The ultra-wealthy are shouldering the highest average share of taxes, based on a new analysis from a nonpartisan congressional committee.
The Joint Committee on Taxation reported that the top 1% of earners pay an average tax rate of around 30% in combined income, employment, and excise taxes, which is double or more than the share of taxes paid by the bottom 80% of the population. Moreover, the top 5% of earners in the United States constitute an imposing 46% of the nation’s tax base.
Focusing on individual income taxes alone — excluding payroll and other forms of federal taxation — the top 1% of earners contribute 45% of the total tax revenue, and the 0.01% of earners account for nearly 23%. Those in the bottom quintiles (80% of total taxpayers) contribute merely 5.4% of the total.
“The general takeaway is we have a very progressive federal tax system that is due to the very progressive individual income tax system, so that’s what this shows,” said William McBride, vice president of federal tax policy at the Tax Foundation. “It’s not just progressive due to high tax rates at the top, it’s also progressive due to actually negative tax rates at the bottom.”
Progressivity measures how taxes are distributed. A tax system is progressive if the rates increase with income and regressive if the wealthiest have a lesser tax burden. Democrats usually advocate for progressive taxation.
This distributional analysis might challenge the assertions made by some Democrats, including President Joe Biden, about the ultra-wealthy and their tax contributions. Biden has often stated that the wealthy don’t pay their fair share in taxes and pay less proportionally than their employees, though this argument can be somewhat misleading.
This is because Biden and Democrats are counting unrealized capital gains as income, even though such gains are not taxed as income. They are introducing a new metric that doesn’t exist in the tax code to argue that billionaires pay a smaller share in taxes than the middle class.
For example, if a wealthy individual purchased $2 million in stock that later grew to $2.5 million, they wouldn’t be taxed on that $500,000 gain because they haven’t sold it; the gain has not been realized. The moment they sell those stock holdings, the income earned from the sale would be taxed.
In April, during a visit to Pennsylvania, Biden claimed that billionaires paid low taxes.
“Do you know what the average federal tax rate for a billionaire is today in America? For real: 8.3%,” Biden told the crowd, according to CNN. “Not a joke. Far less than the vast majority of Americans pay in federal taxes. No billionaire should pay a lower tax rate than a teacher, a nurse, a sanitation worker.”
That figure appears to come from a White House report on the wealthy that includes income from unsold stock, which is currently not taxed under federal law.
“That’s not reported. We don’t have a wealthy reporting system in this country, never had,” McBride said, noting that estimating taxes when unrealized capital gains are considered is complex.
The White House has advocated for higher taxes on billionaires. In the latest U.S. budget request, the administration proposed a 25% minimum tax for domestic billionaires.
According to the White House, this provision would affect only the wealthiest 0.01% of taxpayers. The administration estimates that the billionaire minimum tax plan would generate approximately $500 billion over the next decade.
Sen. Ron Wyden (D-OR) has promoted a mark-to-market tax proposal for years and introduced a bill last year to tax individuals with net worths of over $1 billion. It would also apply to high earners who made more than $100 million in three consecutive years.
