Most folks spend their lives chasing income, believing that the more they make, the richer they’ll be. But the ultra-wealthy play a different game altogether. They don’t chase income; they build net worth. And the best part? They do it while sidestepping the tax bill that weighs down the rest of us.
Take Elon Musk, Jeff Bezos, or Donald Trump—billionaires who can legally pay little to no income taxes. How? They don’t have taxable income in the way most people do. Instead of earning wages, they let their assets grow unrealized—avoiding taxes while still living like kings.
Income vs. Net Worth: What’s the Difference?
- Income is what you actively earn—wages, profits, dividends. It’s what the IRS loves to tax.
- Net Worth is everything you own (stocks, real estate, businesses) minus debts. It grows without triggering taxes.
For example, if you earn $100,000 a year, the IRS takes a nice bite. But if you own $100 million in stock and it gains $20 million in value, you’re richer—but you don’t owe a dime in taxes unless you sell.
Unrealized Gains: The Illusion of Wealth
Now, let’s be clear—unrealized gains are not real money. Anyone who has ever watched their stock portfolio or real estate values soar, only to crash later, knows this too well. That “wealth” can disappear in an instant.
For the ultra-wealthy, this doesn’t matter much because they don’t live off selling their stocks—they live off borrowing against them.
How Billionaires Avoid Income Taxes
Instead of selling and realizing taxable income, billionaires use a strategy called “Buy, Borrow, Die”:
- Buy Assets – They invest in stocks, businesses, or real estate, which increase in value over time.
- Borrow Against Wealth – Instead of selling stock (and paying capital gains tax), they take low-interest loans against their holdings. Loans aren’t taxed.
- Die and Pass It On – When they pass away, their heirs inherit the assets tax-free thanks to the stepped-up basis loophole.
It’s perfectly legal. And it’s why billionaires can have billions in assets but report almost no taxable income.
Why Musk & Bezos Can’t Just Sell Everything
A common argument is: “Why don’t they just sell their stock and pay their fair share?”
Here’s the catch—if someone like Musk or Bezos sells a massive chunk of their stock, it causes a market panic. Their company’s stock price could crash overnight, meaning:
- Their net worth would plummet—because much of their wealth is tied up in the stock’s price.
- Other investors (including pension funds, 401(k) accounts, and retail investors) would lose money.
- They’d still owe a massive tax bill on what they did sell.
For this reason, they borrow against their stock instead of selling it.
Why You Should Focus on Net Worth, Not Just Income
Most people think, “If I just earned more money, I’d be set.” But the real key to financial security is building assets—stocks, real estate, businesses—not just a bigger paycheck.
Meanwhile, tax laws favor those who own appreciating assets. If you work for a living, you’ll be taxed heavily. If you live off investments, the system cuts you a break. That’s why two people can both be worth $1 million—one through wages, one through assets—but the asset-holder pays far less in taxes.
The Game Is Rigged, So Play It Right
“The lack of money is the root of all evil.” – Mark Twain
The tax system isn’t broken—it’s working exactly as designed. It just wasn’t designed for you.
If you’re chasing a bigger paycheck, you’re in a high-tax trap. If you’re building net worth, you’re playing the game the way the rich do. The question isn’t whether the system is fair—the question is, how do you adapt?
Because the wealthy aren’t losing sleep over taxes. They’re too busy figuring out how to borrow against their billions while keeping Uncle Sam out of their pockets.
EXTRA CREDIT
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