Key Takeaways
- The richest Americans pay a lower effective tax rate than the country at large, according to a new study.
- A new paper published by the National Bureau of Economic Research (NBER) calculated total tax rates by combining corporate, individual income, and estate taxes.
- Wealthy Americans paid an effective tax rate closer to the rest of the country from 2010 through 2017, but that rate fell sharply once President Donald Trumps Tax Cuts and Jobs Act went into effect in 2018.
Polls have shown for decades that Americans believe the wealthiest among us dont pay their fair share in taxes, and a new study set out to find out whether theyre right.
A new paper published by the National Bureau of Economic Research looked at the 400 richest Americans, based on Forbes annual 400 list, and compared their public tax records to see how much they paid. While these ultra-wealthy individuals make large corporate tax payments, they often pay less in personal income tax payments than the average American because of how their wealth is structured.
What the Data Found
From 2018 through 2020, the richest 400 Americans paid an effective tax rate of about 23.8%, and the top 100 paid even less: just 22%. In comparison, the average tax rate for the total U.S. population was 30%. High earners who mostly make money through wages paid 45%, the paper found. This gap exists because the wealthiest individuals report less taxable income and earn more through investments, which are often taxed at lower rates than regular income.
The top 400 richest people owned 4.1% of the wealth in the U.S., up from 0.9% of the countrys total wealth in 1982, when Forbes launched its list of the richest people, the paper noted. The wealth held by that group equals about 20% of Americas gross domestic product, up from 2% in 1982, another sign of the widening wealth inequality in the U.S. In addition, according to Federal Reserve data, the share of national wealth held by the top 0.1% has increased by more than 60% (see chart above).
Those in the top 400 pay higher corporate tax rates due to their ownership of parts of various companies, and the researchers found that corporate taxes account for about 9% of the 23.8% effective tax rate paid by the wealthiest Americans.
The authors wrote that the result highlights that individual income taxes alone are insufficient for measuring the contribution of high-net-worth individuals to government revenues. They said that while total taxes for the rich are lower than those for the general public, they are also higher than the tax rates paid by the wealthiest people in several European countries.
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How The 2017 Tax Cuts and Jobs Act Impacted The Study
The Tax Cuts and Jobs Act, signed into law during the first Trump administration, went into effect in early 2018 and led to a sharp drop in the tax rate paid by the richest Americans. The law lowered the corporate tax rate and shifted individual tax brackets and rates.
Before those changes, from 2010 to 2017, the 400 wealthiest Americans paid an effective tax rate of 30%, roughly on par with the rate paid by the whole country. This was due to individual income tax rates rising from 2010 to 2013 and again from 2014 through 2017, before falling sharply in the last three years of the study.
Tip
The One Big Beautiful Bill Act, passed over the summer, extends TCJA’s tax cuts for the wealthiest Americans. An analysis by the nonpartisan Tax Foundation found that OBBBA’s passage “means the downward trend in the effective tax rate paid by the richest Americans may stay that way for years to come.”
The Bottom Line
New NBER research confirms what many Americans have long suspected: The ultrawealthy pay proportionally less in taxes than everyone else. While the richest 400 Americans control over 4% of national wealth—double their share from four decades ago—they pay effective tax rates of just 23.8% compared with 30% for typical taxpayers. The 2017 Tax Cuts and Jobs Act widened this gap further, dropping wealthy tax rates from 30% to under 24%.
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