Key Takeaways
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- Nearly 40% of taxes paid by the 400 wealthiest Americans from 2018 to 2020 came from corporate income taxes, according to a new study.
- The ultrawealthy paid an estimated 23.8% of their economic income in taxes, much higher than the 8.2% figure often cited by the Biden administration, which excludes corporate taxes.
- Corporate taxes act as a major “at source” tax on billionaires, who benefit significantly from profits of private companies and publicly traded shares.
- Billionaires’ individual income tax returns often understate their full economic income and tax burden because they don’t pay taxes on corporate profits until shares are sold or dividends received.
- The study assumes shareholders bear the full corporate tax burden, increasing the estimated tax paid by the ultrawealthy compared to conventional assumptions.
- Corporate taxes accounted for 8.9% of income for the ultrawealthy, compared to 1.7% for the general population.
- Economists caution that while corporate taxes are progressive, higher rates may reduce investment and economic growth.
- The corporate tax impacts all investors, including holders of 401(k) accounts, making it a broad-based but blunt tax tool.
What’s Happening?
A comprehensive study using IRS data reveals that corporate income taxes form a significant portion of the tax burden on the ultrawealthy, challenging narratives that billionaires pay disproportionately low taxes. The findings highlight the complexity of measuring tax rates for the richest Americans due to their income sources.
Why Does It Matter?
Understanding the true tax burden on billionaires is crucial for informed policy debates on wealth taxation and economic inequality. The study underscores the importance of corporate taxes in the U.S. fiscal system and the trade-offs policymakers face between progressivity and economic growth.
What’s Next?
Policy discussions on taxing the ultrawealthy will continue, with proposals like taxing unrealized capital gains and wealth taxes on the table but facing political hurdles. Meanwhile, corporate taxes remain a key revenue source affecting both the wealthy and the broader economy.
