What Is the Average Federal Individual Income Tax Rate on the Wealthiest Americans?

[LetMyPeopleVote]

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Abstract: We estimate the average Federal individual income tax rate paid by America’s 400 wealthiest families, using a relatively comprehensive measure of their income that includes income from unsold stock. We do so using publicly available statistics from the IRS Statistics of Income Division, the Survey of Consumer Finances, and Forbes magazine. In our primary analysis, we estimate an average Federal individual income tax rate of 8.2 percent for the period 2010-2018. We also present sensitivity analyses that yield estimates in the 6-12 percent range. The President’s proposals mitigate two key contributors to the low estimated rate: preferential tax rates on capital gains and dividend income, and wealthy families’ ability to avoid paying income tax on capital gains through a provision known as stepped-up basis.

When an American earns a dollar of wages, that dollar is taxed immediately at ordinary income tax rates.[1] But when they gain a dollar because their stocks increase in value, that dollar is taxed at a low preferred rate, or never at all.[2] Investment gains are a primary source of income for the wealthy, making this preferential treatment of investment gains a valuable benefit for the wealthiest Americans. Yet the most common estimates of tax rates do not fully capture the value of this tax benefit because they use an incomplete measure of income. This analysis asks: what was the average Federal individual income tax rate paid by the 400 wealthiest American families’ in recent years, determined using a more comprehensive measure of income?

How the wealthy enjoy low income tax: preferred rates on an incomplete measure of income

The wealthy pay low income tax rates, year after year, for two primary reasons. First, much of their income is taxed at preferred rates. In particular, income from dividends and from stock sales is taxed at a maximum of 20 percent (23.8 percent including the net investment income tax), which is much lower than the maximum 37 percent (40.8 percent) ordinary rate that applies to other income.

Second, the wealthy can choose when their capital gains income appears on their income tax returns and even prevent it from ever appearing. If a wealthy investor never sells stock that has increased in value, those investment gains are wiped out for income tax purposes when those assets are passed on to their heirs under a provision known as stepped-up basis.

[roamer65]

1. Way too low.

[PSPS]

2. This is why the parasite class is compensated in "stock options" instead of salary

How to create an un-taxed parasite dynasty in three easy steps:

1. Amass your obscene fortune in un-taxed stocks (aren't subject to even the low tax rate until sold.)

2. Easily finance your vulgar lifestyle by borrowing against #1 (you get the discount-window rate, which is about zero now.)

3. When you kick the bucket, your beneficiaries can liquidate your fortune in stocks tax-free because its basis is "stepped up" to its value when you kick the bucket, making it a wash (i.e., sale price equals basis.)

[PoliticAverse]

3. "In particular, income from dividends and from stock sales is taxed at a maximum of 20 percent" n/t

[iemanja]

5. Non qualified dividends are taxed at your normal rate

I don't know why.

[ProfessorGAC]

6. The Clear Majority Of US Stocks...

...pay qualified dividends. So, for most big investors, the dividends they receive are taxed at the qualified rate.
IIRC, around 80% of dividends are qualified.

[Bluethroughu]

4. Tax the rich, it's time for the Eisenhower fund, rate, to be reinstated.

[ProfessorGAC]

7. But, Almost Nobody Paid Those Rates

There were so many qualifiers & loopholes that essentially nobody wealthy paid even close to those top marginal rates.
When JFK lowered the top rate, they closed loopholes galore, and reduced qualifiers.
That was one time where lower marginal rate increased revenue (supply siders' fantasy) but, it had much more to do with taxing being paid on a substantially bigger pile of money.
Lower the rate from 90 to 60, but then double the exposure to taxes, and the revenue goes up 20%. (Not actual values, just for illustration.)
I'd be happy to go back to more rates that keep going up into the stratospheric income range.
Shifts more of the burden to so that their share of taxes becomes comparable to their share of income.
Doubtful we'll see it, but I think it would be economically wise.

[Bluethroughu]

9. Sounds good to me...

Why should "BUSINESSES" get to write off food and booze, their cleaning of white collar clothing or buying it for that matter, write off their vacations as business incentives for whatever...cut that out alone and we'd make some revenue.

Yachts tax it. 100,000 car tax it. No 1031 exchange tax it. Etc...

If you have a "Business" subsidized by the local population for tax abatement, infrastructure, or monetary incentives...tax it as income at the federal level.

If you have more than 20 employees, yet don't offer Healthcare, retirement, or regular full time work...tax it.

It's time to rebuild the country, and compensate the workers fairly...tax big business.
.

[Igel]

10. The problem with the analysis is what it claims is the problem.

You have assets that appreciate, it's not income. (It's not money, you can't spend it, it's not taxable. It's like when a house appreciates--by that standard, my family's income was $15k higher each year since we moved in than my earned income would suggest.) I'd note that this would depress my already egregious 9% effective Federal income tax rate. This is why this particular report is an outlier when it comes to pretty much every other analysis (esp. those who don't have a huge expensive dog in the political fight).

By default, there's the claim that a wealth tax is not only Constitutional but should be in place. I'm sure that middle-class folk who saw their houses appreciate in the last few years would object to that increase being taxed annually.


For most of the '40s through early '00s the amount of income paid (adjusted for inflation) was pretty flat. Even after the top rates were slashed, federal receipts were pretty flat.

There were bumps immediately after a tax increase and dips immediately after tax decreases, but they flattened out. The only thing those did was provide rhetorical fodder. "Look how much more money we raised in the first year!" or "Look how much income suffered because of this!" (but deadpan in year 3 when income reverted to the old income levels, plus inflation). It's like education reforms: You launch a new project, a new gimmick, and you see student engagement and achievement skyrocket. But three years later it's back to the same-old/same-old, with the advertising based on the researcher's early findings still rampant.

[ProfessorGAC]

11. Totally Agree

I know it triggers a visceral reaction when people see "8%".
But, I don't care for including unrealized gains as income. They're unrealized. By definition its not income, yet. This analysis does that and I agree that's flawed thinking.
As to " revenues rose" smoke & mirrors, that was done in the Reagan years.
But, the revenues went up due to massive borrowing for defense spending, and the taxes paid, corporate & personal, from those funds.
Revenues went up by what is effectively a negative return on the money borrowed.
Yet, to this day, supply side tale spinners still point to "increased revenues" proving the success of their sophomoric philosophy.

[SWBTATTReg]

8. What Is the Average Federal Individual Income Tax Rate on the Wealthiest Americans?

I don't know the exact rate, but per Warren Buffet, his secretary pays a higher tax rate than her boss does...

He's tried to get Congress to listen to him, get them to raise the effective tax rate on those in his tax bracket, and as we can see, nothing has still been done yet.