Did you know that some of the world’s wealthiest individuals, including tech titans like Mark Zuckerberg and Elon Musk, are technically earning just $1 a year in salary? But here’s where it gets controversial: this isn’t a sign of humility—it’s a strategic move to avoid paying taxes. In a recent eye-opening discussion, Boston College law professor Ray Madoff, author of The Second Estate: How the Tax Code Made an American Aristocracy, revealed how the ultrawealthy exploit legal loopholes to grow their fortunes tax-free. Here’s the breakdown—and it’s more shocking than you might think.
The $1 Salary Trick: A Tax-Avoidance Masterclass
Imagine earning just $1 a year while your net worth skyrockets by billions. Sounds absurd, right? Yet, this is exactly what billionaires like Zuckerberg, Musk, and Jeff Bezos are doing. The reason? Income from salaries is subject to both income and payroll taxes, which can eat up a significant chunk of earnings. For instance, a self-employed person earning $60,000 pays over $13,000 in taxes, while someone earning $400,000 can pay around 30% in taxes. By keeping their salaries artificially low, these billionaires minimize their taxable income—even as their wealth grows exponentially through stock appreciation.
But here’s the part most people miss: While their salaries are negligible, their wealth isn’t stagnant. In 2024 alone, Bezos’ wealth grew by $80 billion, Zuckerberg’s by $113 billion, and Musk’s by a staggering $213 billion. The kicker? This growth is entirely tax-free because it’s tied to the value of their stock holdings, not taxable income. And when they need cash, they simply borrow against their assets—a move that’s also tax-free.
The Tax System: A Playground for the Wealthy?
Historically, the tax system was designed to prevent wealth concentration and ensure the wealthy contributed to the common good. But over the past 40 years, changes in tax laws have turned it into a tool for the ultrawealthy to avoid taxes altogether. One major shift occurred in 1982 when the SEC allowed companies to buy back their own stock. This seemingly minor change revolutionized how wealth is accumulated. Instead of issuing taxable dividends, companies now boost stock value through buybacks, allowing shareholders to profit without paying taxes—unless they sell their shares.
And this is where it gets even more intriguing: Billionaires rarely sell their shares to fund their lifestyles. Instead, they borrow massive sums using their stock as collateral. Larry Ellison and Elon Musk, for example, have taken out billions in loans at favorable rates, effectively accessing their wealth without triggering capital gains taxes. Even the interest on these loans is offset by the rapid growth in their stock value, creating a virtually risk-free financial cycle.
The Estate Tax: A Shell of Its Former Self
You might think the estate tax would ensure the wealthy pay their fair share, but think again. Despite being a 40% tax on transfers over $15 million, loopholes have rendered it ineffective. A campaign during the George W. Bush presidency branded the estate tax as the “death tax,” falsely claiming it hurt family farms and businesses. This narrative, though debunked, gained traction, and Congress has failed to close these loopholes in 35 years. As a result, the wealthiest 1% of Americans, who control $50 trillion, paid just $30 billion in estate taxes in 2024—a drop in the bucket compared to their wealth.
Who Bears the Burden?
If the ultrawealthy aren’t paying taxes, who is? Surprisingly, it’s high-income earners—doctors, executives, and professionals earning hundreds of thousands annually—who shoulder the burden, paying up to 50% of their income in taxes. Meanwhile, popular statistics claiming the top 1% pay 40% of income taxes are misleading. These figures refer to income earners, not the ultrawealthy, whose fortunes come from untaxed sources like stock appreciation.
A Thought-Provoking Question for You
Is the current tax system fair, or does it perpetuate inequality? Should the ultrawealthy be taxed more heavily on their growing wealth, or is the system working as intended? Share your thoughts in the comments—this is a debate that needs more voices.
This article is a reimagined version of the original piece by Ray Madoff, republished from The Conversation under a Creative Commons license.
