A Bigger Share of Taxes Isn’t a Higher Tax Rate

Published September 19, 2026 at 11:05 AM PDT. · Updated September 30, 2026 at 11:39 PM PDT.

By Aref M. Bajwa

“Top earners pay a larger share of income taxes.”

Fine. What share of the income do they earn?

You need both numbers. Otherwise, a statement about who pays the tax bill gets treated as an answer to whether the tax system is fair.

Start with the denominator.

Imagine an economy with $100 of income and a flat 20% tax rate. One group earns $20 and pays $4. It receives 20% of the income and pays 20% of the taxes.

Now that group earns $30 of the same $100. It pays $6, or 30% of the tax bill.

Its share of taxes went up. Its tax rate did not.

Illustration, not observed U.S. data. Total income and total taxes are unchanged.

That does not prove the group pays too much or too little. It shows why its share of the tax bill cannot settle the argument.

What the actual numbers say

In 2023, the top 1% of federal individual income-tax returns, ranked by adjusted gross income and excluding dependents, accounted for 20.63% of AGI and 38.40% of income tax. Their average income-tax rate was 26.27%, compared with 14.11% across all returns in that population. Those figures demonstrate a higher average rate at the top on this measure. They are not a measure of all taxes or all growth in wealth. IRS, Table 4.1.

The year-to-year comparison makes the distinction concrete:

Their tax share fell while their average rate rose. Here, the average rate is income tax divided by AGI, not a marginal bracket. These are annual income-ranked groups, not a fixed panel of the same people. IRS, Table 4.1.

I am not arguing that a large tax payment is imaginary. I am arguing that three different questions are being collapsed into one: how much income a group receives, how much tax it pays, and how heavily that income is taxed.

Growth is only the first question

A larger economy is desirable. But “the economy grew” does not tell a worker what happened to their paycheck, or tell us how the resulting income was divided.

Here, every income measure uses the same denominator: that year's nominal U.S. GDP. This lets us compare wages, total employee compensation and corporate profits relative to the size of the economy. These are not GDP growth rates or shares of household tax-return income.

Calculated from annual BEA data distributed through FRED: wages and salaries, domestic employee compensation, domestic corporate profits with inventory valuation and capital consumption adjustments, and nominal GDP. Employer supplements are total compensation less wages and salaries; they include employer benefit and social-insurance contributions. Each amount is divided by the same year's GDP. Values are rounded independently. Data as of 30 September 2026.

A smaller compensation share does not mean pay fell in dollars. A growing total can support more compensation even as compensation receives a smaller percentage. These selected measures are not a complete decomposition of GDP: they do not establish a dollar-for-dollar transfer from employees to shareholders, or identify the income of the top 1%. Total compensation already includes wages and supplements, so those rows must not be added together again.

What they do establish is a different income mix at these dates. That is relevant when discussing the relative treatment of work and ownership. It is not a substitute for examining either directly.

Work, ownership and timing

My concern is how we treat income earned through work compared with income earned through ownership.

Covered wages face Social Security and Medicare taxes as well as applicable income tax. Social Security has an annual wage ceiling; Medicare does not. Any comparison that counts only individual income tax leaves that part of the worker’s tax bill out. IRS, Social Security and Medicare withholding.

Long-term capital gains can qualify for lower income-tax rates than ordinary income. But it would also be wrong to imply that investment income faces no additional tax: the 3.8% net investment income tax can apply above specified income thresholds. IRS, capital gains; IRS, net investment income tax.

Timing is another distinction. For an ordinary stock investment, an increase in market value is not itself a realized capital gain. A sale generally establishes the gain or loss relative to tax basis. A wage-and-realized-income comparison therefore answers a different question from a comparison that includes unsold appreciation. IRS, capital gains.

I think that distinction makes a wealth tax worth examining. It does not make designing one simple. A serious proposal would need to specify the assets and liabilities counted, how private assets would be valued, how losses would be treated, and how someone with valuable but illiquid holdings would pay. It would also need a legal and administrative case. The income-tax-share statistic answers none of those design questions.

The same discipline should apply whichever policy someone favors. Decide what you want to measure, use a consistent denominator, and include the taxes relevant to the claim. Do not treat a preferred conclusion as permission to switch definitions halfway through.

Before telling me a group pays a larger share of taxes, show me its share of income, its average tax rate, and which taxes you are counting. Use the same population and the same period.

A larger share of the tax bill may reflect a larger share of income, a higher relative rate, or both. The share alone cannot tell us whether the balance between work and ownership is right.