America’s 15 best earners and what they reveal about the US tax system – ProPublica

At regular intervals we get an insight into the economic life of the ultra-rich. A professional athlete signs a major contract, a technical CEO sells a boatload of shares in their company, or a billionaire heir unloads a Manhattan penthouse. Based on these chunks of information, the media speculates on how much income the rich can bring in each year. But no one actually knows.

Thanks to an analysis of its unprecedented array of IRS data, ProPublica reveals the 15 people who reported the most U.S. income on their taxes from 2013 to 2018, along with data for the rest of the top 400.

The analysis also shows how much they have paid in federal income tax – and it shows how the US tax system, which theoretically causes the highest wage earners to pay the highest income tax rates, fails to do so for the people at the top of the income pyramid. . The 400 best wage earners pay noticeably lower tax rates than the just rich; and if you include payroll taxes, a married couple earning $ 200,000 a year may end up paying higher tax rates than a person earning $ 200 million a year. (The full analysis is here; it includes selected names in addition to the top 15.)

Names that will not surprise you

Scan the names of the list of the 15 best income recipients and you are sure to recognize several names – or at least the names of the companies they founded. Bill Gates has not been involved in Microsoft’s day-to-day operations for over a decade, but he still earned the most in the years we surveyed, reporting an average annual income of $ 2.85 billion – and an effective federal income tax rate of 18.4%. Steve Ballmer, his former colleague, is also a well-known public figure, both for his time as Microsoft CEO and his current ownership of the Los Angeles Clippers NBA team. Ballmer’s average annual reported revenue of $ 1.05 billion landed him in 10th place on the list, and his effective federal income tax rate was 14.1%. The other side of the PC / Mac wars is represented here by Laurene Powell Jobswidow of Apple founder Steve Jobs. Her average reported revenue of $ 1.57 billion ranked fifth; she paid an effective tax rate of 14.8%. (ProPublica sought comments from everyone mentioned in this article. No one disputed the figures quoted here. Unless otherwise stated, representatives of persons mentioned in this article either declined to comment, declined to comment on the record or did not respond to requests for comments.)

Another famous billionaire sits just below Gates on the list: Media and technology mogul and former mayor of New York City Michael Bloombergwith an average reported income of just over $ 2 billion, paid an effective income tax rate of 4.1%, by far the lowest rate among the top 15. (A spokesman told ProPublica in an earlier article that Bloomberg “pays the maximum tax rate per all federal, state, local and international taxable income as required by law,” citing Bloomberg’s philanthropic contribution.)

The presence of Amazon founder Jeff Bezos – either the first or second richest person in America, depending on the day – will not shock most people, but Bezos’ annual reported income in these years of $ 832 million only put him at number 15. He paid an effective tax rate of 23.2% ; as we have previously reported, Bezos had so little income in a couple of recent years that he was able to pay $ 0 in federal income tax during those periods.

Who are these others and why do they pay higher tax rates?

Technology billionaires dominate the top 15, but hedge fund managers account for a full third of the names on this list, and some of their incomes were just as large. Most of them paid relatively high effective tax rates, especially compared to most representatives of the technology sector. Hedge fund managers often make their money through short-term trades, which are taxed at a much higher rate than when tech titans cash in on long-term investments.

The highest earning hedge fund is Ken Griffin, founder of the Chicago-based company Citadel. From 2013 to 2018, he reported an average income of nearly $ 1.7 billion, which placed him in fourth place on the list. Griffin paid a tax rate of 29.2% in those years. A spokesman for Griffin said the tax rates in the IRS data “significantly underestimate” what Griffin pays because they were lowered by charitable contributions and do not reflect local and state taxes. He also said Griffin pays foreign taxes that are not included in IRS calculations of the effective tax rate.)

Israel Englishco-founder of Millennium Management, paid at a rate of 30.8%, while the co-founders of Two Sigma Investments, David Seal and John Overdeckpaid tax rates of 31.6% and 34.2%, respectively.

Some of this variation in rates reflects how people structure their businesses under tax law. Income earned by listed companies is taxed at the company level. When passed on to large shareholders, such as tech billionaires, it can come in the form of dividends, which are taxed at lower rates than ordinary income. In contrast, the income from some manufacturing companies and hedge funds flows directly to business owners, who pay tax on them, resulting in higher effective tax rates on average.

Where are the heirs?

Lists of the world’s richest individuals are always densely populated by heirs, ranging from descendants of old money to descendants of newer imprinted fortunes. Dozens of heirs came on ProPublica’s list of 400 largest incomes. Descendants and relatives of Sam Walton, founder of Walmart, claim 11 seats.

The DeVos family, heirs to the Amway fortune, also have several members in the top 400. Perhaps the best known is Betsy DeVos, who served as U.S. Secretary of Education under Donald Trump’s administration. With a reported annual income of $ 112 million, she was the 389th highest income during this period.

Much like the technological titans that top the list, most of these heirs get their income from dividends or long-term investments, which are taxed at a lower rate. Their effective tax rates ranged from as low as 10.6% for Betsy DeVos to a maximum of 23% paid by the Walmart heirTom Walton.

Do not forget the deductions

Another important way in which some top incomes reduced their tax liability was to demand significant deductions, often in the form of large charitable contributions. This is especially true for wealthy investors who are able to make their donations with stocks. Thanks to a generous provision in the tax law, they can then deduct the full value of the share at its current price – without first having to sell it and pay tax on capital gains.

Michael Bloomberg achieved a tax rate of 4.1% from 2013 to 2018 by taking annual deductions of more than $ 1 billion, mostly through charitable contributions. From 2013 to 2017, he also wrote off an average of $ 400 million each year from what he had paid in state and local taxes. The 2018 tax review limited this deduction to $ 10,000 – but also introduced a huge new deduction for throughput companies, which Bloomberg benefited from.

Wait – what about the celebrities?

The earnings of actors, musicians and sports stars are the subject of uninterrupted scrutiny in the media, yet few celebrities cracked the list of the 400 best employees, which would have required them to report annual incomes of at least $ 110 million.

ProPublica’s trove has data on many celebrities. One that came close to the top 400 is the basketball superstar LeBron James, which averaged $ 96 million a year in reported income. Grammy-winning singer Taylor Swift also came within reach of the top 400, averaging $ 82 million in reported revenue in those years. Actor George Clooney would have had to double its average income of $ 55 million to reach the top 400.

TOP 15

Here are the details of the 15 best income recipients. Read the full analysis of the top 400 here.

For the full list of America’s top 400 incomes and their tax rates, along with our method, click here.

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