Why Can Billionaires Pay Low Tax Rates? Check the Denominator

A claim that a billionaire pays a lower tax rate than a nurse may be meaningful—or misleading—depending on what is counted as income and which taxes are included. Before debating the percentage, inspect the fraction.

This article explains the US distinction between income and increases in asset values. Other countries have different systems. It does not calculate any named individual’s tax bill or suggest that a low reported rate, by itself, proves tax evasion.

Two percentages can describe the same person

Consider an entirely fictional investor. In one year, they have $1 million of taxable income, pay $300,000 of income tax and see assets they still own rise in value by $9 million. Their income-tax-to-taxable-income ratio is 30%. Their income-tax-to-income-plus-unrealised-gains ratio is 3%.

Neither division is arithmetically wrong. They answer different questions. The first describes a tax burden relative to the selected tax base. The second explores how tax payments compare with a broader measure of economic gain. Calling them both simply “the tax rate” hides the disagreement.

The numbers are illustrative, not a calculation of tax owed under actual US rates.

Keep the numerator visible too: both rows count only the same assumed income-tax payment. Adding a different set of taxes to just one side of a comparison would change the question again.

Why selling an asset matters

The IRS capital-gains guide explains gains and losses by reference to sales of capital assets and the difference between proceeds and adjusted basis. Holding-period rules and other details affect tax treatment. A paper increase in the value of an ordinary shareholding is generally different from a realised gain on sale.

This helps explain why wealth can rise dramatically without an equivalent increase in currently taxable income. It does not mean every kind of investment follows the same rules or that a wealthy person pays no other taxes.

Borrowing is another distinction, not free money

A genuine loan brings both cash and an obligation to repay it. The IRS explanation of borrowed funds distinguishes receiving a loan from income and notes that cancellation can create a different tax question. This basic distinction should not be turned into a claim that borrowing eliminates all future tax.

Borrowers face interest costs, repayment obligations and potentially collateral risk. Whether a particular arrangement works as claimed requires the actual documents and applicable law; a social-media slogan cannot establish it.

Ask five questions of any viral claim

• Does the denominator include unrealised gains?
• Is the figure about one year or a longer period?
• Does “tax” mean income tax only or several taxes?
• Is it an estimate or based on disclosed records?
• Are the comparison groups measured on the same basis?

There is still a legitimate policy debate about whether the tax base treats different sources of economic power fairly. Clear definitions improve that debate rather than settle it.

For business-level research, see Amazon’s company score and Meta’s research. A corporation’s tax disclosures and the personal taxes of its founders are separate subjects. Do not use evidence about one as if it proves a claim about the other.

Research checked 24 September 2026. Examples labelled hypothetical are calculations, not observed company results.