New research from the University of California, Berkeley, indicates that the 400 wealthiest Americans now pay a lower percentage of their income in taxes than the average American. The study found that the effective tax rate for this group fell from 30 percent between 2010 and 2017 to 23.8 percent during 2018–2020.
The research, titled “How Much Tax Do U.S. Billionaires Pay? Evidence from Administrative Data,” was published as a working paper by the National Bureau of Economic Research. It was conducted by UC Berkeley economists Emmanuel Saez, Danny Yagan, Gabriel Zucman, and Ph.D. student Akcan S. Balkir.
“When taking a comprehensive view of taxation and income, ultra-high-net-worth individuals appear less taxed than the average American,” the authors wrote.
The study suggests that the ultra-wealthy have managed to reduce their overall tax burden by sheltering more business income and paying lower rates on reported income. For instance, among the top 100 wealthiest Americans during 2018–2020, the effective tax rate was 22 percent; for the next 300, it was higher at 26.6 percent. Those whose wealth comes primarily from wages or salaries paid an effective tax rate of 45 percent.
In comparison, the effective tax rate for all Americans during this period stood at 30.2 percent.
Researchers also noted a significant decline in corporate taxes paid by these wealthy individuals’ businesses after federal law reduced the corporate tax rate from 35 percent to 21 percent in 2018. The amount paid dropped by one-third between two periods: 2014–2017 and 2018–2020.
According to Forbes magazine data cited in the report, when its first list of America’s richest was published in 1982, these individuals owned just under one percent of total household wealth in the country. Today, they own over four percent. Measured against gross domestic product (GDP), their share rose from two percent in 1982 to about twenty percent today.
The researchers used administrative tax statistics and financial documents—going beyond individual income tax returns—to create what they describe as an unprecedentedly precise assessment of taxes paid by this group.
“It appears to be the first time researchers have been able to achieve such a precise assessment for any country,” according to the authors.
