17/04/24

US: Millionaires’ Effective Tax Rate Has Been Cut by Half Since Mid-20th Century

As published on: truthout.org, Wednesday 17 April, 2024.

Millionaires are currently being taxed at half of the effective tax rate they were paying in the mid-20th century, a new report finds, as the tax code has become increasingly regressive and wealth inequality has reached record highs in recent years.

In an analysis released on Tax Day, Americans for Tax Fairness found that Americans with incomes of $1 million or more are effectively being taxed at half the rate they were between 1945 and 1980, when they were paying effective tax rates between 40 percent and 60 percent. On average in that time, the report found, millionaires were paying an effective tax rate of 50.1 percent.

By contrast, in 2021, the latest year for which data is available, millionaires were paying an average effective tax rate of 26.2 percent, while households with incomes over $10 million paid an average rate of 25.1 percent. Since data on the $10 million income households became available in the early 2000s, their effective tax rate has always been slightly lower than households with income over $1 million, likely due to a larger portion of income coming from investments, the group found.

As a result, the federal government is missing out on billions in tax revenue. If households with $10 million in income were being taxed at the same average tax rate as millionaires paid in the mid-20th century, the federal government would have collected an additional $370 billion in tax revenue in 2021 alone, according to the report.

The downturn in the effective tax rate on the wealthy began in the 1980s, when a wave of neoliberalism began shifting power and wealth away from the working class and toward corporations and the rich. Over the course of just a decade, Americans for Tax Fairness found, the effective tax rate went from roughly 50 percent to roughly 25 percent, a rate that it has hovered around ever since.

Corporations have enjoyed a similar downturn in their effective tax rate in the same time. While 22 percent of federal revenue came from corporate taxes on average between 1945 and 1980, this proportion dropped to 10 percent in 1981, the year that Ronald Reagan took office, and has hovered around that same rate ever since.

“Americans filing their taxes today may have a strong sense that the richest households and most powerful corporations aren’t paying their fair share — and they’re right,” said David Kass, executive director of Americans for Tax Fairness, in a statement. “The plummeting tax rate on million-dollar incomes shows how the tax code has become skewed in favor of the wealthy and corporations and against the interests of working families.”

The slashing of the tax rate for the wealthy has caused wealth inequality to surge, especially in recent years following the 2017 Donald Trump tax cuts. Another recent Americans for Tax Fairness report found that billionaires have benefited massively from the Trump tax cuts, with the U.S.’s 806 billionaires’ collective wealth hitting an all-time high this month of $5.8 trillion. This is double the amount of wealth they controlled in 2017, the year the bill was passed, and amounts to 1 in every 25 dollars of American wealth.

Americans for Tax Fairness suggests a number of tax code reforms in order to make tax rates more equitable, including raising the estate tax, statutory tax rates for high-income households, ending benefits for offshore tax havens, and more.

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Millionaires Tax Rate Wealth tax