Jeff Bezos, one of the world's most renowned billionaires, officially receives an annual salary of $82,000, while his wealth grows by billions every year. This is not an error but a feature of the current economic and tax system.
While ordinary employees pay up to half of their income in taxes, billionaires find legal ways to pay less than 1% of their wealth. The modern tax system was designed for the mid-20th century, a time when billionaires were rare and their capital was tied to specific countries. Today, the system struggles to address the realities of a globalized economy.
In 1987, the Forbes list included 140 billionaires with a combined wealth of $295 billion. By 2025, this number will exceed 3,000, with a total wealth of $15 trillion. While billionaire wealth has grown an average of 7.5% annually, wealth taxes have been about 0.3% per year. For comparison, the average American pays almost 20% of their income in taxes.
The key loophole lies in the distinction between income and wealth. Billionaires profit mainly not from official salaries but from the appreciation of their assets. For instance, in 2013 Mark Zuckerberg officially earned just $1 a year, but his wealth grew by billions.
Rich individuals typically invest and avoid selling assets, instead borrowing against them and minimizing taxes. Loan interest is often tax-deductible as a business expense. The Step Up Basis loophole allows heirs to receive assets at current market value, erasing previous gains from taxation.
At least $11 trillion is held offshore, with the wealthiest 1% controlling nearly half of these assets. Attempts at wealth taxes are hindered by the mobility of the wealthy, who can easily change their country of tax residency.
Proposals include a global minimum tax of 2% on wealth over one billion dollars, which could yield $250 billion per year. However, global agreement is difficult due to wealthy interests and political influence.
Debate over the fairness and efficiency of current tax systems continues. Solutions require both responsibility from the wealthy and prudent policymaking, avoiding populism. Tax reforms are needed to balance business development with fair taxation.
