The ultra-wealthy are paying the highest average share of taxes, according to a new analysis from a nonpartisan congressional committee.
The Joint Committee on Taxation found that the top 1% of earners pay an average tax rate of around 30% in combined income, employment, and excise taxes, double or more than the share of taxes that the bottom 80% of the country pays. Additionally, the top 5% of earners in the United States make up a whopping 46% of the country’s tax base.
When it comes to individual income taxes alone — that is, excluding payroll taxes and other forms of federal taxation — the top 1% of earners pay 45% of the total collected, and the 0.01% of earners pay nearly 23%. Those in the bottom quintiles (80% of total taxpayers) pay just 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 is a measure of how taxes are distributed. A tax system is progressive if the rates of taxation go up alongside income and regressive if the wealthiest have a lower tax burden. Democrats generally support progressive taxation.
The distributional analysis might run counter to what some Democrats, including President Joe Biden, have argued about the ultrawealthy and what they pay in taxes. Biden has frequently said that the wealthy don’t pay their fair share in taxes and pay less proportionally than their employees, although that argument is a bit of a misrepresentation.
That is because what Biden and Democrats are doing is including unrealized capital gains as income despite the fact that unrealized capital gains are not taxed as income. They are creating a new metric that doesn’t exist in the tax code to argue billionaires are paying a smaller share in taxes than the middle class.
For instance, if a wealthy individual were to have purchased $2 million in stock that later grew to $2.5 million, they wouldn’t be taxed on that $500,000 gain. That is because they haven’t sold it; the gain has not been realized. The second they sell those stock holdings, the income earned from that sale would be taxed.
During a visit to Pennsylvania in April, 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 be gleaned from a White House report on the wealthy that includes income from unsold stock, which is not currently taxed in any way under federal law.
“That’s not reported. We don’t have a wealthy reporting system in this country, never had,” McBride said, noting that estimates of taxes when unrealized capital gains are included are tricky.
The White House has pushed for more taxes on billionaires. In the latest U.S. budget request, the White House called for a 25% minimum tax for domestic billionaires.
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That provision would only affect the wealthiest 0.01% of taxpayers, according to the White House. The White House estimates that the billionaire minimum tax plan would bring in about $500 billion over the next decade or so.
Sen. Ron Wyden (D-OR) has pushed for a mark-to-market tax proposal law for years, and last year introduced a bill that would tax those with net worths of over $1 billion. It would also apply to high earners who made more than $100 million in three consecutive years.