sold and a gain is realized. At which point, there are loopholes in the tax code that limit or eliminate tax liability.
Typically, the more someone earns, the greater percentage of capital income and less labor compensation they receive every year, the Tax Policy Center has found.
While most people contribute taxes through their paycheck, the top 1% may not see income on their tax returns. Here’s why: There are several ways to delay or avoid taxes on investments.
For example, if someone has $1 million in stock that grows to $2 million, they won’t owe taxes on the profit until they sell.
Moreover, they may lessen the tax bite by timing the sale or offsetting profits with other losses.
Another strategy may be using appreciated property as collateral to buy new investments.
The affluent may hold assets until they die, avoiding capital gains taxes, and providing heirs with inherited property valued on their date of death.
American billionaires grew their wealth by 55%, or $1.6 trillion, during the pandemic, according to analysis from left-leaning groups Americans for Tax Reform and the Institute for Policy Studies.
The wealthy effectively pay tax through their companies; however, the corporate tax rate is 21% and far lower than the top rate of 37% on income over $523,000 for individuals.
President Joe Biden wants to crack down on tax avoidance from the 1% by adding levies for inherited wealth with gains of more than $1 million. Our Congress and President agree there is a problem but there are conflicting opinions on the resolution. Until they figure that out, the top 1% will continue to legally avoid paying taxes on their wealth.