Revolution In Tax Payments By Billionaires In The US
Amidst a backdrop of increasing wealth inequality and recent changes in tax policies, a striking trend has emerged that billionaires in America are now paying a lower effective tax rate compared to working-class citizens, marking a significant shift.
The effective tax rate for the 400 wealthiest individuals in the United States has dwindled to 23%, dropping below the current 24% effective tax rate for the lower half of income earners, as per recent data released by The New York Times on May 3.
- Historical Perspective on Tax Rates
- The effective tax rate for the wealthiest Americans in the 1960s stood at 56%, considerably higher than the 22% levied on the working class during that time.
Benefits of Historical Effective Tax Rates
Justifying the rationale behind higher past tax rates for the affluent, economist Gabriel Zucman pointed out that they played a crucial role in curbing wealth inequality in the US and facilitated the establishment of social safety nets:
Higher tax rates for the wealthy kept inequality in check and helped fund the creation of social safety nets like Medicare, Medicaid, and food stamps.
The data from The New York Times reveals that US authorities have, in recent years, slashed two substantial taxes that were previously levied on the rich – the corporate profit tax and the estate tax for their heirs. This includes reductions implemented by Ronald Reagan on corporate taxes to 34% and Donald Trump’s policies further lowering taxes for the wealthy to 21% in 2018.
- Corporate Profits and Investments
- Major corporations, particularly in the technology sector, have been reinvesting profits rather than distributing them to shareholders, such as Amazon, Tesla, and Berkshire Hathaway.
Addressing the Inequalities
President Joe Biden has proposed a new budget for the fiscal year 2025, aiming to rectify this imbalance. The budget includes a capital gains tax hike of 44.6%, targeting high-income earners, especially those earning over $1 million annually, as reported by Finbold on April 25.
According to Zucman, this initiative would impact a small group of extremely wealthy individuals, approximately 3,000 people, compelling them to contribute a small portion of their profits back to the government that supports their employees’ education and healthcare, enabling their businesses to thrive.
Hot Take: The Reality of Taxation on Billionaires in the US
Indeed, the current scenario where billionaires in the United States are paying a lower effective tax rate than the working class marks a significant shift in the nation’s tax landscape. This disparity underscores the pressing need for reforms to address wealth inequality and ensure a fairer distribution of tax burdens among all income brackets.
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