Microsoft co-founder Bill Gates speaks on November 6, 2019 in New York City. (Photo: Michael Cohen/Getty Images/The New York Times)
ProPublica's latest expose of inequitable taxation shows that the 400 most lavishly paid people in the U.S. don't pay the highest income tax rates--a finding that progressives say demonstrates the need to overhaul the nation's tax code and make the ultra-wealthy pay their fair share.
"Because our tax code favors wealth over work, billionaire money managers can pay lower rates than affluent doctors, lawyers, and manufacturers."
"In theory, our tax system is designed to tax the rich at higher rates than everyone else," ProPublica noted Wednesday. "That's not the way it works at the loftiest incomes."
"The data reveals a system where the very highest earners, on average, pay far lower tax rates than the merely affluent do," the news outlet reported. "And even among the top 400, some groups have it better than others: Tech billionaires pay rates well below even other business owners."
A cache of Internal Revenue Service (IRS) data obtained last year by the nonprofit newsroom revealed which 400 people in the U.S. had the highest incomes from 2013 to 2018. Ten of the top 15 were tech billionaires whose income usually came from selling stock. Hedge fund managers made up a fifth of the top 400, while the founders and executives of private equity firms and the heirs to massive fortunes were also well represented.
Cracking the list required an average income of $110 million per year--orders of magnitude higher than the annual earnings of members of the top 5% (at least $198,000) and the top 1% (at least $485,000).
A typical American who makes $40,000 annually would have to work for 2,750 years to bring in what the lowest-earning member of the top 400 made in one. Meanwhile, each of the top 11 had an average yearly income of more than $1 billion--a sum it would take a typical American 25,000 years to amass.
And yet, these 400 people who raked in at least $110 million per year tended to pay federal income taxes at a lower rate than other millionaires. On average, the top 400 paid an effective income tax rate of 22% from 2013 to 2018--just slightly higher than people who earned $200,000 to $500,000 per year.
That's because "in the American system, there's a huge difference between how we tax wages and how we tax investments," ProPublica explained. "Income from financial assets is generally taxed at a lower rate."
"On average, the rate of income tax that people pay does climb as incomes ascend into the top 1%, but when you get to the range of $2 million to $5 million, that trend stops," the news outlet reported. "The group earning in this range, composed mostly of business owners and workers with extremely high salaries, paid an average income tax rate of 29% from 2013 to 2018. After that, average tax rates actually drop the further up in income you go."
Frank Clemente, executive director of Americans for Tax Fairness, wrote on social media that "because our tax code favors wealth over work, billionaire money managers can pay lower rates than affluent doctors, lawyers, and manufacturers."
According to ProPublica, "Many of the top 400 hit the sweet spot of high incomes and low taxes on much of that income... Their income mostly stems from stock sales taxed at the lower rate. Since 2013, that long-term capital gains rate has been 20%, about half the top rate on ordinary income (37% in 2018)."
The news outlet added:
Taxing long-term capital gains at lower rates than income is not new. The U.S. has done so for most of the past century. But in 2003, under President George W. Bush, that special rate was extended to most stock dividends, or money paid out to owners of a company's stock, for the first time in U.S. history.
That change particularly benefited the wealthy. Together, the top 400 saved an average of $1.9 billion in taxes each year--due solely to the lower rate on dividends.
In addition to benefiting from a lower tax rate on investment income, the super-rich often reduce their taxable income through major deductions.
For example, tech billionaires "often made large charitable donations from their stock holdings," ProPublica reported. "A generous provision of the tax code allows them to deduct the full value of the stock at its current price--without having to sell it and pay capital gains tax."
Several billionaires are so adept at using financial accounting tricks to slash their taxable income that they weren't included on the list of top 400 highest earners.
"Some, especially in real estate and oil and gas, use write-offs to erase taxable income," ProPublica noted. Others, such as Warren Buffett--the fifth-richest person in the world with an estimated net worth of $118 billion but whose annual income is $27 million--"simply avoid income even as their wealth rises. Billionaires often use the "Buy, Borrow, Die" method: They borrow against their wealth to avoid taxes, then their estates are able to skirt taxes after their deaths."
As the report makes clear, multimillionaires generally pay higher income tax rates than ordinary working people in the U.S. However, most workers pay more in payroll taxes--Social Security and Medicare contributions automatically deducted from each paycheck--than income taxes.
Because wages constitute a small share of their total income, wealthy people tend to pay relatively little in payroll taxes. Low- and middle-income workers, by contrast, are hit disproportionately hard by them.
As a result, payroll taxes "can wipe out the progressivity of income taxes," ProPublica pointed out. "It's common for wage earners to pay a higher rate of personal federal taxes than even the highest-earning Americans."
"As we showed last year, the richest avoid income when they can," ProPublica reported. "Then they pay very little in tax when it's measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a "true tax rate," as we called it, of 3.4%. Even the conventional income tax rate for this top 25 is remarkably low: 16%."
Patriotic Millionaires--a network of wealthy Americans advocating for raising taxes on the members of their class, especially the few dozen who have catapulted to a stratosphere by themselves--responded to the report by saying that "it's time to tax billionaires."
President Joe Biden recently proposed a 20% minimum tax rate on all U.S. households worth more than $100 million--projected to raise approximately $360 billion over a decade if enacted. However, right-wing Democratic Sen. Joe Manchin (W.Va.) has already expressed his opposition to the measure, which is also highly unlikely to garner the support of congressional Republicans.
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ProPublica's latest expose of inequitable taxation shows that the 400 most lavishly paid people in the U.S. don't pay the highest income tax rates--a finding that progressives say demonstrates the need to overhaul the nation's tax code and make the ultra-wealthy pay their fair share.
"Because our tax code favors wealth over work, billionaire money managers can pay lower rates than affluent doctors, lawyers, and manufacturers."
"In theory, our tax system is designed to tax the rich at higher rates than everyone else," ProPublica noted Wednesday. "That's not the way it works at the loftiest incomes."
"The data reveals a system where the very highest earners, on average, pay far lower tax rates than the merely affluent do," the news outlet reported. "And even among the top 400, some groups have it better than others: Tech billionaires pay rates well below even other business owners."
A cache of Internal Revenue Service (IRS) data obtained last year by the nonprofit newsroom revealed which 400 people in the U.S. had the highest incomes from 2013 to 2018. Ten of the top 15 were tech billionaires whose income usually came from selling stock. Hedge fund managers made up a fifth of the top 400, while the founders and executives of private equity firms and the heirs to massive fortunes were also well represented.
Cracking the list required an average income of $110 million per year--orders of magnitude higher than the annual earnings of members of the top 5% (at least $198,000) and the top 1% (at least $485,000).
A typical American who makes $40,000 annually would have to work for 2,750 years to bring in what the lowest-earning member of the top 400 made in one. Meanwhile, each of the top 11 had an average yearly income of more than $1 billion--a sum it would take a typical American 25,000 years to amass.
And yet, these 400 people who raked in at least $110 million per year tended to pay federal income taxes at a lower rate than other millionaires. On average, the top 400 paid an effective income tax rate of 22% from 2013 to 2018--just slightly higher than people who earned $200,000 to $500,000 per year.
That's because "in the American system, there's a huge difference between how we tax wages and how we tax investments," ProPublica explained. "Income from financial assets is generally taxed at a lower rate."
"On average, the rate of income tax that people pay does climb as incomes ascend into the top 1%, but when you get to the range of $2 million to $5 million, that trend stops," the news outlet reported. "The group earning in this range, composed mostly of business owners and workers with extremely high salaries, paid an average income tax rate of 29% from 2013 to 2018. After that, average tax rates actually drop the further up in income you go."
Frank Clemente, executive director of Americans for Tax Fairness, wrote on social media that "because our tax code favors wealth over work, billionaire money managers can pay lower rates than affluent doctors, lawyers, and manufacturers."
According to ProPublica, "Many of the top 400 hit the sweet spot of high incomes and low taxes on much of that income... Their income mostly stems from stock sales taxed at the lower rate. Since 2013, that long-term capital gains rate has been 20%, about half the top rate on ordinary income (37% in 2018)."
The news outlet added:
Taxing long-term capital gains at lower rates than income is not new. The U.S. has done so for most of the past century. But in 2003, under President George W. Bush, that special rate was extended to most stock dividends, or money paid out to owners of a company's stock, for the first time in U.S. history.
That change particularly benefited the wealthy. Together, the top 400 saved an average of $1.9 billion in taxes each year--due solely to the lower rate on dividends.
In addition to benefiting from a lower tax rate on investment income, the super-rich often reduce their taxable income through major deductions.
For example, tech billionaires "often made large charitable donations from their stock holdings," ProPublica reported. "A generous provision of the tax code allows them to deduct the full value of the stock at its current price--without having to sell it and pay capital gains tax."
Several billionaires are so adept at using financial accounting tricks to slash their taxable income that they weren't included on the list of top 400 highest earners.
"Some, especially in real estate and oil and gas, use write-offs to erase taxable income," ProPublica noted. Others, such as Warren Buffett--the fifth-richest person in the world with an estimated net worth of $118 billion but whose annual income is $27 million--"simply avoid income even as their wealth rises. Billionaires often use the "Buy, Borrow, Die" method: They borrow against their wealth to avoid taxes, then their estates are able to skirt taxes after their deaths."
As the report makes clear, multimillionaires generally pay higher income tax rates than ordinary working people in the U.S. However, most workers pay more in payroll taxes--Social Security and Medicare contributions automatically deducted from each paycheck--than income taxes.
Because wages constitute a small share of their total income, wealthy people tend to pay relatively little in payroll taxes. Low- and middle-income workers, by contrast, are hit disproportionately hard by them.
As a result, payroll taxes "can wipe out the progressivity of income taxes," ProPublica pointed out. "It's common for wage earners to pay a higher rate of personal federal taxes than even the highest-earning Americans."
"As we showed last year, the richest avoid income when they can," ProPublica reported. "Then they pay very little in tax when it's measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a "true tax rate," as we called it, of 3.4%. Even the conventional income tax rate for this top 25 is remarkably low: 16%."
Patriotic Millionaires--a network of wealthy Americans advocating for raising taxes on the members of their class, especially the few dozen who have catapulted to a stratosphere by themselves--responded to the report by saying that "it's time to tax billionaires."
President Joe Biden recently proposed a 20% minimum tax rate on all U.S. households worth more than $100 million--projected to raise approximately $360 billion over a decade if enacted. However, right-wing Democratic Sen. Joe Manchin (W.Va.) has already expressed his opposition to the measure, which is also highly unlikely to garner the support of congressional Republicans.
ProPublica's latest expose of inequitable taxation shows that the 400 most lavishly paid people in the U.S. don't pay the highest income tax rates--a finding that progressives say demonstrates the need to overhaul the nation's tax code and make the ultra-wealthy pay their fair share.
"Because our tax code favors wealth over work, billionaire money managers can pay lower rates than affluent doctors, lawyers, and manufacturers."
"In theory, our tax system is designed to tax the rich at higher rates than everyone else," ProPublica noted Wednesday. "That's not the way it works at the loftiest incomes."
"The data reveals a system where the very highest earners, on average, pay far lower tax rates than the merely affluent do," the news outlet reported. "And even among the top 400, some groups have it better than others: Tech billionaires pay rates well below even other business owners."
A cache of Internal Revenue Service (IRS) data obtained last year by the nonprofit newsroom revealed which 400 people in the U.S. had the highest incomes from 2013 to 2018. Ten of the top 15 were tech billionaires whose income usually came from selling stock. Hedge fund managers made up a fifth of the top 400, while the founders and executives of private equity firms and the heirs to massive fortunes were also well represented.
Cracking the list required an average income of $110 million per year--orders of magnitude higher than the annual earnings of members of the top 5% (at least $198,000) and the top 1% (at least $485,000).
A typical American who makes $40,000 annually would have to work for 2,750 years to bring in what the lowest-earning member of the top 400 made in one. Meanwhile, each of the top 11 had an average yearly income of more than $1 billion--a sum it would take a typical American 25,000 years to amass.
And yet, these 400 people who raked in at least $110 million per year tended to pay federal income taxes at a lower rate than other millionaires. On average, the top 400 paid an effective income tax rate of 22% from 2013 to 2018--just slightly higher than people who earned $200,000 to $500,000 per year.
That's because "in the American system, there's a huge difference between how we tax wages and how we tax investments," ProPublica explained. "Income from financial assets is generally taxed at a lower rate."
"On average, the rate of income tax that people pay does climb as incomes ascend into the top 1%, but when you get to the range of $2 million to $5 million, that trend stops," the news outlet reported. "The group earning in this range, composed mostly of business owners and workers with extremely high salaries, paid an average income tax rate of 29% from 2013 to 2018. After that, average tax rates actually drop the further up in income you go."
Frank Clemente, executive director of Americans for Tax Fairness, wrote on social media that "because our tax code favors wealth over work, billionaire money managers can pay lower rates than affluent doctors, lawyers, and manufacturers."
According to ProPublica, "Many of the top 400 hit the sweet spot of high incomes and low taxes on much of that income... Their income mostly stems from stock sales taxed at the lower rate. Since 2013, that long-term capital gains rate has been 20%, about half the top rate on ordinary income (37% in 2018)."
The news outlet added:
Taxing long-term capital gains at lower rates than income is not new. The U.S. has done so for most of the past century. But in 2003, under President George W. Bush, that special rate was extended to most stock dividends, or money paid out to owners of a company's stock, for the first time in U.S. history.
That change particularly benefited the wealthy. Together, the top 400 saved an average of $1.9 billion in taxes each year--due solely to the lower rate on dividends.
In addition to benefiting from a lower tax rate on investment income, the super-rich often reduce their taxable income through major deductions.
For example, tech billionaires "often made large charitable donations from their stock holdings," ProPublica reported. "A generous provision of the tax code allows them to deduct the full value of the stock at its current price--without having to sell it and pay capital gains tax."
Several billionaires are so adept at using financial accounting tricks to slash their taxable income that they weren't included on the list of top 400 highest earners.
"Some, especially in real estate and oil and gas, use write-offs to erase taxable income," ProPublica noted. Others, such as Warren Buffett--the fifth-richest person in the world with an estimated net worth of $118 billion but whose annual income is $27 million--"simply avoid income even as their wealth rises. Billionaires often use the "Buy, Borrow, Die" method: They borrow against their wealth to avoid taxes, then their estates are able to skirt taxes after their deaths."
As the report makes clear, multimillionaires generally pay higher income tax rates than ordinary working people in the U.S. However, most workers pay more in payroll taxes--Social Security and Medicare contributions automatically deducted from each paycheck--than income taxes.
Because wages constitute a small share of their total income, wealthy people tend to pay relatively little in payroll taxes. Low- and middle-income workers, by contrast, are hit disproportionately hard by them.
As a result, payroll taxes "can wipe out the progressivity of income taxes," ProPublica pointed out. "It's common for wage earners to pay a higher rate of personal federal taxes than even the highest-earning Americans."
"As we showed last year, the richest avoid income when they can," ProPublica reported. "Then they pay very little in tax when it's measured against their growing wealth. The top 25 wealthiest Americans got $401 billion richer from 2014 to 2018, but paid just $13.6 billion in federal income taxes, a "true tax rate," as we called it, of 3.4%. Even the conventional income tax rate for this top 25 is remarkably low: 16%."
Patriotic Millionaires--a network of wealthy Americans advocating for raising taxes on the members of their class, especially the few dozen who have catapulted to a stratosphere by themselves--responded to the report by saying that "it's time to tax billionaires."
President Joe Biden recently proposed a 20% minimum tax rate on all U.S. households worth more than $100 million--projected to raise approximately $360 billion over a decade if enacted. However, right-wing Democratic Sen. Joe Manchin (W.Va.) has already expressed his opposition to the measure, which is also highly unlikely to garner the support of congressional Republicans.