Indeed, the wealthiest 400 families paid an 8.2% average federal income tax from 2010 to 2018, according to a White House analysis. That compares to 13.03% for the typical American.
Increasing taxes on the wealthy makes sense, as they are the ones who are most able to afford tax increases. The people who have benefitted the most from the economy should support programs that help the poorest. A progressive tax system can prevent wealth discrepancies from getting too large.
In California, high earners are taxed 9.3 percent plus an additional 1 percent surcharge on income over $1 million (this, and all millionaire taxes, are over and above the standard federal tax rate that applies). On the opposite coast, New York's upper class is taxed 8.82 percent on income over $1,077,500 in 2019.
Billionaires have avoided taxation by paying themselves very low salaries while amassing fortunes in stocks and other assets. They then borrow off those assets to finance their lifestyles, rather than selling the assets and paying capital gains taxes.
Bezos' wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in personal federal taxes is a massive number — yet it amounts to a 1.1% true tax rate on the rise in his fortune.
According to the latest data, the top 1 percent of earners in America pay 40.1 percent of federal taxes; the bottom 90 percent pay 28.6 percent.
ProPublica said the richest 25 Americans pay less in tax - an average of 15.8% of adjusted gross income - than most mainstream US workers. Jesse Eisinger, senior reporter and editor at ProPublica, told the Today Programme: "We were pretty astonished that you could get [tax] down to zero if you were a multi-billionaire.
In contrast, the wealthiest Americans generate the bulk of their income from investments, which, if held longer than a year, are taxed at a lower rate than wages. The top federal income tax rate on wages is 37%, while the top rate on dividends and assets (like stocks and homes) sold for a gain is 20%.
The top 1 percent (taxpayers with AGI of $546,434 and above) earned 20.1 percent of total AGI in 2019 and paid 38.8 percent of all federal income taxes. In 2019, the top 1 percent of taxpayers accounted for more income taxes paid than the bottom 90 percent combined.
Tax policy is deemed progressive if the chunk of income taken increases with the income of the individual – so wealthy Americans would pay a larger proportion of their income than poorer ones. With a regressive tax policy, lower earners pay a larger percentage of their earnings in tax than wealthier ones.
This disparity is driven largely by the way our tax code treats income generated from wealth—that is, income from assets like stocks that increase in value over time. When a middle class American earns a dollar of wages, that dollar is taxed immediately.
Taxes on one million dollars of earned income will fall within the highest income bracket mandated by the federal government. For the 2020 tax year, this is a 37% tax rate.
According to ProPublica, Musk paid $68,000 in federal income tax in 2015 and $65,000 in 2017, and his effective tax rate between 2014 and 2018 was just over 3 percent.
The United States has 325 million people—in 160 million households, as viewed by the Internal Revenue Service. That means 1.6 million households fall into the 1 percent category.
According to their research, they concluded that in 2018, the top 0.1% — the billionaires of America — paid an average effective tax rate of 23%, which factors in all federal, state and local taxes. The bottom 50% of U.S. households, however, paid a higher rate of 24.2% toward income tax.
Notable names that paid less than a 2% tax rate based on their wealth growth include: Warren Buffett (0.1%), Jeff Bezos (1.1%), Mark Zuckerberg (1.1%), Charles and David Koch (1.3% and 1.4%, respectively), and Michael Bloomberg (1.8% ). Elon Musk paid a mere 2.1% tax rate.
So, if Gates still had those shares, his net worth would have been $693 billion, more than that of Musk ($340.4 billion) and Bezos ($200.3 billion) combined. However, Gates sold a vast majority of his Microsoft shares before exiting the company's board in 2020.
Alaska had the lowest tax burden in the U.S. in 2021, though it was also one of the least affordable states to live in.
57% of U.S. households paid no federal income tax in 2021: Study.
According to the Tax Policy Center (TPC), the middle quintile of taxpayers pays an average of 7.8 percent of their income in payroll taxes—including both employee and employer portions—1.0 percent in corporate taxes, and 0.5 percent in excise taxes.
America's wealthiest people are able to avoid billions in taxes by passing huge chunks of their companies to their heirs for free. An analysis by Bloomberg on Knight's fortune - estimated at $60 billion - discovered that he was able to take advantage of a financial tool called a grantor-retained annuity trust (GRAT).