A cool guide to how rich people pay no taxes
Wednesday, 12 Mar 2025
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The “Less Tax” panel is wrong
You pay regular income Tax on the principal of the stock you receive, capital gains only comes into play on gains after you own the stock
How does the CEO pay off the debt? He must sell stocks or have some income to do so right?
If the stock price drops, the borrower is forced to put up more collateral. This can sometimes be more stock, but often is forced sale of stock to cover the taxes and shortfall.
Forced sales of stock by insiders can quickly snowball into a problem for the company. Many companies now have rules about using shares for collateral.
Minor point but no one pays 40% tax on all of their income. The top rate is 37% and that rate only applies to income over $609,000. The effective rate on a million dollar salary is far less.
He still pays interest on the borrowed money, right?
It’s a shame how every “tax the rich” post lately, uses purposefully misleading info to try and achieve their goal.
Making the rest of us look like idiots. Wonder if it’s puposeful and that’s the point?
middle and third one aren’t correct, the stock distribution would be taxed as income. So the ‘tax as income’ graphic should also apply on in the middle and take another % out.
Ok so this chart is just going to ignore the fact that you get taxed when issued the stock from the company?
40% income tax on $1mil is incorrect
This skips a couple of important details. These are just what I’ve noticed, there may be more and what I’m pointing out might not be 100% accurate:
A) earning compensation in stock is still taxed at the regular income rate.
B) borrowing against assets still costs interest. It’s usually much less than the tax rate but it’s not fee money.
C) people don’t borrow against their own assets to just buy stuff. I mean you can, and it’s usually better than taking out a conventional loan but that’s not the true advantage. They *invest* the borrowed money, and keep the difference with little personal risk. Investment losses are tax deductible. If the investment pays off, the loan can be paid off with gains of the investment. The new investment becomes an asset. The cycle continues.
This is wrong beginning with panel 1.
Another tip: Elect corrupt politicians
Your second one is wrong. You don’t pay capital gains on stocks that are used as compensation. You still have to pay taxes as if it were income on the value of the stock when it is assigned to you. Then you pay capital gains on the growth from that point.
And your 3rd one is the dumbest of all that keeps making the rounds. You still have to pay the loan back with interest. It’s not free money. What that does is allow them to finance purchases without liquidating their ownership in the company. It’s not just free cash from a bank.
#Holy tits the amount of incorrect financial info being shared in the comments is alarming.
We need to start teaching finance in our education system.
Everyone reading the comments – take it all with a grain of salt. 95% of what I read was incorrect.
Also the guide is dead wrong.
1) We have marginal tax brackets, it’s not all taxed at 40%. Real take home would be around $725k
2. Capital gains is taxed at personal income level short term. You’re also taxed on the PRINCIPAL of stock given. Yes you pay taxes twice here.
3. You literally forgot the part where the loans need to be repaid?
Either by A) salaried wages or B) selling the stock.
This is a shit guide for people who don’t know anything about finance, just to farm karma. None of this would work.
CEOs still pay 40%+ income tax when they get paid in company stock.
This is what Bezos does, the no tax option!
The 2nd part of this graphic is totally incorrect and whoever made it knows nothing about taxes. Stock awarded to employees is taxed exactly the same as income. If you are awarded $1M in stock, you will be taxed ~40% of that. However, if you sell that stock immediately after receiving it before the stock price has changed, you don’t pay any capital gains tax. You only pay the 25% capital gains tax on the difference between the value of the stock when you received it and when you sold it.
It really would look like this:
1. Company awards $1M of stock. It gets taxed as income, employee takes home $600k of stock.
2. Employee waits a few years and sells it when the stock is now worth $1M again. They pay tax equal to 25% of the difference, which is $100k. After all is said and done, they made $900k.
The third part of the graphic is mostly correct though. The big problem is that the vast majority of the stock the CEOs own is from long before the stock had any significant value. So they barely paid any tax to receive it in the first place, but now its worth an insane amount and they continually use it as collateral for loans. And when the loans come due, they just take out a new loan to pay off the old ones.
Just an FYI if when you sell stocks that you get as RSUs it still counts as income. The capital gains tax is only on the…long and short term capital gains made on the stock
Fun fact: Elon Musk holds the all time high record for income tax paid in a single year at 11 billion.
If I ever get to a point where I pay 1/1000th of that amount in my entire life I will consider myself doing quite well.
Or…. the stocks go down and it bankrupts him 10 times faster.
Trevor Noah summed it up nicely a couple of years ago: [https://youtu.be/Gqlbn2nPO-A?si=FcZsybu-K8rJ7rXi&t=83](https://youtu.be/Gqlbn2nPO-A?si=FcZsybu-K8rJ7rXi&t=83)
Either the illiquid capital cannot be used as collateral for huge loans or the illiquid capital should be taxed. There is no other option.
How do you pay the debt without any income?
Serious question. How does he pay his loan back with no income?
Also rich people use tax havens like Luxembourg. A lot of the wealthy in Europe set up personal holding companies and then invest through Luxembourg to evade all realized gains taxes.
Where can I get these free collateral loans that all these billionaires supposedly get and somehow never have to pay back thereby never incurring capital gains tax?
How smart and usually incredibly hard working people pay no tax more like.
What about interest for the debt from bank?
I know this is a nit-pick, but I cringe every time I see someone posting “highly compensated people get taxed 40% on income”. Maybe that happens in some countries, but not in the US. The highest income tax rate is 37% and you don’t automatically pay that when you make your 609,351st dollar. Instead, you only pay 37% on every dollar > $609,351. Everything less than than is taxed at a lower rate. In order to pay 30% (not 40% as the photo shows, just 30%) you have to make more than $600k/year.
I’m not sure what kind of crazy thing you would have to do to pay 40% in the US. Maybe there is some kind of very inefficient wealth-transfer instrument or some kind of penalty or something. But, it’s got to be incredibly rare.
Meme’s like this attempt to make a point about how rich people are avoiding taxes. But, I fear that the “rounding for effect” just hands ammunition to people complaining about high taxes and deceives the uninformed about what is really going on. I’ve even saw a short-form video on YouTube claiming your should turn down curtain raises “because it will put you in a higher tax bracket”. OMG.
tell me you don’t understand economy without telling me. Show me how you don’t understand the difference between companies and people.
Every single panel is wrong on this:
1) There exists no tax bracket at a 40% and even if there dis, it’s not a flat tax. You’d be taxed ~$296k assuming no deductions at that salary.
2) You are still taxed for RSUs as income. The 25% tax rate only applies to the profits you gained by holding the stock. Which will come after your stock vests.
3) The changes to #1 and #2 still apply here. The loans are more of scapegoat for inheritance on that 25%. Because when you die, your cost basis changes because owners change. So if I bought stock at $2k and it’s now $10k. When I sell it I pay 25% of that gained $8k, but my son who inherits that $10k pays nothing because his cost basis on that asset is $10k. Due to this, they can pay off any debt they inherit from me with no tax paid.
So this whole thing is wrong, but also yes there are loopholes to paying capital gains tax for rich people.
Theres more wrong than right here….The loan against equity trade for tax deferential/avoidance has only made sense from around 2010 until now and its already starting to change,
Paying 8+ percent plus the opportunity cost of not being able to sell options against those shares or loan them out is expensive and certainly not free and there is significant interest rate risk and stock valuation risk.
The borrow then die plan only works if interest rates stay low and the value of the underlying equity stays high for 30 or 40 years.
Also banks pay taxes on profits made from loans
TIL, every home owner with a mortgage is a CEO.
In the “no tax” illustration, the person borrows money from the bank, and spends the borrowed money. It with any other loan, some payback is required at some point. What’s the source for that cash?
I get what you’re trying to do here, but this is a pretty shit guide.
This chart isn’t correct but even if they were correct these are not ‘special rules for the rich,’ these are the rules for people in general in society and people who understand how the economy, business and personal finance work better make better decisions on what to do which is why they generally have more money in the first place. Not only that ‘rich’ people are disadvantaged in law where they lose privledges that other people have, like being able to contribute to tax advantage retirement funds for instance
It’s very amusing how people hate millionaires and billionaires and have absolutely no idea how taxes, finances, or basically anything works. They complain but still vote for the people that write the laws, they won’t start their own business, they won’t budget their own money, they won’t live within their means, they just complain and complain.
This is both over simplified and misleading. I don’t think anyone gets away with paying “no tax” in reality. Elon Musk takes advantage of every loop hole he can but he still pays billions in taxes. The government will find a way to get its money.
There is a great set of podcasts on this from “Search Engine”, explaining how billionaires pay no tax.
It’s actually quite a simple concept when you think about it. Just laughs in the face of any concept of ‘trickle down economics’.
Is that Luigi in the left corner?
Yes but he still has to pay the loan off by eventually selling. They can keep rolling it into larger and larger loans for so long but eventually the biilll comes due. Now where I hear it really makes a difference is during inheritance, they can somehow close out the loans during that process and avoid a TON of the taxes. How much exactly I don’t know but would love to know more. It’s likely just the value of keeping 100% of the money invested and then paying the 25% at the end.
Never mad at someone who takes advantage of the system. We need to keep them and the system from taking advantage of us.
How much interest on the loan?
Doesn’t he pay interest on the borrowed money? Sure it’s not tax, but it’s not free money either
This is patently false and misleading. Americans know nothing about money.
Stock (whether granted as ISOs or RSUs) is taxed as income upon vesting. In some scenarios, banks will allow you to collateralize unvested grants for a loan, but it’s generally at a pretty high rate given the risk profile and isn’t “free money” and you will ultimately be taxed upon vest.
Yeah rich people with a ton of investments (regardless of how they received them) can borrow against the investments, but they’ll pay interest and will ultimately have to pay the loans back unless they can continue taking out loans and paying interest indefinitely.
What about health care and social security plus state taxes?
I have to pay income tax on the stocks I receive from work upon receiving them.
Don’t forget setting up a charity. Musk “donates” to “The Elon Musk Foundation,” then uses the charity’s funds as spending money. For example, a plane flight can be charged to the charity, as long as he claims he “did some work for the charity” as part of the trip. The “work done for the charity”? Soliciting donations to it!