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By Laura Tucker, Staff writer; Image: Tax and the American flag (Image source: Public domain)
One of the knocks against Donald Trump before he became president was that he was a billionaire and would be looking to change existing laws or make new laws to help the wealthy instead of the middle class.
A new study is showing that in 2018, for the first time ever, the richest people in the country paid a lower tax rate than the working class. The question is what we can attribute this to.
"The Triumph of Injustice" is a new book-length study written by economists Emmanuel Saez and Gabriel Zucman of the University of California at Berkley. It shows a comparative analysis of tax rates among Americans, going all the way back to the 1960s.
In 2018, according to the study, the effective tax rate for the richest 400 families in the United States was 23 percent, while the bottom 50 percent of U.S households were at an effective tax rate paid of 24.2 percent.
Nearly 20 years ago in 1980, the 400 richest families had an effective tax rate of 47 percent, and in 1960 the rate was as high as 56 percent. However, the tax rate paid by the bottom 50 percent has changed very little throughout this time but was at its lowest in 1960 when the richest was at its highest.
This tax study is different from others that are published. This isn't just judging federal income taxes, as it is also including corporate taxes and taxes paid at the state and local levels, as well as what the authors refer to as "indirect taxes," $250 billion for things such as licenses for motor vehicles and businesses.
Along with this complete tax burden, the study also includes a detailed breakdown of the tax burden of the top 1 percent, as well as the top 0.1 percent, the top 0.01 percent, and the 400 richest households.
There is a focus on the extremely wealthy because it's those families that control a disproportionate share of the wealth in the country. The top 400 families have more wealth than the bottom 60 percent, while the top 0.1 percent own as much as the bottom 80 percent. Additionally, the IRS publishes information on the group of top 400 taxpayers, while Forbes and other sources track the wealth of the top 400 wealthy Americans.
Saez and Zucman claim the smaller tax burden of the very wealthy is because of both deliberate choices and indecisiveness or inertia by lawmakers over several decades. Congress continues to cut top income tax rates as well as taxes on capital gains and estates, while lawmakers don't provide adequate funding for IRS enforcement efforts and allow multinational companies to use low-tax nations to shelter their profits.
But there is, of course, a point where Trump comes into play. He pushed the Tax Cuts and Jobs Act in 2017 that sounds like it must have done good things for the middle class, but it lowered the top income tax bracket and cut the corporate tax rate.
A year later the average effective tax rate paid by the top 0.1 percent of households was lowered by 2.5 percent. Supporters of the bill promised higher rates of growth and business investment as well as a smaller deficit, but those things haven't happened.
This report is based on Saez and Zucman's previous work alongside French economist Thomas Piketty. But other economists who have done estimates of what the authors were studying show less of a disparity.
Jason Furman, former White House Council of Economic Advisers under former President Barack Obama, notes that Saez and Zucman didn't include refundable tax credits in their study.
However, Furman does admit, "The rich definitely pay less in taxes than they did in the past and less than they should."
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