While it could be said the new tax bill benefits everyone, the widening income gap says something else.
Don’t let the extra few bucks in your pocket fool you – the rich keep getting richer.
Under the Tax Cuts and Job Act (TCJA), the top .001% of Americans will pay $637 million in taxes over their lifetimes. But they’re also experiencing an $18 million lifetime tax break with the new tax bill, too.
To put that in perspective, people working in personal care and service occupations save $20,563 over their lifetime under the new tax reform.
It would take 878 lifetimes for someone in that industry to match the tax savings of the .001%.
In Layman’s terms — the richest persons’ tax breaks are more money than many of us could ever hope to earn during our lifetimes.
To explore this phenomenon further, we deep-dived into the data to analyze who benefits the most from the new tax code.
Hint: It’s probably not you.
We used data from the 2012-2016 American Community Survey PUMS database to model what people earn by industry over their career span from ages 18 to 66.
We then applied the federal income tax system to each year and each industry and summed them up to get an estimate of lifetime earnings and taxes.
Inflation was not used in the study as its impact is statistically insignificant for comparing outliers (the 1%+) to an average earner over their lifetime.
For the extremely wealthy, we created the following three fictional cases.
1. For the top 1%, we created a model where someone begins making the threshold to be in the top 1% at age 40 and continues making that annual salary for the rest of their careers.
2. The formula for the top .01% was that we assumed someone made $35.1 million for 10 years of their career, and then continued having an eight-figure income as their career progressed — based simply off interest from their successful years.
3. Finally, for the top .001%, we assumed the persons in this group began making eight-figure incomes in their early 20s, with a single spike in income at age 50. After the spike, they reverted back to their “normal” income of annual eight-figure salaries.
In total, there are only 1.4 million Americans in the top 1% of incomes. That number significantly shrinks as we look at the .01% and .001% of incomes. The goal of this study is to show how large the tax break of the top income groups is when compared to the average American’s income.
That’s right. The top 1% of incomes in the United States pay 39% of the country’s total federal income tax.
To be a member of that top 1%, you’ll need to rake in at least $480,390 annually.
At this income, a single filer with no dependents and a standard deduction would pay $142,149.51 in taxes this year.
Same conditions for an “average” .01%: They’re paying over $13 million in taxes.
Finally, for an “average” .001%: They’re going to cough up over $57.5 million.
Yep, although they pay the most in taxes, their tax cuts from the new tax deal are pretty extraordinary numbers, too.
To calculate the numbers of just how much the rich benefit from the new tax bill, we looked at their annual incomes from age 18 to age 66 and compared them with workers across different industries.
The .01% makes an average of $20.3 million annually during their lifetime. The .001% rakes in an even more astounding $34.6 million per year.
So, given that both groups make an ungodly amount of money, why do they have the biggest tax breaks from the new law?
The .01% has a $10.5 million tax break over their lifetime with the new tax bill, while the .001% experiences an $18 million tax break.
The people at the 1% threshold – making $480 thousand – actually have to pay more in taxes over their lifetime with the installation of the TCJA. Granted, it’s not much averaging out to an increase of $3,238 annually, but overall they’ll pay $155,465 more in lifetime taxes than they would’ve under the old bill.
So the people who see the biggest benefit from the new tax bill are already those select few at the tippy top of America’s richest. If you’re raking in nearly $35 million per year, what’s another $18 million over your lifetime going to matter?