How the Ultra-Rich Pay Little To No Income Tax

Taxation is a cornerstone of modern economies, designed to fund essential public services and infrastructure. However, not all individuals shoulder the same burden. Wealthy individuals often leverage the US tax code to minimize their tax obligations legally. Here’s a closer look at how this works and why some people earning millions can pay far less in taxes than the average worker.

Traditional Income Taxation

When most people think about income, they envision a paycheck. For someone lucky enough to earn $1,000,000 annually in salary, this income is taxed as ordinary income. In countries like the U.S., this can place the individual in the highest tax bracket — often around 40%. After taxes, they might take home $600,000.

However, the wealthy seldom rely solely on traditional income. Instead, they use financial strategies that significantly reduce their taxable income while maintaining their spending power.

Strategy 1: Capital Gains

Instead of taking a salary, many wealthy individuals receive compensation in the form of company stock or other assets. The proceeds are taxed as capital gains rather than ordinary income if they sell these assets. Capital gains tax rates are typically much lower — around 20–25% for high-income earners.