The federal tax code is meant to be progressive — that is, the rich pay a steadily higher tax rate on their income as it rises. And ProPublica found, in fact, that people earning between $2 million and $5 million a year paid an average of 27.5%, the highest of any group of taxpayers.
Above $5 million in income, though, tax rates fell: The top 0.001% of taxpayers — 1,400 people who reported income above $69 million — paid 23%. And the 25 very richest people paid still less.
The wealthy can reduce their tax bills through the use of charitable donations or by avoiding wage income (which can be taxed at up to 37%) and benefiting instead mainly from investment income (usually taxed at 20%).
President Joe Biden, in seeking revenue to finance his spending plans, has proposed higher taxes on the wealthy. Biden wants to raise the top tax rate to 39.6% for people earning $400,000 a year or more in taxable income, estimated to be fewer than 2% of U.S. households. The top tax rate that workers pay on salaries and wages now is 37%.
Biden is proposing to nearly double the tax rate that high-earning Americans pay on profits from stocks and other investments. In addition, under his proposals, inherited capital gains would no longer be tax-free.
The president, whose proposals must be approved by Congress, would also raise taxes on corporations, which would affect wealthy investors who own corporate stocks.
ProPublica reported that the tax bills of the rich are especially low when compared with their soaring wealth — the value of their investment portfolios, real estate and other assets. Using calculations by Forbes magazine, ProPublica noted that the wealth of the 25 richest Americans collectively jumped by $401 billion from 2014 to 2018. They paid $13.6 billion in federal income taxes over those years — equal to just 3.4% of the increase in their wealth.
Chuck Marr, a senior director at the left-leaning Center on Budget and Policy Priorities, suggested that Biden’s proposals, which face fierce opposition from Republicans in Congress and from businesses, are “modest" given how much the wealthy have benefited in recent years and how comparatively little tax many of them pay.
“It always seems like the solutions are cast as radical when there’s less focus on the current situation being radical,” Marr said.
For his part, Commissioner Charles Rettig said the IRS is investigating the leak of the tax data to ProPublica and that any violations of law would be prosecuted. (ProPublica reported that it doesn’t know the identity of the source who provided the data.)
The Wall Street Journal also reported the IRS is investigating the leak.
“We will find out about the ProPublica article,” Rettig said. “We have turned it over to the appropriate investigators, both external and internal.”
Taxes and the president’s plans
President Joe Biden has proposed a $2.3 trillion infrastructure plan and the $1.8 trillion American Families Plan. The Atlanta Journal-Constitution is committed to following these proposals and explaining how they could transform government services and how they will affect Georgians. The cost and how to pay for the programs has ignited a debate about taxes. Biden’s plan calls for increased taxes on corporations and on the wealthiest 1% of Americans.
Those who support the tax increases say corporations and the wealthy should pay more. They make their case by arguing that tax policies over the past couple of decades have favored companies and the wealthy, and that less wealthy Americans pay a greater percentage of their income in taxes.
Those who oppose increasing taxes point out that the wealthiest Americans pay a large share of the taxes the IRS collects. According to the Tax Foundation, the top 1% of earners pay more than one third of income taxes.
The AJC will report on all sides of this debate and will work to keep you informed about the costs, benefits and risks. We want to answer your questions and hear from you about what you’d like to know about these proposals. E-mail Managing Editor Leroy Chapman Jr. at Leroy.Chapman@ajc.com.