Working People Must Pay Taxes But The Super-Rich Live By Different Rules

 The following is part of an article by Jeff Sommer in The New York Times:

The income tax is for working people. So is the payroll tax — which wage earners and their employers pay into Social Security and Medicare, week after week. The payroll tax and the income tax corral nearly everybody who holds down a job.

Then there are the superrich. They live by another set of rules. The wealthiest people in the United States pay taxes on a minuscule proportion of their income, and some avoid the income tax and payroll tax entirely, says Ray Madoff, an expert on taxes at Boston College Law School. Much of their staggering wealth — assets including cash, stock, bonds, gold, art collections, homes, yachts and every other valuable thing they have already accumulated — is barely taxed, she says. . . .

Some billionaires manage to bypass the income tax entirely, she says. And they are all barely touched by the payroll tax because the income captured by that tax is capped at $184,500.

“There are two classes of people in the United States today,” she said in a long phone conversation. “Those who pay taxes, which is most of us, and the ‘wealth class’” — a self-perpetuating elite that passes on riches that are barely taxed, from generation to generation.

The tax code, she said, has helped create a new “hereditary class,” which is taking advantage of arcane rules that are hard for most people to fully understand. . . .

Consider that The New York Times has published annual accounts of the compensation of the highest-paid chief executives in the United States, using Equilar data, for the past 18 years. These tallies often have not included some of the richest people in corporate America — billionaires like Jeff Bezos, Warren Buffett, Steve Jobs, Mark Zuckerberg, Peter Thiel and, for a time, Elon Musk.

Why have they been missing? These billionaires paid themselves little or nothing in salary, instead amassing wealth mainly in stock shares and options.

For day-to-day expenses, to say nothing of yachts and planes and private islands, billionaires have excellent options, from a tax standpoint, to raise cash.

The most straightforward is to sell assets. Even if you sell hundreds of millions of dollars’ worth of stock or other assets, like art collections, you will be taxed at a low federal rate for long-term capital gains — an advantage often advocated by economists as an incentive for investment. But this preferential treatment makes an already tilted playing field even steeper. . . .

The truly rich may never need to sell their assets. Instead, banks and private credit firms will happily lend money at favorable rates, using wealth as collateral. And as long as their wealth grows at a higher rate than the interest rate charged on their loan, they become richer, tax-free.