US Billionaires Paying Less Tax Than You – A Tale of Two Systems (Copy)
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A new study from UC Berkeley economists has found that the 400 wealthiest Americans paid an effective tax rate of just 24% between 2018 and 2020. That’s lower than the average American taxpayer at 30%, and far below high-earning employees who face effective rates closer to 45%.
How Do Billionaires Pull This Off?
The study points to low declared personal income compared with real economic income, limited dividend payouts from companies they own, and clever use of pass-through entities that often show losses on paper while making real profits. Changes like the U.S. Tax Cuts and Jobs Act of 2017 pushed these rates down even further.
How Does South Africa Compare?
Now, let’s look at the South African context. Our top marginal personal income tax rate is 45%. That means if a South African billionaire declared R100 million in taxable income, SARS would expect about R45 million in tax. Compare that to the U.S. study: a billionaire earning the same amount in “economic income” would be paying only R24 million on R100 million under their 24% effective rate. In other words, a South African top earner could be taxed almost double what the wealthiest Americans effectively pay.
Of course, in practice, the ultra-wealthy here also use trusts, private companies, and offshore structures to reduce their effective tax rates. Add to that the fact that South Africa does not yet have a formal wealth tax, and the gap between what the middle class pays and what the very rich pay can also be wide.
Who Pays Most Taxes?
Some argue that in South Africa the middle class earners bear the biggest tax burden with effective tax rate up to 51% which is even higher than the marginal income brackets. This is because they are adding together income tax, indirect taxes such as VAT, fuel levies, and municipal rates, as well as the extra private costs of healthcare, education, and security that households must cover due to weak public services. In this sense, the middle class faces a form of “double taxation”, paying the state while also paying privately for essential services. By contrast, proposals for a wealth tax on billionaires suggest contributions as low as 0.3% of net wealth, with some ultra-high-net-worth individuals effectively paying below 0.5%.
Why This is Important
In South Africa, we see a similar pattern: while marginal income brackets are steep, real effective tax burdens, especially for the ultra-wealthy with complex structures, can be much lower.
For accountants, the lesson is clear. Policymakers are increasingly questioning whether the wealthy contribute their fair share, and South Africa has already seen calls for wealth taxes and stricter reporting rules. For clients at the top end, the focus is shifting to transparency, fair compliance, and avoiding reputational risk as much as tax risk.
Be part of policy conversations. Wealth taxes—even modest annual rates—could raise significant revenue without choking economic activity.
The Bottom Line
In the U.S., billionaires are paying less tax than the average worker. In South Africa, the rates on paper are higher, but the real question is whether the wealthiest are paying what they should in practice.
Source Articles: Accounting Today, FANEWS
