How do the very rich make more money?

What tricks does the richest man in the world use to evade taxes? And how was Jeff Bezos able to pocket 4,000 euros in family allowances?

The current post -industrial economic structure is almost incomparable to the capitalism of previous centuries. Capital has become more volatile, it moves faster and multiplies faster. Due to low interest rates, the value of stocks and real estate continues to rise. However, mainly the rich can afford such investments.

During the pandemic alone, American magazine Forbes counted 573 new billionaires, a time when many feared for their jobs and when the government had to fund countless small businesses with the money of taxpayers. The billionaires of today, however, cannot be compared to the very rich of the past. When Forbes published the first list of the world’s richest people in 1987, it found Japanese businessman Yoshiaki Tsutsumi, whose wealth-adjusted for inflation-was 51.7 billion dollars by the end of the year. first place. The fortune of Elon Musk, currently head of the list, is 218 billion dollars. Musk is the CEO of automaker Tesla and the founder of space company SpaceX. In 2019, only the six largest Silicon Valley IPO giants created 6,000 new multi-millionaires.

Not surprisingly, the relatively young tech industry is more than anyone making multi-millionaires at an unprecedented rate. With digitalization, they have taken the world by storm and become companies of unparalleled value. Through joint ownership, hundreds of thousands of employees directly benefit from the enormous market value of companies that are sometimes relatively small but the value is fueled by enormous amounts of venture capital.

In 2019, the six largest U.S. tech IPOs, such as Airbnb, created just 6,000 new multi-millionaires. $ 230 billion was split among half a dozen companies. In Silicon Valley, the region south of San Francisco where many tech giants are based, it is also affecting the housing market. Residents with normal wages are leaving because tech millionaires and billionaires are buying everything. For example, Facebook owner Mark Zuckerberg owns a dozen homes in the area in addition to a bit of real estate elsewhere. In the Hawaiian Islands, for example.

Hawaii has also become a favorite place of big names in the world of technology. Aside from Zuckerberg and Amazon founder Jeff Bezos, computer pioneer Michael Dell also bought a luxury resort there for $ 280 million, the Four Seasons Resort Maui. The suite with 180 ° sea view is available for 10,215 dollars per night. Larry Ellison, the founder of Oracle, on a whim bought an entire island, Lanai, for an average cost of $ 300 million.

Do the wealthy in Silicon Valley also use all of their newly acquired wealth to show solidarity with their unfortunate fellows? Not really. PayPal founder Peter Thiel prefers to invest millions in esoteric projects aimed at prolonging human life. At the same time, he tried to establish his own island state in the Pacific Ocean, in order to, in his own words, “escape obstructive state intervention”, and thus avoid paying taxes.

Sean Parker, Napster founder and future Facebook investor, also wants to complain about state interference and excessive taxes. Her fortune is now at $ 2.8 billion, but she prefers to spend that money on fancy parties, like her own wedding. For his big day, a California nature preserve made the scene from The Lord of the Rings, complete with castle ruins and costumes for all guests. Guests heard Sting singing in front of a cake three meters high. All for a total amount of 3.4 million euros. Later, environmental associations complained about the consequences for the nature reserve.

exploding information

Investigative journalist Jesse Eisinger recalled that it took him a while before he realized he had stumbled upon a goldmine when he received personal tax returns from thousands of very wealthy Americans.

At first glance, the endless rows and columns of names, dates and values ​​scrolling the screen are meaningless. This data from the American tax administration IRS database, which has one of the most secure computer networks in the United States, was provided by an anonymous source on the information site ProPublica, where Eisinger works.

“That’s pure gold,” Eisinger said in conversation at a cafe in New York. Numbers and their secrets have long been his specialty. Eisinger once won the Pulitzer Prize for a series on questionable intrigues of the American financial sector. Despite this expertise, Eisinger and his team needed several months to understand and verify the data, which is dated 15 years. The result is breathtaking. Jeff Bezos, Elon Musk, Mark Zuckerberg, Bill Gates, Warren Buffett, Rupert Murdoch, Michael Bloomberg: the richest rake in the billions every year and generally don’t pay a cent in income tax. Everything is completely legal..

The very rich primarily benefit from the fact that U.S. tax authorities consider only actual income and not theoretical growth of capital through revenues from stocks or real estate. It is a major source of income for the rich, as they can keep their wages artificially low and they can deduct their losses on investments and interest. Even 1 euro token salaries cut taxes and are particularly popular with Silicon Valley moguls.

To make the average person also understand the IRS data mix, Eisinger and his team calculated the “effective tax rate.” In other words: while the average American pays between 22% and 37% in income taxes, the 25 richest Americans are leaving with an average of 3.4%, even though, according to Forbes, between 2014 and 2018 , they are collectively wealthy of $ 401 billion. This is the only way for them to reach their luxurious lifestyle, owing to large villas, yachts and private jets. The hanging of the rich with the tax authorities, on the other hand, does not correspond, even remotely, to their real economic wealth.

According to the calculations of ProPublica, ELon Musk paid only 3.3% in income taxes between 2014 and 2018. Big businessman Michael Bloomberg paid 1.3% in Treasury taxes and Jeff Bezos paid 1%. In 2011, when he was one of the richest people in the world, Bezos was able to defraud the government of a social allowance: a child bonus of 4,000 euros. The most imaginative of the super-rich is the billionaire still who wants to be considered one of the “good” rich: the businessman and super-investor Warren Buffett. The latter raised its fortune by $ 24.3 billion between 2014 and 2018 and paid only $ 23.7 million in taxes, representing 0.1%.

Eisinger’s team also compiled how smart investors pocketed tax-free stock earnings through pension law for middle-class families. The team showed how they limit their taxes by buying sports clubs or owing millions in real estate, and how they ensure their destiny for their descendants by avoiding taxes. of mana.

A big scream

These revelations caused a great outcry. In the fall, the White House presented its own study that was not much different from ProPublica’s findings. The 400 richest American billionaires will pay only 8.2% in income tax between 2010 and 2018, thanks to an “incomplete income calculation”. That’s not even half the income of an average American.

Most of the billionaires mentioned don’t care about these revelations. Elon Musk didn’t hesitate to use his expensive tax trick to fund Twitter’s acquisition. The bulk of Musk’s $ 218 billion assets are stocks in Tesla and SpaceX. Increasing wealth through stock appreciation is not taxed. Taxes can only be collected when Musk sells shares. Therefore, when equity billionaires like Musk need money, they do not sell their shares, but borrow the required amount using the shares as collateral. Loans intended to create new wealth are not taxable income, even if they are worth billions of dollars. In addition, debts incurred will be tax deductible.

The West is becoming an oligarchy

According to economist Gabriel Zucman, it is thanks to this crooked tax system that the West is heading towards becoming an oligarchy. Zucman earned his Ph.D. from the famous economist Thomas Piketty and currently teaches at the excellent University of California, Berkeley. Zucman’s research on the concentration of wealth has caused confusion among economists and politicians. Together with his colleagues, Zucman discovered, among other things, that the rich had parked more than eight trillion euros in tax havens and that, in this way, lost 200 billion euros of tax revenue to industrialized countries in the West. Every year.

Zucman calls the concentration of wealth, along with tax evasion, “the broken promise of globalization.” While the liberalization of trade, finance and labor markets may have enriched society as a whole, the economist argues that only the prosperous have benefited from these achievements. This is because countries have reduced their capital and maximum income taxes.

The global disposal tax, according to Zucman, has deprived governments of ways to protect the losers of globalization. At the same time, Zucman suggests, they are forced to impose heavier taxes on ordinary workers, otherwise they will not be able to pay the gifts to the rich. In Zucman’s eyes, this is the cause of the hidden discontent of the middle classes in Western industrialized countries. This is also the basis of his political program: to end global tax disposal and heavier taxation of capital in every country. If we want to save globalization, “he said,” we need to fix our tax system. “

Thanks also to Eisinger’s research, things seem to be moving now. The OECD socio-economic think tank has already unveiled a plan for a global minimum tax. The European Union wants to end tax competition between its Member States. More than 200 top American economists and lawyers wrote in an open letter that they support the introduction of a new wealth tax in the United States.

If implemented, this plan would mark a turning point for the West’s most important economy, and perhaps the harbinger of more equitable taxation. However, there does not seem to be a majority in favor of the very polarized United States.

Tim Bartz, Christoph Giesen, Marc Pitzke, Michael Sauga and Thomas Schulz

Leave a Comment