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tax the rich
The Tax Foundation’ Misleading Math Overstates How Much Billionaires Really Pay
By taking into account corporate taxes while ignoring corporate income, the foundation’s methodology drives up effective income tax rates for the super rich only because these rich happen to own a massive amount of corporate stock.
Mar 04, 2025
An income tax rate of over 100% would be hard for anyone to sustain. At a rate a smidge over 100%, our deepest pockets might be able to get by if they drew down their wealth or borrowed against it. But keeping up, year in and year out, with an income tax rate of over 1,000%, 10 times income? That seems, on its face, totally implausible.
Yet the Washington, D.C.-based Tax Foundation would have us believe Warren Buffett did just that for at least five years running, all while enormously growing his own personal wealth.
This conclusion about Buffett’s tax situation emerges inescapably out of the claims the Tax Foundation makes in a research paper published just after last year’s November election. The paper’s title—America’s Super Rich Pay Super Amounts of Taxes, New Treasury Report Finds—could hardly lay out the Tax Foundation’s case more starkly.
Shareholders don’t pay corporate income tax obligations. Corporations do, from their corporate income.
But did the U.S. Department of the Treasury report the Tax Foundation paper references actually make such a finding? No, not even close.
The Treasury report does analyze the total tax payments of rich and ultra-rich taxpayers relative to their wealth. The report’s writers, all highly respected economists, took into account every tax that impacts a person’s wealth, directly or indirectly. One example: A corporate shareholder bears no personal responsibility for the payment of a corporation’s income tax. But the Treasury report attributes a proportionate share of that corporate tax to shareholders since corporate taxes reduce the value of shareholders’ holdings and, consequently, their wealth.
The Tax Foundation took this Treasury analysis of total tax payments by wealthy taxpayers and proceeded to blindly compare those payments to these taxpayers’ adjusted gross incomes. That comparison enables the Tax Foundation to insist, among other claims, that the nation’s richest 0.0001% of taxpayers are paying 58% of their adjusted gross incomes in taxes.
I didn’t find this specious Tax Foundation logic particularly surprising, given that I’ve commented in the past on the specious logic that runs through other Tax Foundation studies. But this new Tax Foundation paper vividly exposes how accepting the foundation’s logic and applying that logic to real life produces results so absurd that they demand some in-depth illumination.
Which brings us back to Mr. Buffett. Thanks to reporting by the independent news outlet ProPublica and publicly available information on the income tax payments of Berkshire Hathaway, Buffett’s corporate investment base, we have considerable data on Buffett’s adjusted personal gross income, his ownership interest in Berkshire Hathaway from 2014 through 2018, and the income tax payments Berkshire made in each of those years.
We don’t have full information about Buffett’s other tax obligations, but let’s assume those obligations amounted to zero, since any additional payments would only have driven Buffett’s effective tax rate, according to the Tax Foundation’s methodology, even higher.
Warren Buffett’s ownership interest in Berkshire Hathaway—as reported in SEC filings for the years 2014, 2015, 2016, 2017, and 2018—amounted to 20.5% that first year, 19.6% the next, and then 18.7%, 17.9%, and 17.2% the last three.
According to the data service macrotrends, Berkshire Hathaway’s income tax payments minus refunds for those years totaled $7.9 billion in 2014, $10.5 billion in 2015, and $9.2 billion in 2016 before sinking into refund territory in both 2017 and 2018, with $21.5 billion in refunds the first of those two years and $321 million the second.
Applying the Tax Foundation’s methodology would attribute to Buffett a share of Berkshire’s taxes paid—and refunds received—by multiplying his ownership stake in the corporation for each of the years by the corporate tax payment made or refund received for that year. Doing the math, Buffett ends up with a personal tax liability from Berkshire of over $1.5 billion.
That figure tops by more than 10 times Buffett’s adjusted personal gross income of $125 million for that same period, according to a ProPublicareview of IRS records. The bottom line: All these numbers that we get applying the Tax Foundation’s methodology bring Buffett’s effective personal income tax rate to just over 1,200%.
And Buffett would end up having paid taxes at that rate, according to the Tax Foundation methodology, at a time when Berkshire’s income tax payments, net of refunds, were running relatively low. In 2017, the massive hurricanes Harvey, Irma, and Maria had Berkshire’s insurance businesses incurring huge losses. Without those losses, and the tax refunds resulting from them, Buffett’s effective personal tax rate—according to the Tax Foundation methodology—would have topped over 4,000%!
Impossible? Of course. So what sleight of hand is the Tax Foundation playing here? Corporate income tax payments do reduce the wealth of their shareholders. Attributing a share of those tax payments to shareholders, as the original Treasury Department study does, makes eminent sense. But shareholders don’t pay corporate income tax obligations. Corporations do, from their corporate income. The Tax Foundation, for its part, doesn’t attribute corporate income to shareholders. It only attributes corporate tax.
By taking into account corporate taxes while ignoring corporate income, the Tax Foundation’s methodology drives up effective income tax rates for the super rich only because these rich happen to own a massive amount of corporate stock. We can better understand the dynamics at play here by considering the tax situations of business owners far from billionaire status.
Consider this comparison: Taxpayers A and B each own a profitable business that generates $49,999 of income in 2025. They each reinvest all business profits in their businesses, living off the savings they have sitting in tax-exempt bonds. A and B each have $1 of other income. A, who owns his business directly, reports the profits on his personal tax return, along with his dollar of other income, and pays $10,500 in tax. His effective tax rate is 21%.
B, who owns her business through a corporation, reports the profits on the corporation’s tax return, and the corporation pays $10,500 in tax. Since B’s own adjusted gross income is just one dollar, B’s effective tax rate according to the Tax Foundation would be 1,050,000%, 50,000 times A’s effective tax rate.
In its reporting, ProPublica also considered Warren Buffett’s effective income tax rate. Taking his personal federal income tax payments as a percentage of his true economic income, including the $24.3 billion increase in his wealth between 2014 and 2018, ProPublica determined his effective income tax rate to be 0.1%. Quite a far cry from 1,200%.
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Progressives Launch 'Tax the Greedy Billionaires' Coalition to Counter Trump-GOP Agenda
"Enough with the attacks on working people in order to fund billionaire tax cuts," said Rep. Greg Casar (D-Texas). "Tax the billionaires instead of funding the billionaires."
Feb 25, 2025
As House Republicans prepared to vote Tuesday on a budget blueprint that calls for ravaging Medicaid and other programs to help fund trillions of dollars in tax breaks for the wealthy, progressive lawmakers joined community members and organizers outside of the U.S. Capitol to launch a new coalition demanding a radically different approach.
"Enough with the attacks on working people in order to fund billionaire tax cuts," Rep. Greg Casar (D-Texas), chair of the Congressional Progressive Caucus, said at a press conference. "Just tax the billionaires instead of funding the billionaires."
Speakers at Tuesday's event cast the "Tax the Greedy Billionaires" coalition—which includes People's Action, MoveOn, and other advocacy groups—as a direct challenge to President Donald Trump and congressional Republicans' legislative agenda, particularly the push for $4.5 trillion tax cuts primarily for the wealthiest Americans, financed by deep cuts to Medicaid, federal nutrition assistance, and other key programs.
"The Republican plan is about making government more efficient for big corporations and billionaires who are screwing us over," said Casar. "We don't need to cut Social Security; we can expand it. We don't need to cut people's healthcare; we can expand it. We can have a country that is better off for small businesses and workers alike."
LIVE: The Congressional Progressive Caucus Holds Tax the Greedy Billionaires Press Conference https://t.co/ZCKGk61r1a
— Congressman Greg Casar (@RepCasar) February 25, 2025
The press conference included remarks from organizers who warned the House GOP's proposed $880 billion Medicaid cuts over the next 10 years would have devastating—and potentially deadly—impacts on their communities.
"Medicaid afforded me the opportunity to get on life-saving medication," said Elissa Tierney, co-founder of an organization that helps people negatively impacted by substance addiction. "I am asking, begging: Please protect these programs."
"If your vote is going to result in someone dying or losing their home," Tierney added, "vote no."
A full House vote on the budget blueprint, which Trump has endorsed, could come as soon as Tuesday evening, though there could be delays caused by divisions in the narrow Republican majority as GOP lawmakers face mounting constituent backlash in their home districts.
Politiconoted Tuesday that House Speaker Mike Johnson (R-La.) "faces some bleak arithmetic: No Democrats are expected to back the budget plan, and if all members are present and voting, he can lose only one Republican and still approve it."
"Do not take your eye off the ball—and the ball is always the money."
In a letter to members of Congress on Tuesday, the new coalition urged lawmakers not to "slash programs that working families depend on."
"Tax the greedy billionaires now," the letter adds. "The American Dream is dying in a system where unlimited wealth for the few destroys opportunity for all."
Last month, according to an analysis unveiled Monday, the world's billionaires saw their collective wealth surge by $314 billion—roughly $10 billion per day.
The GOP's proposed extension of expiring provisions of their 2017 tax law would be a major boon to billionaires in the United States, who saw their wealth skyrocket in the years following the law's enactment.
"Republicans are not thinking about regular people ever," Rep. Becca Balint (D-Vt.) said at Tuesday's press conference. "It's about who's at the top who we can give more money to while the rest of us are scrapping around for every little bit that we can get. It's not right."
"Do not take your eye off the ball—and the ball is always the money," Balint added. "Who has the money, who's getting the money, and how are the rest of us being screwed."
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What Would Be a Truly Fair Way to Tax Capital Gains?
The Billionaires Income Tax proposal that Sen. Ron Wyden (D-Ore.) introduced last year would require billionaires to pay tax annually on the growth in their wealth—in the same way the rest of us pay tax on our salaries and wages.
Feb 19, 2025
America’s policymakers have been debating for decades now the fairness of the preferential tax rate for capital gains. The maximum federal income tax rate applicable to long-term capital gains currently sits a whopping 17 percentage points lower than the maximum rate applicable to ordinary income: 20% on long-term gains versus 37% on ordinary income.
Let’s note here at the outset that both ordinary income and capital gains may be subject to federal employment tax or the net investment income tax. But including those additional taxes does not change the essential tax-time gap between ordinary and capital gains income. So, for simplicity’s sake, let’s just here consider the gap between the 20 and 37% rates.
Eliminating the preferential rate for capital gains, many analysts maintain, would finally place investment income and wages on an equal footing tax-wise. But would that actually be the case? Unfortunately, no. Simply equalizing the basic tax rates on ordinary and capital gains income would leave in place the gaping “buy-hold for decades-sell” loophole.
If you had to choose between paying tax at 10% annually or paying 10% every 10 years, would you consider those two rates equal?
The framing of the debate over the current preferential treatment for capital gains makes this loophole quite difficult to notice. And that same framing leaves us accepting, incorrectly, the implied premise that the low nominal tax rate rich investors pay on their capital gains—barely half the rate applicable to other types of income—accurately describes the tax rate in an economic sense.
If we continue to focus solely on whether the 20% rate applied to billionaire gains should be raised to 37%, in other words, we won’t be questioning that accuracy.
A similar phenomenon arises when we’re discussing billionaire wealth. Most of us see the obscene fortunes of the world’s billionaires, as reported by Forbes and Bloomberg, and seldom consider the possibility that many of those fortunes may actually be higher than the published estimates. But think a moment: If you held a billion-dollar fortune and wanted to keep your tax bill as low as possible, would you want policymakers knowing the full extent of your wealth? Of course not.
But most of the rest of us don’t ask that question. We see a deep pocket’s wealth estimated at, say, $50 billion—about 50,000 times more than our own $100,000 net worth—and the last thought to enter our minds would be that this deep pocket’s wealth might really stand at $75 billion.
Just as the bloated level of estimates of billionaire fortunes causes us not to consider the possibility those fortunes may be actually even larger, the low tax rate nominally applicable to capital gains income leaves us unlikely to fully compare tax rates on ordinary and capital gains income.
The key to understanding how to make better comparisons: taking tax frequency into account.
Most of the income Americans make—wages and salaries, most notably—gets taxed annually. Capital gains, by contrast, get taxed only when the holders of investment assets decide to sell them. That reality turns a simple comparison of the 20% tax rate on capital gains with the 37% top tax rate on ordinary income into an apples-to-oranges comparison.
Or to put things another way: If you had to choose between paying tax at 10% annually or paying 10% every 10 years, would you consider those two rates equal?
We can overcome the difficulty in comparing the tax rates on ordinary and capital gains income once we begin to understand why we cannot consider these two situations the same.
Consider, for starters, what your tax liability would be if you inadvertently understated your income from a small business on your tax return by $50,000 and then reported the missing income three years later. You would end up paying the IRS not just the tax you should have paid on that income, but an interest charge as well—for deferring the payment of tax beyond the year you earned your income.
For the sake of discussion, let’s say you were required to pay $10,000 in tax and $2,500 in interest. You would then have paid tax at an overall 20% rate.
Now compare that to the situation your rich friend encountered. She invested $50,000 in stocks and held that investment for four years. Say that investment doubled in value, to $100,000, in the first year—the same year you earned the $50,000 of income you failed to report—and then held that value for another three years. If your friend then sold her investment and paid tax at the 20% rate applicable to capital gains, she could claim to have paid tax at the same 20% rate you did.
But would that be accurate? Not really. Economically, your friend has obviously paid tax at a lower rate than you. Yes, you both realized $50,000 of income in the same year and you both paid tax on that income three years later. But you paid a total of $12,500, including interest, while she paid only $10,000.
What happened here? Economically, your friend’s $10,000 tax payment includes a charge for the privilege of deferring the payment of tax. By contrast, our tax system considers your $2,500 deferral charge on your $10,000 obligation a separate item. To make the comparison apples-to-apples, then, we might consider your friend to have paid tax at an effective annual rate of 16%, $8,000, plus a $2,000 deferral fee.
Now consider the case where you received your $50,000 of income—along with additional income necessary to place you in the top marginal tax bracket—in the same year your friend sold her $50,000 investment for $100,000, rather than the year she purchased it.
You would have paid tax on your $50,000 at the marginal rate of 37%, a total of $18,500—and likely have been laser-focused on having had to pay nearly double the tax rate that your ultra-rich friend paid–37% versus 20%—on the same $50,000 of income. In all likelihood, you would at the same time have failed to focus on the reality that the 20% rate applied to your friend’s gain actually overstated the rate she paid in comparison to the rate you paid.
Let’s expand our financial horizon. Say a rich investor purchases an asset for $1 million. Over the next 30 years, that asset grows in value at a steady pace of 10% per year, an average-ish return for a rich American investor. At the end of the 30 years, the asset would be worth about $17,450,000. If the investor then sold the asset and paid tax at 20% on the $16,450,000 gain, a total tax of $3,290,000, he would be left with about $14,160,000.
Suppose instead our investor had to pay tax annually on each year’s investment gains at the rate of just 7.65%. Suppose our investor each year sold a portion of the investment sufficient to pay the tax liability. At the end of the 30 years, the investor will have paid a total of $1,090,000 in tax and be left with the same amount, $14,160,000, that he would have been left with after paying tax at 20% upon a sale in year 30.
Why the $2,200,000 difference between the $3,290,000 total paid when taxed in year 30 and the $1,090,000 total paid when taxed annually? In economic terms, that’s what the investor paid for the privilege of not paying tax until year 30. In other words, interest.
Removing what economically amounts to a charge for the privilege of deferring tax allows us to make an apples-to-apples comparison. The investor effectively has paid tax at a rate of 6.63%. That’s a 30.37 percentage-point difference between the investor’s effective rate of tax and the 37% top tax rate on ordinary income.
How much would that 30.37 percentage-point gap be reduced if the investor’s $16.45 million gain were taxed at a 37% rate when he sold his investment after 30 years? About five percentage points. Of the investor’s 37% nominal tax rate—using the same method of analysis—about 25.34 percentage points would constitute interest, leaving only 11.66 percentage points, economically, as tax.
Should we equalize the tax rates applicable to capital gains and ordinary income? Absolutely. But let’s not kid ourselves. Making that change will not remotely eliminate the preferential tax treatment accorded to capital gains. We need a further change, at least for the billionaire class.
The Billionaires Income Tax proposal that Sen. Ron Wyden (D-Ore.) introduced last year would require billionaires to pay tax annually on the growth in their wealth—in the same way the rest of us pay tax on our salaries and wages. It’s high time to close the “buy-hold for decades-sell” loophole. Sen. Wyden’s Billionaires Income Tax would be one way to do just that.
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