For being the richest people on the planet, billionaires are taxed at a lower rate on average than other taxpayers. This obviously feels unfair and unjust to a lot of lower income taxpayers, and people are wondering how billionaires can be paying less in taxes than those who make less.
When asked why billionaires pay less, this is how Google Gemini responded.
1. The ‘Buy, Borrow, Die’ Strategy
Gemini listed all of the ways billionaires can get around tax laws, with the “buy, borrow, die” strategy being the most famous. According to Gemini, billionaires will buy a lot of assets that grow in value, like stocks. Then, instead of selling it, they take out loans using their stocks as collateral.
“Since the government doesn’t tax borrowed money, they get millions in cash tax-free,” Gemini detailed.
The “die” part of the strategy revolves around when these billionaires pass away. From there, their beneficiaries can sell the stock immediately, only paying taxes on the growth since the death. This bypasses the years of gains they’d have to pay if the stocks were sold while the original shareholder was alive, ensuring (sometimes) decades of generational wealth.
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2. Wealth vs. Income
Because people in the United States are only taxed on what they earn, not what they own, billionaires can sometimes get around paying a significant amount in taxes. Unlike the “buy, borrow, die” strategy, some billionaires may choose to actually sell the shares they buy, but even then, they don’t always owe a lot in taxes.
“Even when they do sell assets, they often pay the ‘capital gains’ rate (usually 20%), which is much lower than the top ‘ordinary income’ rate (37%) that high-earning professionals like surgeons or lawyers pay,” Gemini reported.
3. Business Write-Offs and Loopholes
Billionaires are commonly business owners and might even have their hands in multiple businesses. Gemini reported this is a way to shield them from having to pay big money in taxes. One way it does this is by loss harvesting.
“If one business loses money, they can often use those losses to offset the profits from another, bringing their total taxable income down to zero,” Gemini reported.
Billionaires can also use the businesses to justify luxury expenses as write-offs. So, trips in private jets and staying at fancy resorts can be written off as “research” and paid for with pre-tax money.
Billionaires with businesses can also use a loophole called “carried interest,” which Gemini described as “allowing them to reclassify their massive performance fees as investment gains rather than a salary, cutting their tax rate nearly in half.”
4. Charitable Foundations
Though it’s altruistic to give to charity, many billionaires do it to avoid paying taxes, especially by creating and subsequently donating to their own foundations.
Gemini reported that if they pay billions to their foundations, they can get a huge tax deduction on their income. This helps offset the massive amounts of taxes they’d have to pay on their income.
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This article originally appeared on GOBankingRates.com: I Asked Gemini Why Billionaires Pay Hardly Any Taxes — 4 Strategies Explained
