The tax rate for regular Americans is five times that of the wealthiest billionaires

Yahoo Finance's Denitsa Tsekova breaks down how much average americas pay in taxes over their lifetime compared to the ultra wealthy.

Video Transcript

- Do you ever wonder how much on average Americans pay in taxes over their lifetime and how much that compares to the wealthiest American? Well, we have Yahoo Finance's Denitsa Tsekova here with all of the details. Some of them might be surprising to you. Hi, Denitsa.

DENITSA TSEKOVA: Hi. So yeah, what we've learned is that the 20-- the wealthiest 25 Americans pay a true tax rate of 3.4%. This is when it comes to federal taxes, and it's based on ProPublica's recent story. And we decided to look, what does that mean for the average American? So the average American pays at least five times-- uh, has at least five times higher tax rate. We're talking about a tax rate of 17.6%, and this is for federal taxes over their lifetime earnings.

So going back to the ProPublica number, they used true tax rate. There has been some debate on this because this is based on billionaires over wealth. They used this as a starting point, and calculates how much tax they owe on things that are normally not taxable, like for example, unrealized capital gains. But it's important to say that even when we exclude those unrealized capital gains, and we just look at their federal tax rate for those five years, regular Americans still are paying more in federal taxes.

The richest, uh, 25 Americans paid 15.8% in personal federal income taxes for those five years, while an average American pays around 2.7% lower, uh, tax rate-- uh, higher tax rate than those 25 richest Americans. And going back to why we use over wealth, uh, for the typical American, the vast amount of their earnings come from salaries. So a much lower fraction, uh, of the billionaires' wealth is actually coming from salaries. Uh, as an example, for the 0.01%, uh, capital income and capital gains account for 2/3 of their income, while for a regular worker, this is around 2%. So it's much, much lower. So this is the argument to use overall wealth as a starting point when we compare the tax rate. Because those billionaires are able to accrue wealth, uh, with their capital income, which is not being taxed at the same time.

- All right, Yahoo Finance's Denitsa Tsekova with all of those details. And you can read her reporting on yahoofinance.com.

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