Taking cues from his economic advisers, President Joe Biden has announced a proposed 25 percent minimum tax on the rich as the centerpiece of his “Bidennomics” plan. This “billionaires tax,” which he outlined in a speech last month, is based on the notion that the U.S. tax system gives too many leeway to the highest earners. As Biden claimed in his remarks, “Billionaires on average pay – guess what? – less than 8 percent in federal taxes – less than 8 percent on an annual basis. To clarify the issue, the President declared That it has a “lower federal tax rate than a firefighter, a teacher, a policeman”.Thank you for reading this post, don't forget to subscribe!
Biden’s arguments are aimed at convincing his listeners that the federal tax system is highly regressive, punishing the working class at the behest of the rich. However, his stats are complete nonsense.
According to Congressional Budget Office data for 2019 (the most recent year with data), the heaviest tax burden still falls on the highest income earners. The top 1 percent of filers pay an average federal tax rate of 30 percent. This number is also among the very rich. If we restrict our subset to just the top 0.01 percent of earners, a category that typically applies to people with multimillion-dollar annual salaries, CBO estimates the average federal tax rate is 30.2 percent.
By contrast, the average tax rate on the lowest quintile of filers was just 0.5 percent in 2019 — the result of a generous tax credit designed to relieve the poor of nearly their entire federal tax burden. The second lowest quintile paid an average rate of only 8.9 percent in federal taxes.
Source: Congressional Budget Office
As we can see in the data, the story for President Biden is exactly the opposite. The average wealthy filer already pays more than Biden’s proposed 25 percent minimum tax, while the average working-class filer pays slightly more than the 8 percent rate that Biden inaccurately describes as the super-wealthy.
Why, then, is the President so statistically confused?
The answer comes from his administration’s continued reliance on tax data manipulated by economists Gabriel Zucman and Emmanuel Saez. In 2019, The New York Times and Washington Post made splashy headlines announcing that billionaires paid lower tax rates than average Americans, attributing the figure to a new book by Zucman and Saez. A sympathetic press trumpeted the Zucman-Saz numbers before they even passed peer review because they seemed to confirm the preferred political narrative of the progressive left.
When I put the Zucman-Saz data under the microscope, several irregularities emerged. First, they deliberately excluded tax benefits for low-income filers such as the Earned Income Tax Credit, creating the illusion that the poor face much higher tax rates than they actually do. Second, they manipulated their calculations to determine corporate taxes among the wealthy, creating the illusion that billionaires only pay slightly more than half the actual rates. As a result of this discovery, Harvard University reportedly rescinded Zucman’s job offer because his “new” data could not be trusted.
However, there is another twist to the story. Before Zucman and Saez gained the patronage of the media and left-wing politicians, they released a preliminary estimate of the total federal, state and local tax burden of an even smaller share of the ultra-wealthy class. As of 2014, the most recent year of their data, the tax rate for this group was 40.6 percent.
Furthermore, as the chart above shows, the total tax burden on the ultra-rich has hovered north or south of about 40 percent since the 1960s, something linked to business cycle events and tax code overhauls. Is subject to fluctuations.
So, no, Mr. Speaker, the wealthiest taxpayers are not paying a lower tax rate than the rest of us. IRS data shows that America’s federal tax system remains quite progressive, and no amount of politically motivated data manipulation will ever change that fact.
Philip W. Magness
Philip W. Magness is Senior Research Faculty and the F.A. Hayek Chair in Economics and Economic History at the American Institute for Economic Research. He is also a research fellow at the Independent Institute. He holds a PhD and MPP from the School of Public Policy at George Mason University and a BA from St. Thomas University (Houston). Before joining AIER, Dr. Magness spent more than a decade teaching public policy, economics, and international business at institutions including American University, George Mason University, and Berry College. Magness’s work covers the economic history of the United States and the Atlantic world, including expertise in the economic dimensions of slavery and racial discrimination, the history of taxation, and the measurement of economic inequality over time. He also has active research interests in higher education policy and the history of economic thought. His work has appeared in scholarly outlets including the Journal of Political Economy, The Economic Journal, Economic Inquiry, and the Journal of Business Ethics. In addition to his scholarship, Magness’s popular writings have appeared in venues including the Wall Street Journal, New York Times, Newsweek, Politico, Reason, National Review, and the Chronicle of Higher Education.
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