Warren Buffet is one prime example of the ultra-rich. His adjusted gross income was approximately $11 million in 2015. This may not sound like a lot, but his wealth is measured in billions. Buffet’s net worth fluctuates based on the price of stocks he owns in his company. In the past five years, the value has increased to $26 billion, which is about $5 billion per year. According to the tax code, however, this increase does not qualify as income until the stock is sold. This allows wealthy individuals like Buffet to defer paying taxes on stock appreciation while even their heirs stand to benefit from a step-up in basis. Essentially, by deferring these capital gains taxes, wealthy families can defer taxes for generation after generation. This loophole represents one of the biggest problems with the tax system—extremely wealthy families passing large accumulations of wealth through the generations.
See James Kwak, The Tax Code for the Ultra-Rich vs. the One for Everyone Else, Atlantic, October 15, 2016.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
