On March 18, President Joe Biden – or whoever manages the @POTUS Twitter account – took to the social media platform to lobby for tax hikes on the wealthy. The tweet echoed a somewhat deceptive narrative used by Democrats and the progressive left for years: Tax the rich to make them pay their fair share. “Look,” @POTUS wrote, “I think you should be able to be a billionaire if you can earn it, but just pay your fair share. I think you ought to pay a minimum tax of 25%. It’s about basic fairness.” What, exactly, is the fair share billionaires should pay? A “minimum tax” of 25% is not specific. How does one define a fair share? Is this just another one of those arbitrary terms Democrats like to use so that they can avoid being pinned down on specifics – so they can move the goalposts, so to speak, as it suits them? More importantly, why do so few elected officials in Washington advocate for a more efficient, fair, and ethical system of taxation?
The posted message included a graphic that quoted Biden as previously saying: “You know the average tax billionaires pay? THREE PERCENT. No billionaire should be paying a lower tax than somebody working as a schoolteacher or a firefighter.”
Taxes and the Wealthy: Numbers Don’t Lie
The Twitter community flagged the tweet, slapping a notice on it for context, citing data from the Tax Foundation:
“This is incorrect. Avg income tax rate in 2020 was 13.6%. Top 1% of taxpayers paid a 25.99% avg rate, more than eight times higher than the 3.1% avg rate paid by the bottom half of taxpayers. It increased from 20.1%/2019 to 22.2%/2020.”
The Tax Foundation website provides detailed information on tax revenues and how much Americans in various income brackets paid in 2022. The following points are rarely acknowledged by promoters of the “tax the rich” narrative. In 2020, the income share for the top 1% of earners was 22.2%. Meaning, that group earned 22.2% of the total income of all American taxpayers. The top 1% also paid 42.3% of all federal income taxes in 2022.
The bottom 50% of earners paid 2.3% of federal income tax revenues for 2022. The top 50% accounted for the other 97.7%. Average federal income taxes paid in 2022 by the top 1% was $458,894. The bottom 50% paid, on average, $504. According to Statista, 40.1% of American households paid no income tax in 2022. There is no disputing the fact that a very significant percentage of Americans pay no federal income tax. CNBC reports that 61% of Americans paid no income taxes in 2020, and 57% of households paid no federal income taxes in 2021.
Surely, “fair share” implies that everyone should pay something. Perhaps Biden should call for an overhaul of the federal system to ensure that those millions of Americans who currently pay nothing also pay their fair share. The Fair Tax would solve that problem while doing away with income tax altogether, but few people in Washington want to talk about it.
So, where did Biden’s 3% number come from anyway? In 2021, the White House claimed that billionaires pay an average of 8%. Howard Gleckman, a senior fellow at the Brookings Institution Tax Policy Center, seems to have the answer. “Using the existing definition of taxable income, really rich people pay an average federal income tax rate in the mid-20s,” Gleckman told PolitiFact. “If you want to include unrealized gains in your denominator, as the White House does, the average rate would go way down.”
Joe Biden (Photo by Alex Wong/Getty Images)
Most very wealthy people hold stocks and other investments. Unrealized gains mean whatever profits these investments are generating. These unrealized gains are not taxable. Those gains are realized when the stocks or other investments are cashed in or sold. At that point, the proceeds are subject to capital gains tax. The deception here is the factoring in of unrealized gains to make it appear that Mr. and Mrs. Tonsa-Loot enjoy a far larger income than they do in reality – thus, greatly diminishing how much tax they pay as a percentage of that income. Sneaky, but this is what Democrats have been doing for years to create the impression that the wealthiest Americans are paying a smaller percentage in federal income taxes than the average teacher or firefighter.
As for this strange phrase, fair share, it’s an old trick employed by the left. It is deliberately vague. When leftists call for tighter restrictions on firearms, they use the term “common sense gun laws.” When pushing for higher a minimum wage, they speak of a “living wage.” Each of these terms is arbitrary and beyond specific definition. For Democrats and progressive activists, the criteria for a fair share, a living wage, or common sense gun laws can be incrementally adjusted so that the gun laws never reach the standard of common sense, paychecks are never big enough to be considered a living wage, and however much the billionaires pay in taxes is never a fair share.
