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• Biden has previously cited an 8% tax figure for billionaires, based on calculations by the White House’s Council of Economic Advisers. But even the 8% figure doesn’t fully align with what Biden said.
• Both the 3% figure of the 8% figure refer to calculations made under a theoretical proposal. Under today’s laws, the 25 highest-earning billionaires paid an average tax rate of 16%.
• Meanwhile, among households earning from $50,000 to $100,000 a year — the category that many teachers and firefighters would fall into — the vast majority paid effective tax rates of between 0% and 15%.
During a visit to a labor union in suburban Maryland, President Joe Biden made a pitch for more stringent taxes on billionaires.
In Lanham, Maryland, Biden told members of the International Brotherhood of Electrical Workers union he was calling on Congress to pass his proposal for a minimum tax on billionaires.
At the Feb. 15 event, Biden said there were "about 720 billionaires" at the start of his administration. "Now we have about 1,000. You know what (the) average tax they pay is? About 3%. Look, no billionaire should pay a lower tax than a schoolteacher or a firefighter."
The number of billionaires in the U.S. is hard to pin down, and can be heavily influenced day-to-day by changes in the value of stocks. But the 720 to 1,000 figure is broadly in line with recent estimates made by news outlets.
However, the tax rate Biden cited is wrong, as is the claim about what schoolteachers or firefighters pay.
Nine days before the Maryland event, the White House published a fact sheet on the economy under Biden saying the average tax rate for billionaires is 8%. The White House also provided PolitiFact with other examples of Biden referring to 8%.
However, even this 8% figure needs important context.
As we have previously noted, the White House’s 8% figure came from a report by its own Council of Economic Advisers that looked at what would happen if the United States were to tax unrealized gains on stocks. Currently, if people see their stock shares rise in value over time, those gains are not taxed until the shares are sold. If the shares are never sold, they aren’t taxed. Under current law — which Biden proposes to change — stocks may be passed on to the next generation with little or no taxation.
The White House report found that if you include unrealized gains in the income calculations of the 400 richest U.S. families, those families are ultimately paying a tax rate of 8.2%.
Economists and policymakers have long debated whether the government should tax unrealized gains. But Biden made it sound as if 3% (or, in previous instances, 8%) was the standard tax rate paid by billionaires today. It’s not; that calculation is made by taxing unrealized wealth, rather than income, as is done under current law.
So, what is the actual tax burden under the current tax code for the wealthiest Americans? IRS data from 2019 shows that the top 1% of taxpayers paid an average federal income tax rate of 25.6%. A more elite group, the top 0.001% — which in 2019 meant people earning about $60 million or more a year — paid 22.9%.
There is one study that pinpointed a roughly 3% tax rate for the ultrarich, but that, too, was based on a theoretical model in which unrealized wealth was taxed.
ProPublica, an investigative journalism outlet, compared how much in taxes the 25 richest Americans paid each year with how much their wealth grew in that same period (according to Forbes wealth estimates).
ProPublica found that they paid taxes amounting to 3.4% of their gain in wealth. (Those 25 billionaires account for about 2.5% of all U.S. billionaires.)
At the same time, ProPublica found that the actual tax rate these 25 billionaires paid under current law is 16%.
Biden’s invocation of teachers and firefighters ignores that 43.6% of households paid zero or negative net federal individual income taxes in 2019, according to the Urban Institute-Brookings Institution Tax Policy Center, a Washington D.C.-based think tank. (The percentage was higher in 2020, but that was because of temporary tax relief provisions during the coronavirus pandemic, so tax experts said it’s best to use the 2019 pre-pandemic figure.)
The median annual income without overtime for firefighters is $50,939, and $67,080 for K-12 teachers.
Households with adjusted gross incomes from $50,000 to $100,000 paid an effective tax rate ranging from 5% to 15%, the Tax Policy Center found.
Some of those households even paid an effective overall rate below 5%, or paid nothing at all or got money back from the government.
So, even if a teacher or a firefighter paid at the highest of these estimates — 15% — that would still be below the 16% the top 25 billionaires paid.
Tax analysts said Biden has a point when he talks about billionaires finding ways to avoid paying a lot in taxes.
"Higher earners can borrow on their unrealized gains for consumption, and then avoid taxes at death when passing along those assets," said Garrett Watson, senior policy analyst with the Tax Foundation, a Washington D.C.-based think tank. This "buy-borrow-die" strategy allows the very richest Americans to avoid a large share of taxes they might otherwise have to pay.
However, Watson said this tactic "could be tackled more directly in the tax code without requiring a complicated minimum tax" like the one Biden is proposing.
The Biden proposal would also be "administratively and legally challenging," wrote Steven M. Rosenthal, a senior fellow at the Urban Institute-Brookings Institution Tax Policy Center.
The super-wealthy own many assets with fluctuating and sometimes difficult-to-determine values, and creating and verifying these values for them annually would be a burden both for the taxpayer and for the government. In addition the courts may view this as a "direct tax," which must be apportioned among the states according to their population; this might be impossible, since in some states, there may be no billionaires.
Biden said the "average tax" for billionaires is "about 3%," which is "a lower tax than a schoolteacher or a firefighter."
Biden has previously cited an 8% figure, based on calculations by the White House’s Council of Economic Advisers. But even the 8% figure doesn’t fully align with what Biden said.
Both figures stem from calculations made under a theoretical proposal. Under current laws, the 25 highest-earning billionaires paid a 16% tax rate on average, estimates show.
Meanwhile, among households earning between $50,000 and $100,000 a year — the category that many teachers and firefighters would fall into — the vast majority paid effective tax rates of between 0% and 15%. Even the very richest billionaires are paying rates higher than that under today’s tax code.
We rate the statement False.
Joe Biden, remarks at an IBEW event in Lanham, Maryland, Feb. 15, 2023
White House, "What Is the Average Federal Individual Income Tax Rate on the Wealthiest Americans?" Sept. 23, 2021
White House, "Fact Sheet: The Biden Economic Plan Is Working," Feb. 6, 2023
Internal Revenue Service, "Individual Statistical Tables by Size of Adjusted Gross Income," accessed Feb. 17, 2023
Urban Institute-Brookings Institution Tax Policy Center, "Effective Tax Rate by Size of Income," accessed Feb. 17, 2023
Urban Institute-Brookings Institution Tax Policy Center, "Tax Units with Zero or Negative Income Tax, 2011-2031," accessed Feb. 17, 2023
Urban Institute-Brookings Institution Tax Policy Center, "Historical Income Distribution for Nonelderly Childless Households," accessed Feb. 17, 2023
Bureau of Labor Statistics, "National Occupational Employment and Wage Estimates," accessed Feb. 17, 2023
Steven M. Rosenthal and Robert McClelland, "Taxing Capital Gains at Death at A Higher Rate Than During Life," May 13, 2022
Steven M. Rosenthal, "Biden’s New Taxes for Billionaires: One Is Hard, One Is Easy," March 31, 2022
Tax Foundation, "Summary of the Latest Federal Income Tax Data, 2023 Update," Jan. 26, 2023
Tax Foundation, "Taxing Consumption Progressively Is a Better Way to Tax the Wealthy," June 8, 2021
ProPublica, "America’s highest earners and their taxes revealed," April 13, 2022
ProPublica, "The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax," June 8, 2021
New York Times, "How Many Billionaires Are There, Anyway?," April 7, 2022
CNN, "Fact check: Biden makes false and misleading claims in economic speech," Jan. 28, 2023
PolitiFact, "Joe Biden’s dubious math on the federal income tax burden," July 13, 2022
Email interview with Kyle Pomerleau, senior fellow at the American Enterprise Institute, Feb. 16, 2023
Email interview with Garrett Watson, senior policy analyst with the Tax Foundation, Feb. 17, 2023
Interview with Steven M. Rosenthal, senior fellow at the Urban Institute-Brookings Institution Tax Policy Center, Feb. 17, 2023
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