Wall Street Journal, Is the Income-Tax Rate on the Rich 8%, or 23%? Depends on Whose Math You Use:
What do the wealthy pay in federal taxes? On paper, the top marginal income-tax rate is 37% on ordinary income and 23.8% on capital gains. Government estimates put high-income filers’ average rates in the mid-20s.
A new Biden administration analysis, however, pegs the average tax rate for the 400 wealthiest households at 8.2% from 2010 to 2018 [Greg Leiserson (Senior Economist, CEA) & Danny Yagan (Chief Economist, OMB), What Is the Average Federal Individual Income Tax Rate on the Wealthiest Americans?]. If that is right, the administration has a firmer case to raise taxes on the ultrarich.
But it isn’t so simple. …
In writing the White House study, administration economists Greg Leiserson and Danny Yagan chose a numerator and denominator reflecting their approach to analyzing tax policy.
First, the denominator. They include increases in unrealized capital gains. That is the change in the value of assets, including stocks, that haven’t been sold. Such gains are a significant part of the wealthiest Americans’ net worth; the administration approach effectively assumes those paper gains should be income subject to taxation.
Conventional analyses and the current income-tax law don’t include unrealized gains. Advocates of the conventional approach note that such gains fluctuate with markets and that taxpayers might be forced to sell assets to pay the taxes. …
The numerator in the White House study, like its denominator, is selective, a point the authors acknowledge. By excluding corporate and estate taxes, it drives the tax rate down and focuses the analysis on individual income taxes and the gaps in that part of the tax system. …
Economists Emmanuel Saez and Gabriel Zucman in their 2019 book The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay found the top 400 households by income paid an average individual income-tax rate of 9.2%. Adding other taxes, including corporate and estate taxes, brought the average to 23%. Their analysis generally didn’t include unrealized gains.
The White House figure sounds shockingly low for a country that favors progressive taxes where burden rises with income. …
Who’s right?
It depends what point you’re trying to make. Every definition of income and taxes has assumptions buried inside. How you choose to measure—and how you apply fourth-grade math—can reflect your approach to policy and wealth.
Dan Mitchell, Biden’s Nonsensical Class-Warfare Tweet
