Vladimir Vladimirov/Getty Images
Commitment to our readers
The GOBankingRates editorial team is committed to providing you with unbiased reviews and information. We use data-driven methods to evaluate financial products and services – our reviews and ratings are not influenced by advertisers. You can read more about our editorial guidelines and our review methodology for products and services.
20 years
Helping you become richer
trusted by
millions of readers
The question seems simple enough: What if the wealthiest Americans paid taxes at the same rate as everyone else? But when you actually run the numbers, the answer becomes increasingly complex.
I asked ChatGPT what would happen if the top 1% of taxpayers paid the same effective tax rate as the bottom 75% of Americans. The results were not what most people would expect.
current tax picture
This is where things are right now. The top 1% of taxpayers pay about 26% of their income in federal income taxes. This is their effective rate after including all deductions and credits.
The bottom 75% of earners pay between 10% and 15%, depending on where they fall in that range. The bottom half of earners pay even less, about 3% to 4%.
In 2022, the top 1% handed over about $860 billion to the IRS, about 40% of all individual income tax revenue collected that year.
What do match rates really mean
This is where it gets interesting. If you asked the top 1% to pay the same effective rate as the bottom 75%, you would be lowering their taxes, not raising them.
Think about that for a second. The conversation around tax fairness usually assumes that the rich are getting away with something. But on net income tax rates, they are already paying a higher percentage than most Americans.
If you reduced the top 1% to a 15% or 18% effective rate to match the bottom 75%, federal tax revenues would drop significantly. This is the opposite of what people think when they talk about making the rich “pay their fair share.”
The real debate is about capital gains
The frustration most people feel isn’t really about income tax rates. It’s about how different types of wealth are taxed differently.
Rich people make most of their money from investments, not salaries. Investment income is taxed at lower rates than salaries. This is where separation occurs. Someone with a job pays more on their salary than an investor pays on his stock gains.
If you closed those loopholes and investment income faced the same tax treatment as regular salaries, only then would you see massive revenue growth. Economists estimate this approach could bring in hundreds of billions to $1 trillion per year, ChatGPT reported.
But that scenario requires not just adjusting rates, but changing the way wealth is taxed.
Why do numbers become unclear
There are no official government estimates of what exactly would happen in these scenarios. The IRS provides data on what currently exists, but estimating changes becomes increasingly messy.
People change their behavior when tax rates change. They find new cuts, move money around or structure deals differently. Some wealthy taxpayers will probably shift income to avoid higher rates. Others may abandon some investments altogether.
Economists strongly disagree over how much taxable income would be reduced if rates were raised. Those assumptions make a big difference in revenue estimates.
what does it really represent
The takeaway is that tax fairness is more complex than a single percentage. The top 1% already pay a higher effective income tax rate than most Americans. Matching these downwards will cost government money.
The real issue is not the rates. This is the structure. Investment income faces different rules than salaries. Capital gains get preference. There are massive exemptions in property taxes. The wealthy have access to deductions and strategies that regular workers don’t have.
When people say “tax the rich”, they usually mean closing those gaps, not literally matching the percentage with people earning less. Conversations don’t always use those exact words.
ChatGPT has worked out the math and it’s crystal clear: If you want the rich to contribute more, you can’t adjust their rate to everyone else’s. You have to change what is taxed and how it is taxed. This is a much larger increase than just a percentage change.