Total effective tax rates for the 400 wealthiest Americans have dropped in recent years, with this group now paying a smaller share of their actual income in taxes than the average American, according to new research from UC Berkeley.
The study found that for the top 0.0002 percent of earners, the effective tax rate decreased from 30 percent between 2010 and 2017 to 23.8 percent in the period from 2018 to 2020. The authors attributed this decline to wealthy individuals being able to shelter more business income and benefit from lower tax rates on reported income.
“When taking a comprehensive view of taxation and income, ultra-high-net-worth individuals appear less taxed than the average American,” the researchers concluded.
These findings are detailed in “How Much Tax Do U.S. Billionaires Pay? Evidence from Administrative Data,” a working paper published by the National Bureau of Economic Research. The research team included UC Berkeley economists Emmanuel Saez, Danny Yagan, Gabriel Zucman, and Ph.D. student Akcan S. Balkir.
The methods used in this study have been recognized for their innovation, and its results are expected to influence ongoing debates about U.S. tax policy and economic inequality.
The U.S. tax system has long aimed to be progressive, requiring higher earners to pay higher rates. However, while overall wealth among America’s richest has grown significantly in recent decades, the research indicates that when all forms of taxation are considered together, the ultra-wealthy pay a lower rate than many less affluent citizens.
For instance, during 2018-2020, the top 100 wealthiest Americans had an overall effective tax rate of 22 percent; for the next 300 it was 26.6 percent. In contrast, those earning primarily through wages or salaries faced an effective rate of 45 percent.
Across all Americans during this period—the last three years of President Donald Trump’s first term—the average effective tax rate stood at 30.2 percent.
The study also observed that corporate taxes paid by these top earners on their businesses fell by one-third between 2014-2017 and 2018-2020—a change linked to a reduction in the federal corporate tax rate from 35 percent to 21 percent starting in 2018 (https://www.taxpolicycenter.org/briefing-book/how-did-tax-cuts-and-jobs-act-change-business-taxes).
As a result of accumulating wealth among this group, they now collectively own assets equal to one-fifth of U.S. gross domestic product (GDP). According to Forbes data cited by the authors, when its list began in 1982, these top earners held just under one percent of total household wealth; today that figure is over four percent (https://www.forbes.com/sites/chasewithorn/2023/09/28/the-forbes-400-the-definitive-ranking-of-the-wealthiest-americans-in-2023/?sh=7d1b5c0639a9). In terms of GDP share, their holdings have increased tenfold since then—from two percent in 1982 up to twenty percent now—mainly due to gains among the richest hundred Americans.
Researchers calculated these figures using administrative data such as individual and business tax records—including foreign corporate taxes—offering what they describe as a more complete assessment than previous studies relying only on personal income tax returns.
According to the authors, this is likely the first time such precise estimates have been made for any country.
