The claim that the rich pay little or no tax is a lie based on fake figures. In fact, 50 percent of earners in the U.S., those earning 46,500 dollars or less per year, pay only 2.3 percent of total income tax in the U.S. In contrast, the top 1 percent, who earn 682,500 dollars or more, pay 45.8 percent of U.S. income tax. And the proportion of total income tax paid by the richest has risen massively over the past two decades. In 2001, the top 1 percent of earners in the United States paid a third of income tax; 20 years later theyare paying almost half!
The situation is similar in Germany, where 50 percent of income taxpayers pay only 6.1 percent of income tax. In contrast, the top 1 percent of income earners pay 22.8 percent of income tax.
Despite these figures, it is repeatedly claimed that the rich are not paying their “fair share.”A few years ago, the media widely circulated a claim suggesting that the 25 wealthiest Americans paid only 3.4 percent in taxes. This figure gained global attention and has been frequently cited eversince. However, the “calculation” behind this claim was nonsensical, as it was based on a comparison of the annual taxes paid by the 25 richest Americans withthe growth in their wealth as estimated by Forbes magazine over the same period.
The message was clear: the tax system is “unfair,”the richpay significantly lower taxes and are subject to different laws than the average citizen. Is that really the case?In fact, the average tax rate paid by the top 1 percent of earners in the U.S. is almost eight times higher than the average tax rate paid by the bottom half of earners!
The growth in wealth estimated by Forbes is mainly due to rises in the value of the shares held by the super-rich. In the case of Jeff Bezos, for example, his wealthgrew as the market value of Amazon shares rose, while Warren Buffett’s wealth growth stems from the escalating share price of his company, Berkshire Hathaway. The claim that the super-rich pay hardly any taxes is based on the comparison of wealth growth, largely driven by (unrealized) capital gains, with income taxes, which are levied on actual income or profits. That would be like comparing the increase in the value of your house last year with the income tax you paid – an obviously nonsensical calculation.
Chile serves as a prime example of the damagingimpact of propaganda against the rich, as Axel Kaiser and I demonstrate in an article for the specialist journal Economic Affairs. https://onlinelibrary.wiley.com/doi/10.1111/ecaf.12620
Without a doubt, Chile is among the countries where anti-rich rhetoric ruined economic progress. Chile became by far the most successful country in South America thanks to market economy reforms, with high growth rates that benefited everyone. After 2014, Chilean politics and economy took a populist turn that slowed those glimpses of progress. Between 2014 and 2023, annual GDP growth was 1.9 percent, equating to just 0.6 percent in per capita terms. The anti-business reforms from Michelle Bachelet’s second government (2014-2018) led to decreases in investment and sluggish job creation, while real wages stagnated.
While the analysis of the economic slowdown is clear, the causes of it are more complex: an ideology motivated by a vengeance against Chile’s rich. The Government of Chile put a lot of effort into promoting the message that the rich did not pay their fair share of taxes; therefore, a tax reform was due. Obsessed with reducing inequality, that government would go as far as to say thetop 1 percent should pay for almost all new tax revenue, which would ensure higher-quality and free public education, better public healthcare and more hospitals, better access to culture, sports, a cleaner environment, and better pensions for the retired. In other words, as far as the government was concerned, the greedy rich that did not want to pay more of their income in taxes was the only reason Chileans did not have a better quality of life. We have seen a similar anti-rich rhetoric from Bernie Sanders and his ilk in the United States.
The tax reform in Chile was far from successful because it destroyed incentives for investment and it pushed an anti-wealth narrative that disregarded its impact on the economy and the general population. The tax reform also failed to deliver as much revenue as the government had initially planned for that year and the ones to follow. Economists Gonzalo Sanhueza and Arturo Claro explain that if Chile’s economy had grown at 3.8 percent in real terms since 2013, government tax revenue in 2023 would have been 26 percent higher. Ultimately, the victims of anti-wealth propaganda in Chile were not primarily the wealthy, but average and low-income earners. This should serve as a valuable lesson for other nations as well.
Text first published in Washington Examiner on 2024.04.10.
https://www.washingtonexaminer.com/opinion/2953315/lies-about-the-rich-hurt-all-of-us/
Rainer Zitelmann is the author of the books The Power of Capitalism https://the-power-of-capitalism.com/ and How Nations Escape Poverty https://nations-escape-poverty.com/
