Who Really Pays Taxes in America

Benjamin Franklin once said, “In this world, nothing is certain except death and taxes.” While he was spot on about the former, taxes? That’s a different story. Most of us pay more in taxes than we need to, but here's the thing—the US tax system was designed to reward those who understand it.

In this article, we’re breaking down the US tax pyramid: exploring income brackets, loopholes, and strategies used by everyone from employees to billionaires. Whether you’re an employee, a business owner, or an aspiring entrepreneur, this guide will help you see how the system works—and how you can make it work for you.

Employees: The Backbone of the Tax System

If you’re an employee in the US, you’re probably paying the highest tax rates of all. The federal tax system operates on a progressive structure, meaning the more you earn, the higher percentage you pay. Here’s a quick breakdown:

- 10% tax rate for the first $1,000 you earn.

- 12% for income between $1,001 and $47,000.

- 22% for income between $47,001 and $100,000.

- Rates rise further to 24%, 32%, and ultimately 37% for income over $600,000.

But that’s not all. Employees also contribute to Medicare, Social Security, and, in some states, income taxes. For high-income earners, this adds up quickly. For example:

- A Wall Street banker earning $1 million annually loses over 40% to taxes after federal, state, and other deductions.

It’s no wonder employees often feel the pinch. But there’s hope! Let’s explore how transitioning from employee to business owner can change the game.

Business Owners: Tax Efficiency Done Right

Becoming a business owner offers more control over how and when you’re taxed. While business owners pay income and self-employment taxes, they enjoy a powerful advantage: deductions.

Unlike employees, business owners are taxed on their net income—what remains after deducting legitimate business expenses. These expenses can include:

- Vehicles used for work (even if you use them personally).

- Home office costs.

- Travel expenses, such as flights for meetings (even with personal side trips).

By carefully documenting these expenses, business owners can significantly reduce their taxable income while maintaining their quality of life—all perfectly legal.

The Power of Corporations: Playing the System

Corporations like Amazon and Google take tax efficiency to an entirely different level. Here’s why:

1. Flat Tax Rate

Corporations in the US pay a flat federal tax rate of **21%** on profits, regardless of income.

2. Depreciation and Deductions

Imagine a coffee shop earning $10 million annually. By deducting $1 million in asset depreciation (like coffee machines), they reduce their taxable income to $9 million, saving over $200,000 in taxes.

3. Tax Credits

Large companies often qualify for tax credits by aligning with government priorities. For example, a coffee chain investing $50 million in sustainable farming might receive a 10% tax credit, saving $5 million.

The Loopholes Billionaires Use

At the top of the pyramid, billionaires utilize advanced strategies to minimize—or even eliminate—tax obligations. One famous tactic involves borrowing against assets rather than selling them. Why? Borrowed money isn’t considered income, so it’s not taxed.

For instance, a billionaire with a portfolio worth billions can secure a loan against it, use the funds for personal expenses, and pay minimal taxes—if any.

Your Path to Tax Savings

Whether you’re earning $50,000 or $5 million, understanding the tax system can help you keep more of your hard-earned money. Here are some takeaways:

1. Consider entrepreneurship for greater flexibility and deductions.

2. Hire a knowledgeable accountant who understands deductions and credits.

3. Stay informed about tax laws and opportunities.

Advanced Strategies: Tax Smarts for 2025

From employees to corporations, the tax game is complex but navigable. By investing in knowledge and planning, you can legally reduce your taxes and keep more of what you earn. Remember, it’s not about how much you make—it’s about how much you keep.