Total effective tax rates for the 400 wealthiest Americans have declined in recent years, with this group now paying a smaller share of their true income in taxes than the average American, according to new research from UC Berkeley.
The study found that for the top 0.0002 percent of earners, the effective tax rate dropped from 30 percent between 2010 and 2017 to 23.8 percent during 2018–2020. Researchers attributed this decrease to increased ability among the wealthy to shelter business income and lower tax rates on reported income.
“When taking a comprehensive view of taxation and income, ultra-high-net-worth individuals appear less taxed than the average American,” the researchers concluded.
These findings were published in “How Much Tax Do U.S. Billionaires Pay? Evidence from Administrative Data,” a working paper released by the National Bureau of Economic Research. The study was led by economists Emmanuel Saez, Danny Yagan, Gabriel Zucman, and Ph.D. student Akcan S. Balkir at UC Berkeley.
The research uses administrative tax data—such as individual and business financial documents—to provide what appears to be an unprecedented level of detail on how much tax is paid by America’s wealthiest individuals.
While the U.S. tax system has historically aimed for progressivity—with higher earners paying more—the study suggests that when all forms of taxation are considered together, today’s ultra-wealthy pay lower rates than many others with less wealth.
For instance, during 2018–2020, the overall effective tax rate was 22 percent for the top 100 wealthiest Americans but slightly higher at 26.6 percent for those ranked next among the top 400. Those who earned primarily through wages faced an even higher rate: top wage earners had an effective rate of 45 percent compared to those whose income came mainly from ownership or investment sources.
Across all Americans, the average effective tax rate stood at 30.2 percent during these years—the last three years of President Donald Trump’s first term.
The report also notes a decline in corporate taxes paid by this group; between 2014–2017 and 2018–2020, corporate taxes paid by America’s richest fell by one-third after federal law reduced corporate rates from 35 percent to 21 percent in 2018.
As a result of these changes and growing fortunes, America’s richest now own assets equal to about one-fifth of total U.S. gross domestic product (GDP). In comparison, Forbes magazine data show that when it first published its list of America’s richest in 1982, this group owned just under one percent of household wealth; today they hold over four percent. Their collective holdings relative to GDP have grown tenfold since then—from two percent in 1982 to twenty percent now—with most gains concentrated among the very richest hundred people.
The authors say their methods allowed them to create a comprehensive picture not previously achieved using only individual returns or less detailed datasets.
