Tax Rates for Top 400 Earners Fall as Income Soars, IRS Data

[one...two...tree 2,762]

David Cay Johnston* for Tax Analysts

The incomes of the top 400 American households soared to a new record high in dollars and as a share of all income in 2007, while the income tax rates they paid fell to a record low, newly disclosed tax data show.

In 2007 the top 400 taxpayers had an average income of $344.8 million, up 31 percent from their average $263.3 million income in 2006, according to figures in a report that the IRS posted to its Web site without announcement that were discovered February 16. (For the report, see Tax Analysts Doc 2010-3372 .)

The figures came at the peak of the last economic cycle and show that widely published reports in major newspapers asserting that the richest Americans are losing relative ground and "becoming poorer" are not supported by the official income data.

The long-term data show that under current tax and economic rules, the incomes of the top earners rise when the economy expands and contract during recessions, only to rise again. Their effective income tax rate fell to 16.62 percent, down more than half a percentage point from 17.17 percent in 2006, the new data show. That rate is lower than the typical effective income tax rate paid by Americans with incomes in the low six figures, which is what each taxpayer in the top group earned in the first three hours of 2007.

Taxpayers on the 95th to 99th steps on the income ladder paid an effective income tax rate of 17.52 percent, according to calculations by the Tax Foundation, a nonprofit research group that favors less taxation and lower rates. Taxpayers in this category earned between $255,000 and $451,000 in 2007, compared with an average daily income of almost $945,000 for the top 400, who paid lower effective tax rates on average.

Payroll taxes did not add a significant burden to the top 400, not changing the rounding of rates by even one decimal. With payroll taxes taken into account, the effective tax rate of the top 400 would be 17.2 percent in 2006 and 16.6 percent in 2007, my analysis shows -- the same as not counting payroll taxes. As a point of comparison, about two-thirds of Americans pay more in Social Security, Medicare, and unemployment taxes than in federal income taxes.

The top 400's share of all income grew from 1.31 cents out of every dollar earned by all Americans to 1.59 cents.

Adjusted for inflation to 2009 dollars, the top 400 enjoyed a 27 percent increase in their income, or nine times the rate of increase for the bottom 90 percent, based on an earlier analysis of tax data published by Profs. Emmanuel Saez and Thomas Piketty, economists at the University of California at Berkeley who have been studying global income trends.

Since 1992, the bottom 90 percent of Americans have seen their incomes rise by 13 percent in 2009 dollars, compared with an increase of 399 percent for the top 400.

The annual top 400 report was first made public by the Clinton administration, but the George W. Bush administration shut down access to the report. Its release was resumed a year ago when President Obama took office. The Statistics of Income Division at the IRS created the top 400 reports at the urging of Joel Slemrod, a business professor at the University of Michigan.

The top 400 reports understate actual top incomes because of deferral rules. For example, managers of offshore hedge funds who deferred their gains may not be counted in the top 400 reports, which are based on the figure on the last line of the front page of Form 1040.

At least three hedge fund managers made $3 billion in 2007. It is not known how much, if any, of their income they deferred.

Most of the income going to the top 400 tax returns is from capital. Salaries and wages accounted for only 6.5 percent of the top 400's income in 2007, down from 7.4 percent in 2006 and 26.2 percent in 1992. The average salary rose from 2006 to 2007, however, just at a slower rate than overall income growth.

The biggest source of income was capital gains, which are taxed at a maximum rate of 15 percent. Gains accounted for 66.3 percent of 2007 income for the top 400, up from 62.8 percent in 2006 and 36.1 percent in 1992.

Only 7 of the top 400 have shown up in the report every year, the IRS data showed. Of the 6,400 returns covered by the 16 years of the report, the IRS said that 2,515, or almost 40 percent, appeared one time.

The report shows that the number of the top 400 who paid an effective tax rate of 0 percent to 10 percent declined slightly, to 25 in 2007 from 31 in 2006. In 1992 only 6 of the top 400 paid an effective income tax rate of less than 10 percent.

Another 127 paid 10 percent to 15 percent in 2007, up from 113 in 2006.

Only 33 of the top 400 paid an effective tax rate of 30 percent to 35 percent, which is the maximum federal tax rate.

*David Cay Johnston is a former tax reporter for The New York Times. He teaches at Syracuse University College of Law and is the author of two books about taxes, Free Lunch and Perfectly Legal . His current column on taxes appears in Tax Notes and Tax Notes Today.

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[웃 910]

The IRS recently issued an interesting report which summarizes the returns of the 400 highest earning Americans each year (on an anonymous basis). In the most recent available year (2007), the 400 highest paid Americans (ultra-rich) had an average adjusted gross income of $344.8 million. This was up from an average of $263.3 million in 2006, and $93.0 million ten years earlier (1997). As the old saying goes, the rich are certainly getting richer.

Whether you think the ultra rich pay too much in taxes or too little in taxes, this report has some ammo for both sides. On the one hand, as a percent of total tax revenues, the ultra rich are paying a larger share than ever before. Even though top marginal rates have gone down, the richest Americans paid 2.1% of total income taxes paid in 2007. Ten years earlier (1997), their share of total taxes paid was only 1.2%. While the ultra-rich are paying a larger share of taxes than ever, their average tax rate has gone down. Warren Buffett has remarked in the past about how his tax rate is lower than his secretary's, and he's right. In the 2007 tax year, the ultra-rich had an average tax rate of 16.6%, which is down over 30% from the 24.2% rate they paid ten years earlier. One thing that we should all be able to agree on is that any tax system that is so complex and full of loopholes that the highest earners pay an average rate of less than half the top marginal rate is too complicated and in desperate need of an overhaul.

http://www.bespokeinvest.com/thinkbig/2010...-americans.html

[scandal 951]

Steve beat you. As he always does.

http://www.visajourney.com/forums/index.php?showtopic=242811

[one...two...tree 2,762]

Already posted..

http://www.visajourney.com/forums/index.ph...t&p=3725652

[scandal 951]

Already posted..

http://www.visajourney.com/forums/index.ph...t&p=3725652

Hah Now I beat Steve.

[one...two...tree 2,762]

Hah Now I beat Steve.

[웃 910]

Steve beat you. As he always does.

http://www.visajourney.com/forums/index.php?showtopic=242811

Ya, but does his article have charts?

[scandal 951]

Ya, but does his article have charts?

[Pinocchio Liberal 268]

Hah Now I beat Steve.

Now theres sumpthin to be proud of!

[scandal 951]

Now theres sumpthin to be proud of!

I can beat you too, if you like

[Pinocchio Liberal 268]

I can beat you too, if you like

The only thing you be beatin is a dead horse.

[scandal 951]

The only thing you be beatin is a dead horse frisky sheep.

[Gary and Alla 3,696]

Hah Now I beat Steve.

Congratulations...and to Steve too, for being the first to cut and paste something. Quite an accomplishment. We have the "one-liner" liberals and the "cut and paste" liberals. Steve is proud to be a cut and paster. I really look up to Steve for all his hours scanning the internet for interesting articles slanted to his way of thinking, that we could hardly live without, to post in VJ OT forum and make the day special for other people with no life. It begs the question. IS there a liberal out there intelligent enough to wirte something with more than one sentence and expresses their original ideas about something? Hmmm, just as I thought.

You may notice, if you can analyze anything, that if we confiscated 100% of the richest people's earnings, it would not pay for health care, and not much else for that matter. Congress's latest idea seems to be to eliminate the mortgage interest deduction, which will "bring in" 93 billion per year. THAT will pay for health care, but those aren't rich people, are they?

Implement the FAIR tax and all these problems go away and our country will become THE tax haven for other businesses to build here and bring our jobs back, increase revenues to the government and relieve us of billions of dollars in tax compliance costs every year.

Edited February 19, 2010 by Gary and Alla

[scandal 951]

Congratulations...and to Steve too, for being the first to cut and paste something. Quite an accomplishment. We have the "one-liner" liberals and the "cut and paste" liberals. Steve is proud to be a cut and paster. I really look up to Steve for all his hours scanning the internet for interesting articles slanted to his way of thinking, that we could hardly live without, to post in VJ OT forum and make the day special for other people with no life. It begs the question. IS there a liberal out there intelligent enough to wirte something with more than one sentence and expresses their original ideas about something? Hmmm, just as I thought.

You may notice, if you can analyze anything, that if we confiscated 100% of the richest people's earnings, it would not pay for health care, and not much else for that matter. Congress's latest idea seems to be to eliminate the mortgage interest deduction, which will "bring in" 93 billion per year. THAT will pay for health care, but those aren't rich people, are they?

Implement the FAIR tax and all these problems go away and our country will become THE tax haven for other businesses to build here and bring our jobs back, increase revenues to the government and relieve us of billions of dollars in tax compliance costs every year.

[Pinocchio Liberal 268]

Congratulations...and to Steve too, for being the first to cut and paste something. Quite an accomplishment. I really look up to Steve for all his hours scanning the internet for interesting articles we could hardly live without to post in VJ OT forum and make the day special for other people with no life.

You may notice, if you can analyze anything, that if we confiscated 100% of the richest people's earnings, it would not pay for health care, and not much else for that matter. Congress's latest idea seems to be to eliminate the mortgage interest deduction, which will "bring in" 93 billion per year. THAT will pay for health care, but those aren't rich people, are they?

Implement the FAIR tax and all these problems go away and our country will become THE tax haven for other businesses to build here and bring our jobs back, increase revenues to the government and relieve us of billions of dollars in tax compliance costs every year.

Have you noticed how they always post irrelevant ####### to start a conversation? Then the conversation is about the ####### they post. Their whole fvckin world is based on someone elses fvckin words.

Slap a fvckin solar panel on their head and shove a couple 9 volt batteries up their #### and you got yourself an environmental energizer monkey.