Tesla CEO Elon Musk recently made a bold claim while supporting President-elect Donald Trump, stating that he is the largest individual taxpayer in history. According to Musk, he has paid over $10 billion in taxes to the IRS. Despite his significant tax contributions, Musk humorously mentioned that he wished the IRS would send him a trophy, even a small one like those given out in karate competitions. However, he expressed his satisfaction with paying taxes for the greater good of society.
Contrary to Musk’s claims, an analysis by ProPublica of IRS data from 2014 to 2018 revealed that Musk paid no federal income taxes in 2018. Surprisingly, former New York City Mayor Michael Bloomberg was able to pay taxes at one of the lowest rates by claiming deductions of over $1 billion. Bloomberg consistently deducted an average of $409 million annually from his state and local tax liabilities between 2013 and 2017. Similarly, billionaire investors such as Carl Icahn and George Soros managed to avoid paying taxes for multiple consecutive years despite significant growth in their net worth during the same period.
The analysis by ProPublica also shed light on the tax practices of the wealthiest Americans. While their collective wealth increased by $401 billion between 2014 and 2018, they only paid $13.6 billion in federal income taxes during that time, resulting in a true tax rate of just 3.4%. This stark contrast highlights how high-net-worth individuals utilize strategies to minimize their tax liabilities, often through asset appreciation and deductions not available to the average taxpayer.
One common strategy employed by the wealthy to reduce taxes is investing in tax-advantaged retirement plans. Traditional 401(k) accounts and individual retirement accounts (IRAs) offer significant tax benefits, allowing account holders to grow their contributions tax-free until retirement. However, some individuals, like PayPal founder Peter Thiel, take advantage of backdoor Roth IRAs to avoid paying taxes on retirement withdrawals. Thiel famously grew his $1,700 Roth IRA into $5 billion over the years, enabling him to make tax-free withdrawals in retirement.
Overall, the disparity in tax payments between high-net-worth individuals and the average American highlights the complex and often controversial nature of the U.S. tax system. While individuals like Musk may claim to be the largest taxpayers, the reality of their tax practices and strategies tells a different story about how the wealthiest Americans navigate the tax code to reduce their liabilities.
