Bill Gates is one of the richest people in the world. As the co-founder of Microsoft, he has amassed an enormous fortune estimated to be over $130 billion. With that much wealth, many people wonder – how much does Bill Gates pay in income taxes? The answer reveals a lot about the U.S. tax system and its provisions for the mega-rich.
Bill Gates’ Wealth and Income Sources
Most of Bill Gates’ net worth comes from his Microsoft shares. He owns about 1.3% of Microsoft, a stake worth over $26 billion. Gates also has diverse investments in stocks, bonds, private equity, real estate and more.
While Gates is no longer involved in Microsoft’s day-to-day operations, he still receives income from the company through dividends on his shares. According to SEC filings, Microsoft paid $3.3 billion in dividends in 2021. With his 1.3% stake, Gates would’ve received around $42.9 million in Microsoft dividends alone.
Gates also likely earns income from his investments in companies like Canadian National Railway, AutoNation, Waste Management, and Four Seasons Hotels through dividends and investment gains Additionally, he receives compensation as a board member of companies like Berkshire Hathaway
In total, Gates’ income likely ranges between $2-$4 billion per year from all these sources. However, his taxable income that gets reported to the IRS is much lower.
How the Tax System Benefits Billionaires
The U.S. tax system provides many advantages to the super wealthy when it comes to reducing taxable income:
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Long-term capital gains – Gates’ Microsoft dividends and investment gains are taxed at preferential long-term capital gains rates of 15-20% rather than the 37% top ordinary income tax rate.
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Charitable deductions – Gates donates billions to his foundation, which reduces his taxable income significantly.
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Carried interest loophole – As an investor, Gates benefits from the carried interest loophole that taxes his private equity and hedge fund profits at lower capital gains rates.
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complex business structures – Wealthy individuals use various trusts, LLCs, foundations and partnerships to control assets and reduce taxable income.
These provisions allow billionaires to report far lower income to the IRS than what they actually earn from their assets and investments.
How Much Bill Gates Pays in Taxes
According to leaked IRS data analyzed by ProPublica, Bill Gates paid $1.52 billion in taxes from 2013-2018. During this period, his reported income was $7.46 billion.
This amounts to an effective federal income tax rate of 18.4% on average. That’s actually more than most other billionaires pay, but still much lower than top ordinary income tax rates.
To put that in perspective, Bill Gates earned $4 billion in investment income in 2014. But after deductions, exemptions and credits, he only reported $172 million in taxable income to the IRS. That’s just 4% of his total investment income for the year.
While legal, this shows how billionaires use provisions in the tax code to drastically reduce income reported to the IRS. As a result, their effective tax rates are much lower than what the average American pays.
Calls for Changes to Billionaire Tax Loopholes
The revelations about how little tax wealthy elites like Bill Gates pay has sparked outrage and calls for reform. Critics argue it’s unfair that billionaires earning millions in dividends, investment gains and carried interest pay lower rates than ordinary wage earners.
Some proposals to ensure the rich pay higher taxes include:
- Taxing investment income at ordinary rates for high earners
- Eliminating the carried interest loophole
- Limiting deductions for charitable giving
- Adding a wealth tax or higher capital gains taxes
- Increasing IRS funding to audit more complex returns
However, attempts to close these loopholes have stalled in Congress due to lobbying efforts and claims they will hurt the economy.
Bill Gates himself has said he should pay higher taxes. But until reforms happen at the policy level, the ultra-wealthy will continue utilizing current provisions 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?
Which billionaires paid no taxes?
Who paid the most taxes in history?
Do the rich pay their fair share of taxes?
Should Bill Gates pay $100 billion in taxes?
Earlier this week, Microsoft founder and philanthropist Bill Gates said at a New York Times DealBook conference that he’s already paid $10 billion in taxes, and that if “had to have paid $20 billion, it’s fine. But when you say I should pay $100 billion, then I’m starting to do a little math about what I have left over.”
How much money does Bill Gates make a year?
Bill Gates hasn’t been involved in the day-to-day operations of Microsoft for over a decade, yet he still earned the most during the years we studied, reporting an average yearly income of $2.85 billion — and an effective federal income tax rate of 18.4%.
How much did Bill Gates and Larry Ellison save on taxes?
Microsoft’s Bill Gates and Oracle’s founder Larry Ellison saved $125 million and $106 million respectively 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. So they theoretically would still be worth over $100 billion each even after accounting for Elizabeth Warren’s wealth tax.
Who would have paid $114 billion under a wealth tax?
Amazon CEO Jeff Bezos and the Microsoft cofounder Bill Gates. Susan Walsh/AP; Joshua Roberts/Reuters; Axel Schmidt/Getty Images US billionaires would’ve paid $114 billion for 2020 under a proposed wealth tax, research suggests. 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 affect only about 100,000 American families and that the country’s billionaires would pay about half of the total tax amount.