Billionaires Pay Lower Tax Rates: New research from top economists shows something very surprising. In the United States, billionaires, especially the richest 400 people, pay less in taxes compared to normal taxpayers. This study looked not only at income tax but also corporate and other taxes connected to their share of wealth.
Between 2018 and 2020, the richest people paid around 24 percent effective tax rate, while an average American paid about 30%. For people at the top who only earn wages and salaries, the effective tax rate can go as high as 45%.
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Why the richest pay less
The main reason behind this gap is how the tax system works. Billionaires make most of their money from businesses and investments. These profits and gains don’t always count as income unless they sell the shares or take out the money.
Gabriel Zucman and Emmanuel Saez explained it very clearly: “The economic income of the wealthiest are essentially the profits of the businesses they own.” They even gave an example, “Jeff Bezos owns about 10 % of Amazon, and hence his true economic income is 10 % of Amazon’s profits.”
Also, money earned from investments or company profits often gets taxed at lower rates than wages. Corporate taxes made up about 9 percent of the total effective rate, while the rest mostly came from investment income. Because of this, billionaires keep their rate much lower compared to people who live only on salaries.
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Even when we add estate taxes, gift taxes, and business taxes, the richest still pay less in proportion to their true economic income. The NBER working paper confirms that this bigger calculation still leaves their tax rate around 24 percent, while average Americans face about 30 percent, and top wage earners face around 45 percent.
Laws made the gap wider
This difference did not come from old laws, it is very recent. The 2017 Tax Cuts and Jobs Act lowered the effective tax rate of the richest 400 from about 30 percent during 2010–2017 to around 24 percent between 2018–2020. Later, another policy in 2025 known as the “Big Beautiful Bill” might keep this gap or even make it bigger.
