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American billionaires now have a lower effective tax rate than the working class

A striking analysis by economist Gabriel Zucmanpublished in The New York Timesshows that US billionaires paid a lower effective tax rate than the working class in 2018, marking a historic shift in the tax burden and igniting calls for urgent tax reform.

Zucman’s analysis underlines the need to rethink tax strategy as billionaires increasingly generate income through investment opportunities rather than traditional salaries, widening tax differentials with middle and lower income earners.

One of the main reasons the super-rich face lower effective tax rates is their income structure, which comes primarily from wealth, such as dividends and capital gains, rather than from traditional salaries.

Tax rate over the years in the US Source. Gabriel Zucman analysis

This was exemplified by Jeff Bezos, who, despite a modest salary of $81,840 in 2019, is leveraging his significant stock holdings in Amazon (NASDAQ: AMZN), which are not taxed unless sold.

Furthermore, tycoons like Bezos, Warren Buffett and Elon Musk often use their stocks as collateral for loans, giving them access to significant funds without incurring tax liabilities.

The situation in the US reflects broader international trends. In recent decades, corporate and inheritance taxes, which traditionally affected the wealthiest, have been significantly reduced.

The declining US corporate tax rate. Source. Gabriel Zucman analysis

In 2018, for example, the United States lowered its maximum corporate tax rate from 34 percent to 21 percent, and America’s estate tax nearly disappeared, reducing the tax burden on profits, which largely benefit the ultra-wealthy.

Global response and pursuit of fair taxation

This phenomenon is not limited to the US; it reflects a broader international issue of the wealthy exploiting tax regulations to their advantage.

For example, in European countries such as Italy and France, the ultra-rich enjoy significantly lower tax rates. This trend is consistent worldwide, as evidenced by countries like the Netherlands, where the average taxpayer contributed 45% of their income in 2016, while billionaires paid just 17%.

The widening gap in tax contributions has spurred international efforts, including a 2021 agreement among more than 130 countries to set a global minimum corporate tax rate of 15%, which would ensure large multinational companies pay a basic amount of tax regardless where they park their profits.

There are also increasing calls for a wealth tax for billionaires. to suggest they pay taxes on part of their total wealth every year – a move that could significantly strengthen public finances.

Countries including Brazil, which is chairing this year’s Group of 20 summit, along with France, Germany, South Africa and Spain, have recently expressed support for a minimum tax for billionaires.

In the United States, President Biden has proposed a similar billionaire tax, which aims not only to increase revenues but also to rectify a tax system that currently allows significant disparities, threatening economic balance and undermining democratic values.

As debates intensify, there is a sharper focus on creating a tax regime that better reflects the economic contributions and benefits of the wealthiest, thereby promoting a fairer and more just society.