Secret IRS Files Show the Obvious (and Legal) Way Billionaires Avoid Taxes

There was an explosive ProPublica article published this week titled “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.” It’s an undeniably provocative headline. Unfortunately, the “secret” ways that these billionaires are avoiding taxes are neither secret, nor surprising. Two passages from the article in particular tell you everything you need to know:

[Billionaires’] wealth derives from the skyrocketing value of their assets, like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell.

If you own a company and take a huge salary, you’ll pay 37% in income tax on the bulk of it. Sell stock and you’ll pay 20% in capital gains tax, and lose some control over your company. But take out a loan, and these days you’ll pay a single-digit interest rate and no tax; since loans must be paid back, the IRS doesn’t consider them income.

The conclusion of the report is sobering and frustrating, but not surprising: “Billionaires don’t have to evade taxes exotically and illicitly, they can avoid them routinely and legally.”