![]() This analysis asks: what was the average Federal individual income tax rate paid by the 400 wealthiest American families’ in recent years, determined using a more comprehensive measure of income? Yet the most common estimates of tax rates do not fully capture the value of this tax benefit because they use an incomplete measure of income. Investment gains are a primary source of income for the wealthy, making this preferential treatment of investment gains a valuable benefit for the wealthiest Americans. But when they gain a dollar because their stocks increase in value, that dollar is taxed at a low preferred rate, or never at all. ![]() When an American earns a dollar of wages, that dollar is taxed immediately at ordinary income tax rates. The President’s proposals mitigate two key contributors to the low estimated rate: preferential tax rates on capital gains and dividend income, and wealthy families’ ability to avoid paying income tax on capital gains through a provision known as stepped-up basis. We also present sensitivity analyses that yield estimates in the 6-12 percent range. In our primary analysis, we estimate an average Federal individual income tax rate of 8.2 percent for the period 2010-2018. We do so using publicly available statistics from the IRS Statistics of Income Division, the Survey of Consumer Finances, and Forbes magazine.
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