America's billionaires pay lower tax rates than you do, study finds

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Is America successful a New Gilded Age? Wealth, Power, and Democracy | CBS Reports 43:39

The affluent are antithetic from different radical — and that besides applies to the stock of their income they wage successful taxes, according to a caller survey from University of California, Berkeley, economists. 

The individuals who marque up the Forbes 400 list, topped by Tesla CEO Elon Musk with a luck of $244 billion, paid an mean effectual taxation complaint of 24% from 2018 to 2020, compared with a 30% complaint for each different U.S. taxpayers, the researchers said successful a caller paper published successful the National Bureau of Economic Research. 

The probe comes arsenic President Trump's "big, beauteous bill," signed into instrumentality connected July 4, delivers its largest benefits to the highest-earning Americans through a premix of caller and extended taxation breaks. Those see raising the estate-tax exemption to $15 cardinal per person, up from astir $14 million. 

The changes physique connected an earlier taxation chopped — the Tax Cuts and Jobs Act, Mr. Trump's signature first-term legislation. That 2017 instrumentality reduced the effectual taxation complaint for the richest Americans from 30% to 24%, the researchers found.

The caller findings — from Berkeley economists and noted inequality experts Emmanuel Saez and Gabriel Zucman — calculates the taxation complaint by tallying each income taxes, arsenic good arsenic firm taxes that are paid by the companies owned by the richest Americans. In different words, it assigns a stock of Amazon's firm taxes to that of Amazon laminitis Jeff Bezos erstwhile calculating his full taxation burden.

"The economical income of the wealthiest are fundamentally the profits of the businesses they own," Saez told CBS MoneyWatch successful an email. "Jeff Bezos owns astir 10% of Amazon, and hence his existent economical income is 10% of Amazon's profits."

Corporate taxes are levies connected the profits generated for Bezos, akin to however an leader withholds national income and Social Security contributions from a worker's paycheck, helium added.

Saez and Zucman are starring proponents of instituting a U.S. wealthiness tax to assistance code widening inequality betwixt the haves and have-nots. That thought has been embraced by immoderate lawmakers, specified arsenic Senators Elizabeth Warren, a Democrat from Massachusetts, and Bernie Sanders, an autarkic from Vermont. 

Some blimpish critics person argued that wealthiness taxes could beryllium self-defeating, with the Hoover Institute noting successful a 2023 blog post that the levy could discourage entrepreneurship and investment.

Research shows that the Tax Cuts and Jobs Act, portion cutting taxes for galore individuals and businesses, hasn't had a important interaction connected the economy, the Congressional Research Service recovered successful an April report. Republican proponents of the "big, beauteous bill," specified arsenic House Speaker Mike Johnson, also say that it volition boost the system and supply taxation alleviation to workers and families. 

How billionaires wage a smaller share

U.S. income taxes are designed to beryllium progressive, meaning that higher-earning workers wage a bigger stock of their income to the IRS than radical little down the ladder. But due to the fact that superior gains — the profits earned from selling stocks, bonds, existent property and different assets —and concern income are taxed astatine a little complaint than the apical complaint for income that radical gain done their jobs, the richest Americans reap a monolithic taxation break.

For instance, the highest taxation complaint connected earned income stands astatine 37%, which is assessed connected each dollar earned supra $609,351 for idiosyncratic taxpayers. Yet that aforesaid idiosyncratic volition wage lone a 20% taxation complaint connected semipermanent superior gains, specified arsenic profits from a banal sale, and a 21% firm taxation complaint connected income earned done a concern oregon different business. 

And if the affluent don't merchantability their shares, they don't person to wage immoderate taxes connected that wealthiness due to the fact that they haven't realized a superior gain, Saez noted.

"The idiosyncratic income taxation is designed to beryllium progressive acknowledgment to its expanding taxation rates by brackets, and it does a beauteous bully occupation but among the billionaire class," helium said. "As I said, the billionaire people tin debar realizing idiosyncratic income and hence tin flight the idiosyncratic income tax."

To beryllium sure, the affluent are shouldering the largest stock of the nation's taxes, IRS information besides shows. The apical 1% of earners – radical who marque implicit astir $663,000 per twelvemonth — relationship for astir 40% of each national idiosyncratic income tax, portion the apical 50% lend 97%, a Tax Foundation analysis of IRS information shows. The bottommost fractional of income earners relationship for astir 3% of those taxes.

Some affluent Americans wage a taxation complaint exceeding the 30% average, the caller insubstantial besides found. The apical labour earners — radical who beryllium connected precocious wages for their incomes alternatively than superior gains oregon firm profits — person a 45% effectual taxation rate, according to Berkeley analysis.

The findings astir the richest 400 Americans suggest that a wealthiness taxation is inactive needed to curb inequality successful the U.S., Saez said. 

"The wealthiness taxation is the astir nonstop and almighty mode to specifically people the ultra-rich and summation taxation progressivity astatine the precise top," helium said. "The wealthiness taxation connected the ultra-rich is besides fashionable but volition evidently beryllium fought by billionaires, and they person disproportionate influence."

• Economy
• wealth gap