Warren Buffett Was Right! America's Billionaires Now Pay Lower Tax Rate Than Working Class For First Time Ever, New Analysis Shows

Zinger Key Points
  • The 400 richest Americans paid more than half of their income in taxes in 1960s.
  • The corporate tax rate in the U.S. has decreased from 52% in the 1960s to 21% today, exacerbating the issue.

The richest Americans today manage to maintain their wealth largely due to comparatively lower tax rates, with recent reports suggesting that the effective tax rates of the super-rich now lag behind those of the working class for the first time in history.

What Happened: According to economist Gabriel Zucman, the effective tax rate of the 400 richest Americans in 2018 was 23%, slightly lower than the 24% rate for the bottom half of income earners. 

Cut back to the 1960s and you had the 400 wealthiest Americans paying over half of their income in taxes, supporting social safety nets like Medicare, Medicaid, and food stamps, Zucman said in a New York Times op-ed last week.

How Do Billionaires Avoid Hefty Tax Burdens? Many big corporations, particularly in the tech sector, opt to reinvest profits rather than distribute them to shareholders. For instance, Jeff Bezos‘ Amazon could face significant tax obligations if it paid dividends to shareholders, prompting companies like Amazon, Tesla, and Berkshire Hathaway to reinvest profits and generate more wealth for shareholders, according to Zucman.

By being compensated primarily with stock awards and refraining from selling shares, billionaires manage to keep their taxable income low.

Moreover, the corporate tax rate in the U.S. has decreased from 52% in the 1960s to 21% today, exacerbating the issue.

See Also: How To Save On Day Trading Taxes

To address tax evasion by billionaires, Zucman proposes implementing a global minimum tax, with over 130 countries agreeing to levy a 15% minimum tax rate on large multinational companies in 2021. This would ensure that regardless of profit allocation, companies are subject to a minimum tax rate.

However, challenges remain. Critics argue against minimum taxes, but Zucman believes valuing billionaires’ wealth, much of which is held in stocks and private assets, is feasible. The goal is to ensure that only those dodging income tax are held accountable, with those already paying the baseline amount exempt from additional taxes.

Why It Matters: America’s largest, consistently profitable corporations saw their effective tax rates drop from 22% to 12.8% after the Trump tax law went into effect in 2017, according to the Institution of Taxation and Economic Policy. Verizon, for example, may have owed an additional $11 billion in taxes from 2018 to 2021 if its tax rate hadn't decreased from 21% to 8%.

Additionally, Amazon faced criticism for avoiding federal corporate taxes, paying only 6% of its profits in 2021 despite reporting record profits of $35 billion. 

President Joe Biden‘s proposed minimum tax for billionaires aims to generate $500 billion over the next decade, echoing sentiments expressed by billionaire investor Warren Buffett at Berkshire’s annual shareholder meeting during the weekend.

While noting that Berkshire paid $5 billion in taxes last year, he said, “If 800 other companies had done the same thing no other person in the United States would have had to pay a dime of federal taxes, whether income taxes, no social security taxes, no estate taxes.”

This discussion is crucial as the nation grapples with a widening fiscal deficit and substantial debt.

The SPDR S&P 500 ETF Trust SPY, an exchange-traded fund tracking the S&P 500 Index, edged up 0.09% to $516.95 in premarket trading, according to Benzinga Pro data. The ETF has added 9.02% for the year-to-date period.

Read Next: US Pays $2M Interest Per Minute On National Debt: ‘Funny, Peculiar Chicken-And-The-Egg Type Situation’

Photo via Shutterstock

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Posted In: GovernmentNewsRegulationsTop StoriesEconomicsMediabillionaires taxGabriel ZucmanJeff BezosJoe BidenStories That MatterWarren Buffett
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