Saturday, President Joe Biden reiterated one of his most common political refrains: that the wealthy do not pay as much as working-class Americans in taxes. However, closer inspection of federal and state tax data shows that the president’s claim that billionaires pay 3% in taxes is not supported by fact.
Biden tweeted that billionaires should “just pay your fair share.” He said that “basic fairness” regarding taxes meant at least 25% in minimum taxes.
The president’s claim received a fact-check from Twitter and a note from CEO Elon Musk.
It read, “The 3% number Biden is referring to is based on a value increase of held investments (not on their income). However, these investments can also lose value which is why they are taxed when sold and become income. Calculating on that, the avg tax rate for them is 25%, not 3.”
I paid 53% taxes on my Tesla stock options (40% Federal & 13% state), so I must be lifting the average!
I also paid more income tax than anyone ever in the history of Earth for 2021 and will do that again in 2022.@CommunityNotes, is the 3% number cited above accurate?
— Elon Musk (@elonmusk) March 18, 2023
Musk said that between federal and state taxes, he paid 53% in his Tesla stock options. The Tesla founder paid more than $11 billion in taxes in 2021. Musk recently regained the rank of the world’s wealthiest person.
Furthermore, the effective tax rate for the wealthy is far different than the president claimed, either at the state or the federal level.
The wealthiest 1% of society pays an almost 26% effective federal income tax rate. The average rate for the bottom 50% of taxpayers is just over 3%– showing a more than eightfold difference between the two groups.
According to 2020 federal tax data, there were approximately 1.5 million taxpayers in the top 1%. Among these taxpayers, the average cost was $458,894. This represented more than 40% of the total income tax bill of the country. The top 10% paid almost three-quarters of the nation’s income tax.
Furthermore, data regarding the long-term capital gains tax also finds a high percentage paid by the wealthy. Data from 2019 shows that unmarried individuals earning less than $39,375 pay zero long-term capital gains taxes.
Individuals above $434,500 pay 20% and those with a modified adjusted gross income of above $200,00 have to pay an additional 3.8% Net Investment Income Tax.
