A new study by the National Bureau of Economic Research (NBER) reveals that America’s wealthiest billionaires pay a lower share of their income in taxes than most workers and even less than the national average.
By: Stacy M. Brown, Black Press USA
A new study by the National Bureau of Economic Research (NBER) reveals that America’s wealthiest billionaires pay a lower share of their income in taxes than most workers and even less than the national average.
The analysis, conducted by economists Akcan S. Balkir, Emmanuel Saez, Danny Yagan, and Gabriel Zucman, used administrative data from 2010 through 2020, matching Forbes’ list of the 400 richest Americans with individual, business, estate, and gift tax returns. It found that the top 0.0002 percent of households—roughly the “Forbes 400”—paid an average total effective tax rate of 24 percent from 2018 to 2020. That compares with 30 percent for the overall U.S. population and 45 percent for top labor income earners. The authors define the effective rate as all taxes paid relative to “economic income,” which includes labor income, business profits, and capital gains. The report concludes that billionaires “appear less taxed than the average American” when all sources of wealth are considered.
Why the Wealthiest Pay Less
The findings point to structural features of the U.S. tax code. C-corporations owned by billionaires distribute relatively little in dividends, which minimizes individual income tax unless the stock is sold. Passthrough businesses—such as partnerships and S corporations—often report negative taxable income despite high profits, further limiting tax bills.
The researchers found that between 2010 and 2017, billionaires’ effective tax rates averaged about 30 percent, but that fell to 24 percent in the years after Donald Trump’s Tax Cuts and Jobs Act of 2017. The law slashed the federal corporate rate from 35 percent to 21 percent and expanded provisions like full expensing of investment, allowing companies to reduce taxable income even with high book profits.
Estate and gift taxes also make little difference. Decedents in the Forbes 400 paid just 0.8 percent of their wealth in estate tax when married and 7 percent when single. Annual charitable giving by the group equaled 0.6 percent of wealth and 11 percent of economic income in 2018–2020.
The Corporate Tax’s Outsized Role
Corporate taxes remain a major source of government revenue from billionaires. About 9 percentage points of the top 400’s 23.8 percent effective rate comes from corporate tax. By contrast, their individual income taxes amounted to just 11 percent of economic income. When measured against wealth instead of income, the richest Americans paid only 1.3 percent of their holdings in taxes annually in 2018–2020—down from 2.7 percent in 2010–2013.
International Comparisons
The United States is not alone in seeing ultra-rich households taxed at lower rates. Similar studies show billionaires in the Netherlands pay less than 20 percent of economic income, while in France, the top 0.0002 percent paid 26 percent in 2016. Still, U.S. billionaires’ individual income tax rates—about 11 percent of economic income—are higher than those in parts of Europe, where personal holding companies allow greater avoidance.
The researchers caution that the effective rate at the very top is heavily dependent on how economic income is defined, but across multiple approaches, the results remain consistent: the richest households are taxed at lower rates than most Americans. “Ultra-high-net-worth individuals appear less taxed than the average American,” the authors wrote.
