How the Wealthiest Americans Pay Less Tax than their Secretaries: The Billionaire’s Loophole

In a world where the rich keep getting richer, and the middle class struggles to keep up, the story of how billionaires like Warren Buffett and Jeff Bezos manage to pay less in taxes than their secretaries is not just intriguing—it’s a glaring spotlight on the disparities in the American tax system.

This isn’t just about numbers and percentages; it’s a tale of two Americas, where the method of earning dictates the tax rate, and the wealthiest exploit loopholes to keep their fortunes growing.

The Berkshire Hathaway Phenomenon

Warren Buffett, the mastermind behind Berkshire Hathaway, is a prime example of how the rich get richer. Since taking over in 1965 ¹, Buffett has seen the value of a single share in his company skyrocket from $19 to nearly half a million dollars.

Owning 240,000 of these shares ¹, Buffett’s wealth is immense. But here’s the catch: despite his enormous wealth, he pays a lower tax rate than his secretary. How is this possible?

The Taxing Tale of Income vs. Capital Gains

The secret lies in the type of taxes paid. Buffett’s secretary pays income taxes on her salary, while Buffett pays capital gains taxes on his sold stock. The latter is taxed at nearly half the rate of the former.

This disparity is not just a quirk but a fundamental flaw in the system.

A recent study ² finds that the Forbes 400 paid an effective tax rate of 8.2 percent over recent years—lower than many middle-class Americans.

A Wealthy Advocate for Tax Reform

Morris, a retired Wall Street worker, represents a rare breed of wealthy individuals advocating for higher taxes on the rich. Living off stock market investments, Morris pays significantly less in taxes compared to someone with a job earning the same amount.

His stance is clear: he wants to live in a country where the middle class can thrive, not just survive.

The Billionaire’s Playbook

The strategy billionaires use to avoid hefty taxes is surprisingly simple yet effective. They hold onto their stocks, borrow against them if needed, and avoid selling to prevent triggering taxable events.

This method, coupled with the ‘stepped-up basis’ loophole ³, allows the rich to pass on wealth without paying taxes on the original gains. It’s a cycle of wealth accumulation that perpetuates inequality.

Biden’s Proposal

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Image Credit: Drop of Light/Shutterstock.

President Biden has proposed changes to address these loopholes , including closing the stepped-up basis and increasing the maximum tax rate for those earning over a million dollars a year.

While critics argue this might discourage investment, proponents believe it’s a necessary step towards a more equitable system.

A System In Need of Change

The current tax system, with its biases and loopholes, contributes to the ever-widening gap between the rich and the rest. While changing capital gains taxes won’t solve everything, it’s a starting point for making the system fairer.

The question remains: will the policymakers take the necessary steps to ensure that the wealthy pay their fair share, or will the cycle of the rich getting richer continue unabated?

Martha A. Lavallie
Martha A. Lavallie
Author & Editor | + posts

Martha is a journalist with close to a decade of experience in uncovering and reporting on the most compelling stories of our time. Passionate about staying ahead of the curve, she specializes in shedding light on trending topics and captivating global narratives. Her insightful articles have garnered acclaim, making her a trusted voice in today's dynamic media landscape.