How Rich People Avoid Taxes

Taxes are those compulsory financial charges or some other type of levy imposed on a taxpayer by a governmental organization in order to fund government spending and various public expenditures. Everyone who is of a certain pay grade and receiving a certain amount of income has to pay taxes, and even corporations have to pay a certain amount of money in the form of taxes. Hence, there are various types of taxes that must be paid as a financial obligation to the government, to help in defraying government expenses for public welfare. The money given in the form of taxes are meant to be put to productive use, thereby benefitting all those people who have given tax in the first place. However, nowadays we can observe the trend of inequitable taxing in many countries, as the rich are getting away with tax avoidance while ordinary middle class and working-class people are being taxed unreasonably. Failure to pay taxes, as well as tax evasion/avoidance is punishable by law, but many rich people get away with these activities.

The Main Reason

While regular working-class people get paid wages and salary as their income, the rich do not get paid any such fixed remuneration. People with normal jobs get a pay check and pay income tax, ranging from 10-37%. However, wealthy people mainly have capital income, meaning they earn from investments like stocks and real estate. These investments are taxed as capital gains tax, and things like long-term stock have a maximum tax rate of only 20%. Thus, the capital gains tax is taxed at nearly half the rate as income tax. It is clear that there is a large discrepancy in taxation here. This is evidenced by the fact that a billionaire like Warren Buffet has said that he pays less tax than even his secretary.  

Hence, billionaires often face small and insubstantial tax amounts in comparison to what they are earning, and the main reason for these small tax rates is the fact that these people maintain their wealth differently than ordinary people. Their wealth is not being held in their wallets or in their bank accounts. Instead, it is being held in assets like stocks and real estate, which are only taxed when sold. Until then, they are considered ‘unrealized’ and cannot be counted as income. Even when they are sold, the capital gains tax that applies is minimal.

People like Warren Buffet and Jeff Bezos are worth so much money because of the stock they hold, but these stocks are not tangible, spendable or taxable money. This allows them to preserve their wealth effectively, and protect it from excessive taxation. Jeff Bezos, the richest man in the world, pays almost nothing in taxes because his holdings are not defined by U.S. laws as taxable income unless and until he sells them. So, even though he is worth around $200 billion, he is never taxed unless he sells a stock and turns it into real money. This is why we say billionaires are worth so much, but almost never have to pay taxes.   


The reality is that most rich people today do not pay taxes proportionate to their wealth or earnings. It is definitely a problem if wealthy people are not paying their fair share of taxes while normal people are bearing the burden of taxation. Such taxation systems allow the rich to keep getting richer without any real consequence, while everyone else is limited from increasing their financial position due to high tax obligations. To solve this, maybe taxes could be imposed on wealth, or on gains in the stock market. Wealth is the value of the things you own, such as stocks, bonds, houses, etc. Generally, there is no tax on wealth, but it should be implemented as a means of more justified taxation. Even things like increasing the income tax of those at the top, or increasing estate tax will help in taxing the rich more. Basically, taxation must become proportionate to wealth so as to keep a check on the rich, while staying fair to the people working normal jobs.