The claim that the rich pay little or no tax is a lie based on fake figures. In fact, 50% of earners in the United States, those earning $46,500 or less per year, pay only 2.3% of total income tax in the U.S. In contrast, the top 1%, who earn $682,500 or more, pay 45.8% of total U.S. income tax. The proportion of total income tax paid by the richest has risen massively over the past two decades. In 2001, the top 1% of earners in the United States paid a third of income tax — 20 years later they are paying almost half.
The situation is similar in Germany, where 50% of income taxpayers pay only 6.1% of income tax. In contrast, the top 1% of income earners pay 22.8% of income tax.
Despite these figures, it is repeatedly claimed that the rich are not paying their “fair share.” A few years ago, the media widely circulated a claim suggesting that the 25 wealthiest Americans paid only 3.4% in taxes. This figure gained global attention and has been frequently cited ever since. However, the “calculation” behind this claim was nonsensical, as it was based on a comparison of the annual taxes paid by the 25 richest Americans with the growth in their wealth as estimated by Forbes over the same period. In fact, the average tax rate paid by the top 1% of earners in the U.S. is almost eight times higher than the average tax rate paid by the bottom half of earners.
The growth in wealth estimated by Forbes is mainly due to rises in the value of the shares held by the super-rich. In the case of Jeff Bezos, for example, his wealth grew as the market value of Amazon shares rose, while Warren Buffett’s wealth growth stems from the escalating share price of his company, Berkshire Hathaway. The claim that the super-rich pay hardly any taxes is based on the comparison of wealth growth, largely driven by unrealized capital gains, with income taxes, which are levied on actual income or profits. That would be like comparing the increase in the value of your house last year with the income tax you paid — an obviously nonsensical calculation.
Chile serves as a prime example of the damaging impact of propaganda against the rich, as Axel Kaiser and I demonstrate in an article for the journal Economic Affairs.
Chile became by far the most successful country in South America thanks to market economy reforms, with high growth rates that benefited everyone. After 2014, Chilean politics and economy took a populist turn that slowed progress. Between 2014 and 2023, annual GDP growth was 1.9%, equating to just 0.6% in per capita terms. The anti-business reforms from Michelle Bachelet’s second government, which spanned 2014-2018, led to decreases in investment and sluggish job creation, while real wages stagnated.
While the analysis of the economic slowdown is clear, the causes of it are more complex: an ideology motivated by a vengeance against Chile’s rich. The government promoted the message that the rich did not pay their fair share of taxes and that therefore tax reform was due. Obsessed with reducing inequality, government officials said the top 1% of earners should pay for almost all new tax revenue, which would ensure higher-quality and free public education, better public healthcare, more hospitals, better access to culture, sports, a cleaner environment, and better pensions for the retired, etc. In other words, as far as the government was concerned, the greedy rich who did not want to pay more of their income in taxes was the only reason Chileans did not have a better quality of life. We have seen a similar anti-rich rhetoric from Sen. Bernie Sanders (I-VT) and his ilk in the U.S.
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The tax reform in Chile was far from successful because it destroyed incentives for investment and it pushed an anti-wealth narrative that disregarded its impact on the economy and population. The tax reform also failed to deliver as much revenue as the government had initially planned for that year and the ones to follow. Economists Gonzalo Sanhueza and Arturo Claro explain that if Chile’s economy had grown at 3.8% in real terms since 2013, government tax revenue in 2023 would have been 26% higher.
Ultimately, the victims of anti-wealth propaganda in Chile were not primarily the wealthy, but average and low-income earners. This should serve as a valuable lesson for other nations as well.
Rainer Zitelmann is the author of the books The Power of Capitalism and How Nations Escape Poverty.