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  • - The US Department of Treasury estimates

  • that the ultra wealthy in America are skipping out on more

  • than $160 billion worth of taxes every year,

  • - And we know that number is impossible to imagine.

  • So compare that to the roughly 48 billion

  • that Penn Wharton budget model estimates

  • the US will be spending each year

  • for the next decade on student debt relief.

  • An extra 160 billion could go a long way.

  • - So how did a rich get away with it?

  • Well, most of us are taxed on our income.

  • We go to work, we earn a paycheck.

  • A percentage of each paycheck goes back to the government

  • to spend on programs and infrastructure,

  • and we use the rest to buy groceries, pay bills,

  • and score Beyoncé tickets.

  • - The ultra wealthy though, don't earn much

  • of their income from a paycheck.

  • Instead, they grow their wealth through investments,

  • and it's only when they sell those investments

  • that they actually owe taxes on them.

  • - That is, if they don't find

  • some clever loopholes first.

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  • - One way that the rich hide their money

  • is by literally hiding it.

  • Secret Swiss bank accounts

  • or shell companies in the Cayman Islands sound

  • like the stuff of heist movies,

  • but some wealthy people do use foreign accounts

  • to shield their money from the IRS's irises.

  • - These tax havens are attractive places to stash cash

  • and maybe not tell the US government that it's there.

  • First, a wealthy person

  • or maybe their financial advisor will find a country

  • that collects low or no taxes on foreign funds stored there.

  • But foreign banks are still supposed to report

  • to the US on foreign accounts held

  • by individual US citizens.

  • So instead of putting an account in their own name,

  • a rich person could form a fake company

  • that doesn't really do anything

  • and open accounts in that company's name.

  • Popular tax haven countries like Panama and Luxembourg,

  • will look the other way,

  • while these anonymous company owners move money

  • in and out of their accounts without reporting it

  • to the IRS,

  • - But like we all learn from the Wolf of Wall Street,

  • this is pretty illegal.

  • US law requires that citizens report all of their assets,

  • even if they're stored abroad.

  • So if the IRS catches you

  • keeping secret foreign investments,

  • you could get in pretty big trouble.

  • - Lucky for the rich, there are totally legal tax havens

  • right here in the US.

  • In addition to the taxes we pay to the federal government,

  • the states, and even cities we live in,

  • can collect taxes too.

  • So a state might collect income taxes on the money we earn,

  • capital gains taxes on the money we make from investments,

  • sales taxes on things we buy

  • and property taxes on the value of our homes.

  • But all states decide this mix a little differently.

  • - Some states, like Washington,

  • don't collect an income tax at all,

  • and I'm sure it's just a coincidence

  • that billionaires like Bill Gates

  • and Jeff Bezos have lived there for decades

  • and eight states, including Nevada, Texas,

  • and Florida, don't tax capital gains either.

  • Wealthy people who want to pay the least amount

  • of taxes may choose to live in a state

  • that doesn't tax their income and investments.

  • - In 2021, Washington State passed a law that allowed them

  • to collect capital gains tax for the first time.

  • Now, anyone who makes more

  • than $250,000 selling investments,

  • would owe the state 7% of anything they earn

  • after that first 250 K.

  • - So what did Jeff Bezos,

  • who makes billions a year selling Amazon stock, do?

  • He moved to Florida,

  • where he'll keep $610 million in his pocket

  • this year by avoiding Washington's tax

  • on his investment gains.

  • - For people who don't wanna play

  • where in the world is Carmen San Diego with their dollars,

  • there's another strategy that wealthy people use

  • called buy, borrow die.

  • Remember that we don't get taxed on our

  • investments as they grow.

  • It's only when we sell them that we get taxed,

  • and that's why the ultra wealthy just don't sell.

  • Instead, when they need to buy a new spaceship,

  • they can take out loans using their

  • investments as collateral.

  • - Back in 2020 when we knew Elon Musk mostly

  • as that eccentric electric car guy,

  • he held $548 million in personal loans.

  • That's the money he actually used to pay for utility bills,

  • shop for groceries, or most likely pay other people

  • to do those things for him,

  • while the rest of his wealth was tied up in Tesla stock.

  • - He did this again in 2022, securing $13 billion in loans

  • that he used to buy Twitter.

  • But because these billions are in loans,

  • not income, Musk and other super rich investors

  • don't have to pay taxes on that cash.

  • - So the rich buy investments

  • and let them grow, then borrow against those investments

  • to fund their lifestyles.

  • But what's the die part?

  • - If you buy stock for $10, hold onto it for decades

  • until it grows to be worth a thousand dollars,

  • and then die without ever selling it,

  • whoever you choose to inherit your estate

  • can sell that investment,

  • - But thanks to a tax rule called the step-up in basis,

  • your heir doesn't owe taxes on the full $990

  • that your investments grew while you were alive.

  • Instead, $1,000 becomes the new starting value.

  • And if your heir later sells the stock for $1,200,

  • she only pays taxes on the $200 it grew after you died.

  • - By using the buy borrow die strategy,

  • nobody has to pay taxes on all the capital gains that happen

  • during your lifetime at all, which is how some

  • of the wealthiest people in the country managed

  • to amass billions while barely paying taxes on any of it.

  • - But sometimes the rich do need

  • to turn their mega investments into cash.

  • They have some creative ways to hide that money too.

  • Whenever they make money selling an investment that grew,

  • the rich might also look for losses.

  • That might mean selling off investments

  • that are losing money at the same time.

  • - Any money you lost gets subtracted from what you gained,

  • and you only pay taxes on what is left over.

  • If you have a lot of losses in one year, you can even wait

  • to count those losses against income you have in the future.

  • This strategy called tax loss harvesting helps rich people

  • sell their investments at a profit,

  • while making it look like

  • they didn't really walk away with much.

  • - Wealthy people can also find losses

  • by structuring their fancy hobbies as businesses,

  • whether it's training race horses, owning a sports team,

  • developing luxury real estate,

  • or buying a social media platform.

  • The ultra wealthy can afford to start

  • or buy businesses that they don't actually

  • expect to live off of.

  • So when those businesses lose money,

  • it can actually be a good thing.

  • - In the 1980s and nineties,

  • when Donald Trump was just a wealthy real estate developer,

  • he reported over a billion dollars

  • of losses from his hotels, casinos,

  • and apartment buildings in a single decade.

  • - His tax returns dating back to 1985,

  • showed that those business losses

  • got subtracted from his income

  • and investment gains, lowering the total he had

  • to pay taxes on, sometimes to zero,

  • all while getting to live

  • in a gold-plated penthouse apartment.

  • - ProPublica found that between 2014 and 2018,

  • the 25 richest Americans paid only

  • 3.4% in taxes on their total wealth increase.

  • Meanwhile, the median American household pays about 14%

  • of their total income.

  • While this may seem crazy,

  • strategies like buy, borrow, die,