Tax System Fairness
While speaking to the Teamsters, U.S. Senator Corey Booker (D–NJ) rages that “our tax system” is “unfair” because “the wealthiest Americans pay effective rates under 10%, while working families carry 25, 30, even 40%.”
IN FACT, the wealthy pay an average effective federal tax rate of 34%, even after loopholes, while middle-income families pay 5% to 16%. Here are the specifics:
- The U.S. Treasury estimates that the richest 0.1% of families paid an average effective federal tax rate of 33.5% in 2024, while the middle quintile paid 11.1%, the upper-middle quintile paid 15.7%, and the lower-middle quintile paid 5.2%.
- The Treasury’s estimates of effective federal tax rates roughly accord with data published by the Congressional Budget Office, which typically lag the Treasury data by several years.
- Unlike the incomplete and misleading tax rates reported by the media and politicians of both parties, the Treasury’s and CBO’s computations of effective federal tax rates reflect actual taxes paid (not marginal rates) and account for nearly all forms of income and federal taxes, such as capital gains, pensions, health benefits, payroll taxes, excise taxes, corporate taxes, hidden taxes and write-offs (aka preferences).
- Booker cites no source for his figure of “under 10%,” but it accords with a 2021 Biden White House analysis that estimated an “average federal individual income tax rate” of 8.2% for “America’s 400 wealthiest families” during 2010–2018.
- Contrary to Booker, that analysis is not a full measure of taxes because it only includes “federal individual income taxes” and excludes all other types of federal taxes, such as social insurance taxes, corporate income taxes, excise taxes, estate taxes, and gift taxes.
- Contrary to the law and reality, the Biden White House analysis understates the actual income tax rate by counting “unrealized capital gains” as “income.”
- Per the Supreme Court’s 1920 ruling in Eisner v. Macomber, “increase in value of capital investment is not income in any proper meaning of the term,” and “mere growth or increment of value in a capital investment is not income.”
- As explained by PhD economist Isabel V. Sawhill, “You can’t use accrued gains to pay for basic living costs. They are not income; they are paper gains.”
- Per academic papers published in 1991, 2021, and 2022, “virtually every country that taxes income imposes a capital gains tax only upon the realization of gains rather than on accrual,” “no country applies accrual taxation on a broad scale,” and the “realization rule” is “used nearly universally in income taxes around the world.”
- Contrary to the allegation that the rich avoid taxes and live lavish lifestyles by borrowing against their unrealized gains, a 2025 paper in the Journal of Public Economics found that total borrowing by the “top 1% of wealth-holders” is only 4% of their unrealized gains, while the equivalent figure for “Americans in the 50–90th percentiles of wealth” is 42%, showing that this is “not a dominant tax avoidance strategy for the rich.”
- The Congressional Budget Office doesn’t estimate “state and local taxes for individual households” due to the “complexity” of this issue and notes that “researchers differ about whether state and local taxes are, on net, regressive, proportional, or slightly progressive,” but regardless, total federal taxes are 89% greater than state and local taxes.
- Media outlets often report state and local tax rates from a group called the Institute on Taxation and Economic Policy, which uses a deceitful methodology that inflates the tax rates of lower-income households.
- In accord with misinformation spread by prominent Democrats and media outlets, roughly 79% of voters have been misled to believe that middle-income households pay a higher average federal tax rate than the upper 1%. In reality, the top 1% pay 2.5 times the average middle-income federal tax rate and 67 times the average middle-income tax amount.
