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While tax reforms may be framed as beneficial for all, the reality of the widening income gap suggests otherwise. The increase in disposable income for the average worker is overshadowed by the staggering benefits that the wealthiest Americans continue to receive.
Under the Tax Cuts and Jobs Act (TCJA), individuals in the top 0.001% can expect a lifetime tax savings of approximately $18 million. In stark contrast, average earners in personal care and service occupations save only around $20,563 throughout their lifetimes.
To put this into perspective, it would take an individual from these lower-income professions 878 lifetimes to accumulate the same tax savings that the top 0.001% enjoys from recent tax reforms. The tax breaks for the wealthiest Americans far exceed what many will earn over their entire careers.
To delve deeper into this economic phenomenon, we conducted a comprehensive analysis to determine who truly benefits from the current tax code.
Summary of Findings
- Americans in the 0.001% can anticipate a lifetime tax reduction of $18 million under the TCJA.
- The 0.01% of earners can expect a $10 million lifetime tax break.
- Those at the 1% threshold will see a lifetime tax increase, paying an additional $155,465 on average due to the new legislation, depending on various factors such as state residency and homeownership.
- The average worker benefits from a lifetime tax break of about $40,000, which translates to roughly $800 annually.
- Legal occupations, the highest-paying industry, see a lifetime tax savings of approximately $80,000, or about $1,600 per year.
- The lifetime tax break for the 0.001% is 223 times greater than that of someone in the legal profession.
- Individuals in the food service industry earn an average lifetime income of $1.2 million, which would take them 15 years to match the tax savings of the 0.001%.
- The tax break for the 0.001% is 1,043 times that of someone working in food service.
How We Conducted Our Analysis
Our analysis utilized data from the American Community Survey for the years 2012-2016 to model earnings by industry for individuals from ages 18 to 66. We applied the federal income tax system to estimate lifetime earnings and taxes across various professions.
Inflation was excluded from this analysis, as its effect is negligible when comparing outliers (the top 1% and above) to average earners.
To represent the extremely wealthy, we created three hypothetical cases:
1. For the top 1%, we modeled an individual starting at the income threshold of $480,390 at age 40, maintaining that salary for the remainder of their career.
2. For the top 0.01%, we assumed an individual earns $35.1 million for a decade and transitions into an eight-figure income for subsequent years based on accrued wealth.
3. For the top 0.001%, we modeled individuals beginning with eight-figure incomes in their early 20s, experiencing a significant income spike at age 50, then returning to their regular income thereafter.
For context, there are approximately 1.4 million Americans in the top 1% of income. This number diminishes significantly for the 0.01% and 0.001%, illustrating the scale of tax benefits for these elite groups compared to average Americans.
Who Pays the Most in Taxes? Wealthy Individuals!
Indeed, the top 1% of earners in the U.S. contribute 39% of the total federal income tax revenue.
To qualify for this elite group, an individual must earn at least $480,390 annually. Under these conditions, a single filer with no dependents and a standard deduction would owe approximately $142,149.51 in taxes this year.
In comparison, an average member of the 0.01% pays over $13 million in taxes, while an individual in the 0.001% contributes over $57.5 million.
Who Benefits the Most from the New Tax Deal? Once Again, the Wealthy!
While they pay the highest taxes, the wealthiest Americans also enjoy substantial tax breaks from current legislation.
Through our analysis, we found that the 0.01% earns an average of $20.3 million annually, whereas the 0.001% makes an astonishing $34.6 million each year. Given such immense earnings, the question arises: Why do they receive the most significant tax breaks?
The 0.01% benefits from a $10.5 million tax break over their lifetime, while the 0.001% enjoys an $18 million reduction. Conversely, individuals at the 1% threshold end up paying more in taxes with the TCJA, averaging an increase of $3,238 annually, totaling $155,465 more over their lifetime than under previous tax laws.
Ultimately, the individuals who stand to gain the most from recent tax reforms are already the wealthiest in society. For those earning nearly $35 million annually, an additional $18 million in tax savings is merely a drop in the bucket.
Author
McLeod Brown is a former writer and researcher for the Zippia Career Advice blog. His work at Zippia focused on understanding the relationship between colleges, debt, and jobs. A graduate of the University of North Carolina at Wilmington with a BA in Business Administrator, he is now pursuing a masters of science in analytics from the Institute of Advanced Analytics.
