A new study from the University of California, Berkeley reports that the 400 wealthiest Americans now pay a lower percentage of their income in taxes than the average American. The research shows that for this group—the top 0.0002%—the effective tax rate dropped from 30% between 2010 and 2017 to 23.8% in the years 2018 to 2020.
The authors attribute this decline to increased opportunities for the wealthy to shelter business income and benefit from lower tax rates on reported earnings. “When taking a comprehensive view of taxation and income, ultra-high-net-worth individuals appear less taxed than the average American,” they concluded.
These findings are detailed in “How Much Tax Do U.S. Billionaires Pay? Evidence from Administrative Data,” a working paper published by the National Bureau of Economic Research. The study was conducted by UC Berkeley economists Emmanuel Saez, Danny Yagan, Gabriel Zucman, and Ph.D. student Akcan S. Balkir.
The report notes that while the U.S. tax system has been intended as progressive for about a century, recent trends indicate that the very wealthy now pay lower effective rates than many others with less wealth. For example, during 2018-2020, the overall effective tax rate was 22% for the top 100 wealthiest individuals but rose to 26.6% for those ranked between 101 and 400 on the list. Those earning mainly wages or salaries faced an even higher rate of about 45%. In comparison, the effective tax rate across all Americans was calculated at approximately 30.2% during this period.
Changes in corporate taxation have also played a role in these shifts. According to the study, total corporate taxes paid by these top earners fell by one-third after federal corporate tax rates were reduced from 35% to 21% in 2018.
The concentration of wealth among these individuals has grown over time; today, they control about one-fifth of U.S. gross domestic product (GDP). This marks an increase since Forbes began tracking such data: in 1982, this group held just under one percent of total household wealth compared to more than four percent today.
To conduct their analysis, researchers used administrative data including individual and business tax records as well as information on foreign corporate taxes—providing what they describe as an unprecedentedly precise look at how much America’s richest actually pay in taxes.
“When taking a comprehensive view of taxation and income, ultra-high-net-worth individuals appear less taxed than the average American.”
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