Bill Gates is one of the richest people in the world with a net worth of over $100 billion. As the co-founder of Microsoft he helped build one of the most valuable technology companies ever. But how much income tax does he actually pay on his massive wealth? The answer may surprise you.
Bill Gates’ Wealth
According to Forbes, Bill Gates has a net worth of $106 billion as of 2020. The majority of his wealth comes from his stake in Microsoft, which he still owns 1% of. He also has investments in various other companies and assets.
To put his wealth into perspective, the median American household has a net worth of only around $121,000 So Bill Gates’ net worth is about 875,000 times greater than the average American household. He is, by far, one of the wealthiest people on Earth
Capital Gains Tax Rate vs Income Tax Rate
Most of Bill Gates’ income and wealth comes from capital gains on investments, not a salary or wages. Capital gains are taxed at a much lower rate than ordinary income from a job or self-employment.
The long-term capital gains tax rate is only 20% for the highest income earners. Meanwhile, the top ordinary income tax rate is 37% federally, plus state income taxes. This difference in rates is one reason the wealthy often pay a lower effective tax rate than middle-class workers.
For example, say Bill Gates made $1 billion from the sale of Microsoft stock. He would pay $200 million in long-term capital gains tax (20% of $1 billion). But if that $1 billion was regular income, the tax would be $370 million (37% of $1 billion).
How Much Bill Gates Has Paid in Taxes
According to IRS data analyzed by ProPublica, Bill Gates paid $10.3 billion in taxes from 2014 to 2018. During this time, his wealth increased by $17 billion.
So while $10.3 billion in taxes is a massive amount of money, it only amounts to about 60% of the increase in his net worth over those years. His true overall tax rate was about 19% from 2014 to 2018, far below the top 37% income tax bracket.
In certain years, Gates paid very little in taxes compared to his income. For example, in 2017 he reported an income of $5.1 billion but only paid $4.2 million in taxes, for an effective rate of just 0.08%. How did he accomplish this? Tax avoidance maneuvers like avoiding salary income and benefiting from deductions.
How Bill Gates Reduces His Tax Bill
There are a few main ways billionaire investors like Bill Gates are able to drastically reduce their income tax bills:
- Getting income from capital gains rather than salary – taxed at 20% vs up to 37%
- Realizing losses to offset capital gains
- Using deductions from charitable giving
- Benefiting from tax credits for things like investing in affordable housing
For example, in 2017 Gates claimed $5.8 billion in deductions, which wiped out his $5.1 billion in income. These deductions were primarily from selling Microsoft stock to fund his philanthropic foundation.
This allowed him to report an income so low that he qualified for the alternative minimum tax, limiting his overall tax payment to just $4.2 million. Without the charitable deductions, his tax bill could have been over $1.5 billion that year.
Is Bill Gates Paying His Fair Share in Taxes?
Whether or not Bill Gates and other billionaires are paying their fair share in taxes is up for debate. On one hand, they are paying tens or hundreds of millions in federal taxes every year. But on a percentage basis, their true overall tax rates are much lower than many ordinary Americans.
Some argue the ultra-wealthy should pay higher tax rates with fewer loopholes and deductions. Others believe the current tax system is fair and that raising taxes on capital gains would discourage investment.
There are also proposals for a wealth tax, which would tax the net worth of the ultra-rich directly. This could raise billions in additional tax revenue. Critics say it would be difficult to implement and unconstitutional.
The bottom line is that Bill Gates and many other billionaires are able to use the complex US tax code to their advantage. This allows them to lower their tax bill significantly compared to their actual income and wealth. Until the tax laws change, the ultra-wealthy will likely continue utilizing strategies to minimize taxes.
Created vs dynastic wealth
Gates is one of a handful of entrepreneurs who set up American businesses that have gone on to create millions of jobs, and provide a backbone to the stock market.
And while the the investors and entrepreneurs behind the Magnificent Seven stock group are the kind of super-rich that Gates would like to tax more, they are also the individuals America’s economy needs—a fact that Gates eagerly accepts.
On the flip side, however, the Seattle native has also been an advocate for cracking down on dynastic wealth passed down to those who have not created it.
“My dad is deceased but he and I worked on promoting the estate tax,” Gates added. “I’m a huge believer in the estate tax, I continue to promote that.
“They actually got rid of it briefly and I think that’s a mistake because those are dynastic fortunes not somebody who created something.”
Does Bill Gates Pay His Fair Share? | Short Clips
FAQ
Who is the highest tax payer in the USA?
High-Income Taxpayers Paid the Majority of Federal Income Taxes. In 2021, the bottom half of taxpayers earned 10. 4 percent of total AGI and paid 2. 3 percent of all federal individual income taxes. The top 1 percent earned 26. 3 percent of total AGI and paid 45. 8 percent of all federal income taxes.
Which billionaires paid no taxes?
For proof, check out the tax returns of the richest Americans that were leaked and looked at by the nonprofit news site ProPublica in 2021. Among other billionaires, Elon Musk, Jeff Bezos, Michael Bloomberg, and others paid no federal income taxes at all over a number of years. How do they do it?.
Who paid the most taxes in history?
Most of Musk’s tax bill comes from the nearly $13 billion worth of Tesla stock that he sold on December 13. This is even more than the record $10 billion that was sold in 2009. 2 billion worth of Amazon stock Jeff Bezos sold last year. Elon Musk will pay over $15,000,000,000 in taxes this year, the most in American history.
Do the rich pay their fair share of taxes?
The top 1% of earners made 26% of all income and paid 46% of all federal income taxes in 2021, the most recent year for which data is available. This is more than the bottom 95% of earners put together (33%).
Should Bill Gates pay $100 billion in taxes?
This week, Bill Gates, the founder of Microsoft and a generous donor, said at a New York Times DealBook event that he had already paid $10 billion in taxes and that it would have been okay if he had to have paid $20 billion. But if you tell me I have to pay $100 billion, I’m going to start adding up what I have left over. “.
How much money does Bill Gates make a year?
Bill Gates hasn’t been involved with running Microsoft on a daily basis for more than ten years, but he still made the most money during the years we looked at, with an average of $2 billion a year. 85 billion — and an effective federal income tax rate of 18. 4%.
How much did Bill Gates and Larry Ellison save on taxes?
Bill Gates, founder of Microsoft, and Larry Ellison, founder of Oracle, each saved $125 million and $106 million on their annual taxes, paying effective rates of 18%. 4% and 21. 8%. The report also makes special mention of Michael Bloomberg, who only had a 4. 1% average effective tax rate from 2013 to 2018, thanks to well-timed charitable deductions.
How much are Bill Gates and Jeff Bezos worth?
Bill Gates’ and Jeff Bezos’s net worth are currently estimated at $109 billion and $112 billion, respectively. In theory, they would still be worth more than $100 billion each after Elizabeth Warren’s wealth tax is taken into account.
Who would have paid $114 billion under a wealth tax?
Amazon CEO Jeff Bezos and the Microsoft cofounder Bill Gates. A proposed wealth tax would have cost US billionaires $114 billion in 2020, according to research. Images: Susan Walsh/AP; Joshua Roberts/Reuters; Axel Schmidt/Getty Images The 15 richest Americans would contribute about a third of the tax, two tax groups said.
How much tax would a billionaire owe?
Individuals would owe an annual 3% tax on net worth above $1 billion. Warren said that the tax would only affect about 100,000 families in the U.S. and that the ultra-rich would pay about half of the total tax.