For far too long, our economy has rewarded wealth instead of work—catering to the richest Americans and biggest corporations at the expense of ordinary people. At the center of that system is a tax code that allows the wealthy to avoid paying their fair share. And while we have long known that billionaires don’t pay enough in taxes, the lack of transparency in our tax system means that much less is known about the income tax rate that they do pay.
Today, we’re releasing a new analysis that draws on a range of publicly available data to shed light on this question. The analysis from OMB and CEA economists estimates that the wealthiest 400 billionaire families in America paid an average of just 8.2 percent of their income—including income from their wealth that goes largely untaxed—in Federal individual income taxes between 2010 and 2018. That’s a lower rate than many ordinary Americans pay.
This disparity is driven largely by the way our tax code treats income generated from wealth—that is, income from assets like stocks that increase in value over time. When a middle class American earns a dollar of wages, that dollar is taxed immediately. But when a billionaire makes a dollar because their stocks increase in value, that dollar is taxed at a preferred rate—if it’s ever taxed at all. If a wealthy investor never sells an asset that has increased in value, those investment gains are entirely ignored for income tax purposes when the assets are passed on to an heir, thanks to stepped-up basis. And while untaxed capital gains income is dramatically smaller than wage income for most families—for example, about half of all Americans don’t own any stock, including in retirement accounts—it looms large for the wealthiest 400 families, who according to the Forbes 400 had at least $2.1 billion in wealth in 2018, the final year of this analysis. Analyses that ignore this type of income from wealth for billionaires will necessarily overstate their real income tax rates.
As the President said last week, the wealthy have to start paying their fair share of taxes. For decades, our economy has worked great for those at the very top, while hardworking Americans who built this country have been cut out of the deal and left behind. The President’s Build Back Better agenda will help give working people a fair shot and restore fairness to our tax code—closing the loophole that allows income from assets to go untaxed forever and increasing the capital gains tax rate for the most fortunate. And it would also provide an historic middle-class tax cut—paid for by making those at the top pay their fair share—while ensuring that no one making under $400,000 a year pays a dollar more in taxes.