The Blubber

Amid increasing wealth inequality and recent shifts in government tax policies, an unprecedented trend has emerged: billionaires in the United States are currently paying a lower effective tax rate than working-class Americans for the first time in history.

The effective tax rate for the 400 richest Americans has dropped to 23%, lower than the 24% rate for the bottom half of income earners, according to recent data published by The New York Times on May 3.

Comparatively, the historical effective tax rates for the richest Americans in the 1960s were 56%, significantly higher than the 22% paid by the working class. This disparity began to decrease significantly in the 1980s, eventually flipping in 2018.

The report also notes that "the superrich control a greater share of American's wealth during the Gilded Ages of the Carnegies and Rockefellers (...) partly because taxes on the wealthy have cratered," writes Gabriel Zucman, an economist at the Paris School of Economics and the University of California, Berkeley.

Benefits of historical effective tax rates
Zucman argues that the higher historical effective tax rates on the rich helped keep wealth inequality in the US under control and allowed for the emergence of social protections and safeguards.

According to The New York Times data, US authorities have significantly reduced two hefty taxes that the rich used to pay in recent decades - the corporate profit tax and the estate tax for their heirs - including Ronald Reagan's cuts of corporate taxes to 34% and Donald Trump's policies that further reduced taxes on the rich to 21% in 2018.

Moreover, many large corporations, especially in the technology sector, are reinvesting their profits instead of distributing them to shareholders, including Jeff Bezos' Amazon (NASDAQ: AMZN), Elon Musk's Tesla (NASDAQ: TSLA), and Warren Buffett's Berkshire Hathaway (NYSE: BRK.A).

Addressing the inequalities
US President Joe Biden aims to address this imbalance with his newly revealed budget for fiscal year 2025, which includes a capital gains tax hike set at 44.6% targeting high-income earners, particularly those earning over $1 million annually, as reported by Finbold on April 25.

Zucman believes this would affect a "very small number of stratospherically wealthy individuals - about 3,000 people," forcing them to "give a relatively tiny bit of their profits back to the governments that fund their employees' educations and health care and allow their businesses to operate and thrive."