Biden’s Tax Rate Comparison for Billionaires and Schoolteachers

President Joe Biden has said there are hundreds, if not a thousand, billionaires paying lower federal tax rates than schoolteachers, police officers, firefighters and nurses. What his audience may not know is that his comparison relies on including wealthy families’ gains on unsold stock as income.

Biden has made this comparison frequently in recent weeks.

The New York Stock Exchange during the opening bell on Aug. 23, 2016. Photo by Cindy Ord/Getty Images.

“But no billionaire should be paying a lower tax rate than a schoolteacher or a firefighter,” Biden said in his Feb. 7 State of the Union address, calling on Congress to “pass my proposal for the billionaire minimum tax.”

In the following two days, Biden repeated that sentiment, mistakenly saying it was “trillionaires” who “pay less for the percentage of their income than a schoolteacher does” in an interview with “PBS NewsHour.” (The wealthiest person in the U.S. in 2022 was Elon Musk, with an estimated net worth of $219 billion, with a “b,” according to Forbes’ ranking.) And on Feb. 9, Biden said the average percentage of income billionaires pay is “less than the police officers I met a little bit earlier.”

We’ve seen similar claims before. In 2015, Sen. Bernie Sanders compared the tax rates of hedge fund managers with firefighters, police officers, nurses and truck drivers.

We wrote then that those who make their money through investments rather than wages can pay lower effective federal tax rates than some in jobs like firefighters, police officers and nurses — if we include federal income taxes and Social Security and Medicare payroll taxes paid by both the employee and the employer. And depending on the circumstances.

When we ran the numbers in 2015, the 23.8% top tax rate on investments, including a 20% capital gains rate and the 3.8% surtax on investments for high-income earners, was lower than the effective rates for single people without children making the median pay in nearly all of the occupations Sanders cited. But the situation flipped once we added a dependent child or nonworking spouse.

That 20% is still the top long-term capital gains tax rate, while the top marginal income tax rate, on earnings over $578,125 for individuals, is substantially higher, at 37%.

Biden, though, isn’t talking about existing income and capital gains taxes alone, and his claim is worth explaining.

The White House Analysis

Biden’s statements refer to a White House economic analysis that included earnings on unsold stock as income. After factoring in this change in wealth, the analysis estimated the average federal individual income tax rate for the 400 wealthiest families was 8.2%, based on the years 2010 to 2018. (On Feb. 9 and 15, Biden incorrectly said 3%.)

That’s lower than the average effective federal income, plus payroll, tax rate for the top 60% of taxpayers, according to this chart from the Urban-Brookings Tax Policy Center. Those are taxpayers in 2023 with more than $59,700 in “expanded cash income,” a measure TPC uses that includes tax-exempt employee and employer contributions to health benefits and retirement accounts, and nontaxable Social Security benefits, among other items.

Looking strictly at federal income tax paid on adjusted gross income, the White House’s 8.2% is lower than the average effective tax rate for the top 50% of taxpayers, according to a summary of 2020 IRS data by the Tax Foundation. Those earning less than $42,184 in adjusted gross income, on average, paid a lower federal income tax rate.

To be sure, when looking only at income, the top-earning taxpayers, on average, pay higher tax rates than those in the income groups below them. The top 0.1% of earners, with more than $4.4 million in expanded cash income, pay an average rate of 25.1% in federal income and payroll taxes, according to the TPC chart. Those in the middle 20%, with income between $59,700 and $105,900, pay an average of 12.3%.

But the current tax system does not tax earnings on assets, such as stock, until that asset is sold, at which point they are subject to capital gains taxes. Until stocks and assets are sold, any earnings are referred to as “unrealized” gains.

So, do many billionaires pay lower tax rates than schoolteachers and the other occupations Biden mentions? “Yes, if you count the unrealized gains, which we don’t normally count” for federal income tax purposes, Steven M. Rosenthal, senior fellow at the Urban-Brookings Tax Policy Center, told us in an interview.

Biden’s meaning is likely not clear to many in his audiences.

Erica York, a senior economist and research manager at the Tax Foundation, told us in an email that Biden’s comparison is “problematic” because “it creates a new definition of income to use to measure the tax burden, but only applies that new measure of income to the top 400” families. She also said an analysis including unrealized gains should factor in “associated taxes, like corporate income taxes,” levied on the corporations in which these wealthy households own stock. That would increase the White House estimate “significantly.”

Rosenthal, though, disagreed that such indirect taxes should be included in the analysis.

The problem with the current tax system, the White House says, is that unrealized gains could go untaxed forever if wealthy people hold on to them and pass them on to heirs when they die. “If a wealthy investor never sells stock that has increased in value, those investment gains are wiped out for income tax purposes when those assets are passed on to their heirs under a provision known as stepped-up basis,” the analysis says.

Under stepped-up basis, the value of the asset is adjusted to the fair market value at the time of the inheritance. This wipes out any taxes on the unrealized gains that accumulated from the time the investor bought the asset and the time it was inherited.

“One specific issue that can arise with respect to billionaires is that wealthy households may purchase assets that appreciate (increase in value), and then borrow money against their assets to consume their wealth without paying tax,” York said. Then, when the family passes away, the assets can go to heirs and the “unrealized gains escape taxation,” she said, later referring to the strategy as “buy, borrow, die.”

In a May 2022 post, Rosenthal wrote of the untaxed-gains-at-death issue: “Government loses a massive amount of revenue, wealth inequality is perpetuated through generations, and investors are encouraged to retain (or ‘lock-in’) poorly balanced, and less productive, portfolios. More than fifty years ago, two leading tax experts described the failure to tax gains of property transferred at death as ‘the most serious defect in our federal tax system.’”

It’s a “challenge” to address this, as both Rosenthal and York put it. Biden’s solution: his “billionaire minimum tax.”

Biden’s Proposal

The president’s billionaire minimum tax is a 20% minimum that actually applies to those worth over $100 million, so it’s not just for billionaires. The White House estimates those with such net worth are 0.01% of American households.

Under the proposal, if these households are not paying 20% in federal income taxes, as calculated on both standard income and unrealized income combined, they would “owe a top-up payment to meet the 20 percent minimum,” a White House fact sheet explains.

They can spread out these top-up payments over several years, and those with “illiquid” assets, such as a personal business, would have the option of paying the tax later “with interest.”

“In effect, the Billionaire Minimum Income Tax payments are a prepayment of tax obligations these households will owe when they later realize their gains,” the fact sheet says. “This approach means that the very wealthiest Americans pay taxes as they go, just like everyone else, and eliminates the inefficient sheltering of income for decades or generations.”

Both Rosenthal and York said this idea comes with administrative headaches and potential legal barriers.

“The market value of taxable assets net of liabilities would have to be determined each year, and the high share of privately held businesses among the wealthy would aggravate the problem,” York said. “The IRS currently deals with similar issues for the estate tax, and that experience indicates an annual tax on unrealized gains would be plagued with avoidance and evasion strategies.”

Rosenthal wrote about similar concerns when Biden pushed the idea last year — “the super-rich own lots of assets, which would require lots of valuations,” he said. And on the legal side, he questioned whether the Supreme Court would find the tax constitutional. (Read more about the legal concerns here.)

There’s also the issue of those who don’t have cash on hand to pay taxes on unrealized gains — “say a business owner whose wealth was entirely tied up in an ongoing business,” York noted. The business owner can pay the minimum tax later, when they sell the business or die, but with an added “deferral charge,” an estimation of what would have been owed annually. That would result in some over- and some under-taxation, she said.

Both of these experts had other ideas on how to fix the underlying problem: taxing unrealized gains at death at income tax rates and keeping capital gains rates for profits or gifts of assets during life (Rosenthal) or creating a progressive consumption tax (York).

In July of last year, Democratic Reps. Steve Cohen and Don Beyer introduced Biden’s minimum tax in the form of legislation. It was referred to committee, and no other action was taken on it. Now, Republicans control the House.

But Biden is continuing to call for a new tax on the wealthy (not only “billionaires”), who he says pay less of a percentage of their “income” — including unrealized gains — than schoolteachers, firefighters and others.

“These billionaire taxes poll really well,” Rosenthal noted.

Editor’s note: does not accept advertising. We rely on grants and individual donations from people like you. Please consider a donation. Credit card donations may be made through our “Donate” page. If you prefer to give by check, send to:, Annenberg Public Policy Center, 202 S. 36th St., Philadelphia, PA 19104. 

Leave a Reply

Your email address will not be published. Required fields are marked *