Thursday, June 10, 2021

You May Be Paying a Higher Tax Rate Than a Billionaire


by Paul Kiel, Jeff Ernsthausen and Jesse Eisinger

June 8, 4:59 a.m. EDT

The very richest Americans win at the tax game no matter which measure you use. ProPublica has published an article, based on a vast trove of never-before-seen IRS information, that reveals the pittance in taxes the ultrawealthy pay compared with their massive wealth accumulation.

But that trove of IRS data also reveals new information on how little the 25 wealthiest Americans pay in taxes by the most conventional measure: income. Not all are able to minimize their income and avoid taxes; some report very substantial sums. But even then, the data — and a new analysis by ProPublica — shows they still pay strikingly low rates.

On average, they paid 15.8% in personal federal income taxes between 2014 and 2018. They had $86 billion in adjusted gross income and paid $13.6 billion in income taxes in that period.

That’s lower than the rate a single worker making $45,000 a year might pay if you include Medicare and Social Security taxes.


The federal tax system is designed to be progressive: The more money people make, the higher the tax rate they’re supposed to pay. Today, a married couple pays a tax rate of 10% on their first $19,900 in taxable income (after deductions), stepping up to 37% for everything they make above $628,300.


But those are just the rates on paper. To get a more accurate picture, analysts at the IRS look at what taxes people actually pay. This is known as the “effective tax rate.” If you made $10 million, and paid $2.5 million in taxes, you’d have had an effective rate of 25%.

Looking strictly at income taxes, IRS statistics show that effective tax rates do, in fact, climb with income. In 2018, the latest year for which data is available, those earning between $500,000 and $1 million paid a tax rate twice as high, on average, when compared with taxpayers earning between $100,000 and $200,000. Taxpayers earning between $2 million and $5 million paid 27.5%, the highest of all taxpayers. But, at that point, the climb stops.

From there, rates descend as incomes rise. By the time you reach the most rarefied income grouping whose data is released by the IRS — the top .001% of taxpayers, a collection of 1,400 who each disclosed income over $69 million — the rate has fallen to 23%.

But as ProPublica’s new analysis shows, the top 25 pay even less than that.


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