The IRS puts out an interesting tax document each year, looking at the returns of the nation’s 400 highest income tax paying people. The most recent year of complete data is 2007, when 143 million individuals filed tax returns.

Some of the data is quite astonishing:

• The top 400 U.S. individual taxpayers got 1.59% of the nation’s household income in 2007 — 3X the p% they got in the 1990s.

• The top 400 paid 2.05% of all individual income taxes in 2007.

• Only 220 of the top 400 were in the top marginal tax bracket.

• Average tax rate of the 400 = 16.6% — the lowest since the IRS began tracking the 400 in 1992.

• Minimum annual income to make the top 400 =  $138.8 million.

• Top 400 reported $137.9 billion in income; they paid $22.9 billion in federal income taxes.

• 81.3% of income was from capital gains, dividends or interest. Salaries and wages? Just 6.5%.

• The top 400 list changes from year to year: 1992-2007, it contained 3,472 different taxpayers (out of a maximum 6400).

Happy tax day to you to!
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Thanks to David Wessel for the tip!

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Sources:
The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2007
http://www.irs.gov/pub/irs-soi/07intop400.pdf

A Look at the Tax Returns of the Top 400 Taxpayers
David Wessel
WSJ, FEBRUARY 17, 2010
http://blogs.wsj.com/economics/2010/02/17/a-look-at-the-tax-returns-of-the-top-400-taxpayers/

Category: Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

27 Responses to “Top 400 Taxpayers”

  1. tagyoureit says:

    81.3% of income was from capital gains.

    Can you imagine the general outrage if anyone were to ever seriously suggest taxing capital gains as income?

  2. Cynic_FA says:

    The report must include tax exempt municipal interest as part of income. The AMT rate is 25%; I don’t see any other way for a tax rate of just 16.6%. This is another way to make statistics lie when you add in the municipal interest. Someone needs to finance the deficits for our local profligate spenders.

    Assuming a 4% return for interest dividends and capital gains, the asset base needed to generate $138.8 million is $3.47 Billion. This brings me back to yesterday’s comment – what are the Democrat’s thinking with a 0% estate tax for 2010? If you pretend to be outraged that a billionare only pays 16% tax because he/she does the logical thing and invests in tax exempt bonds, then how can you stay silent that the $3.47 billion estate(average size) will pass to heirs free from estate taxes for the 1%-3% of these billionaires who die this year?

    I don’t think the income tax is too low. The estate tax encourages more billionaires to do the Buffet/Gates thing and give most of their estates to charity. The money still won’t go to taxes, but, it won’t create a perpetual line of billionaire descendants.

  3. theorajones says:

    According to the CBO, the average effective federal tax rate (all taxes, including payroll) is 20.7 percent. (That’s a 2006 number, but it probably hasn’t changed all that much). http://nyti.ms/15XTJx

    I wonder how many people earning more than $200,000 a year realize they’re paying much, much higher marginal tax rates because finance guys earning tens of millions are benefiting from things like corporate tax rates and capital gains rates. Just, wow.

  4. DeDude says:

    There you go. As previously said lets fix the alternative minimum tax (AMT). First of all let it apply to the total of all income (including market value of option, futures and other non-traditional income as well as capital gains), without ANY deductions. No AMT on the first 100K, then 20%, 30% and 40% on that which exceeds 100K, 1M and 10M respectively. For most upper middle class people it would never apply because their regular taxes would exceed the AMT taxes. For these multimillionaire tax evaders it would take a rightful chunk out of their income so we finally could get some tax fairness.

  5. DeDude says:

    @Cynic_FA, the AMT allows all kind of deductions and these free-loading tax-evaders know all about how to use them.

  6. The Curmudgeon says:

    How about we quit trying to engineer society through manipulations of the tax code? Take out all the deductions. Figure out the level of taxation needed for supporting the level of spending, then make everyone pay, progressively, on all forms of income above the minimum required for survival. Start at about 10% for those just above the poverty line, and then for only the amount by which they exceed it. Cap it at about 45%, so the wealthy won’t all flee for fairer tax shores.

    In any event, something has got to be done. Money for all the promises the government has made has got to come from somewhere, or those promises will be broken. Revenue has to increase, or benefits will have to decrease. It’s as simple as that.

  7. DL says:

    “81.3% of income was from capital gains, dividends or interest. Salaries and wages? Just 6.5%”

    That goes a long way towards explaining why it’s so difficult to squeeze more money out of them.

    Rasing the cap gains rate isn’t going to do the trick.

  8. ACS says:

    2007. hmm… I seem to remember something about that year… oh yeah, it was the top of a bull market!

  9. sditulli says:

    Before getting worked up over their tax rate remember two things.

    Dividends are taxed twice. I think it is fair to attribute the corporate tax rate to their earnings to an extent. Also a lot of their income is municipal bonds which they are paying a sort of tax by accepting a lower tax rate from the muni in return for the tax exempt status.

    My point they are paying a much higher rate than the rate listed because of indirect taxes (Corporate and accepting a lower interest rate from munis)

    The carried interest thing problem needs fixed though which is an area a lot of these guys make their money and hence get a low tax rate.

  10. JMelville says:

    Average tax rate of the 400 = 16.6% — the lowest since the IRS began tracking the 400 in 1992

    Coincidently, that was my effective tax rate too. Amazing.

  11. WFTA says:

    So why does the Wal-Mart demographic vote Republican and why are the Tea Partiers (80% of households earning <$100k) so enamored of the Steve Forbes Fantasy Flat Tax or worse still, a national sales tax?

    As they say, truth is stranger than fiction.

  12. ella says:

    “With corporate tax receipts at 20-year low, the GAO takes a look through the books and finds 94% of all U.S. companies paid less than 5% — and 61% paid nothing at all.” http://moneycentral.msn.com/content/Taxes/P80242.asp

    “Two-Thirds of Corporations Pay No Taxes, But McCain Still Wants To Lower the Corporate Tax Rate

    A cornerstone of Sen. John McCain’s (R-AZ) economic plan — Jobs for America — is cutting the corporate tax rate from 35 percent to 25 percent, which McCain claims will turn America into a “low-tax business environment.” But as it turns out, even with the rate at 35 percent, most corporations are not paying taxes.” http://wonkroom.thinkprogress.org/2008/08/12/no-corporate-taxes/

    Capital gains are tax at a lower rate than wages.

    “About 25 percent of the U.S. corporations not paying corporate taxes were considered large corporations, meaning they had at least $250 million in assets or $50 million in receipts.” http://www.cbsnews.com/stories/2008/08/12/national/main4342535.shtml

    “Some of the world’s biggest, most profitable corporations enjoy a far lower tax rate than you do–that is, if they pay taxes at all.

    The most egregious example is General Electric ( GE – news – people ). Last year the conglomerate generated $10.3 billion in pretax income, but ended up owing nothing to Uncle Sam. In fact, it recorded a tax benefit

    Avoiding taxes is nothing new for General Electric. In 2008 its effective tax rate was 5.3%; in 2007 it was 15%. The marginal U.S. corporate rate is 35%. http://www.forbes.com/2010/04/01/ge-exxon-walmart-business-washington-corporate-taxes.html

    “CAYMAN ISLANDS – Kellogg Brown & Root, the nation’s top Iraq war contractor and until last year a subsidiary of Halliburton Corp., has avoided paying hundreds of millions of dollars in federal Medicare and Social Security taxes by hiring workers through shell companies based in this tropical tax haven.” “With an estimated $16 billion in contracts, KBR is by far the largest contractor in Iraq, with eight times the work of its nearest competitor.” http://www.boston.com/news/world/articles/2008/03/06/top_iraq_contractor_skirts_us_taxes_offshore/ Note these contracts are funded with TAXPAYER DOLLARS

    Federal revenue sources chart. http://www.publicagenda.org/charts/federal-budget-revenue-sources

  13. Mysticdog says:

    This confuses me a bit:
    • The top 400 U.S. individual taxpayers got 1.59% of the nation’s household income in 2007 — 3X the p% they got in the 1990s.

    • The top 400 paid 2.05% of all individual income taxes in 2007.

    • Only 220 of the top 400 were in the top marginal tax bracket.

    • Average tax rate of the 400 = 16.6% — the lowest since the IRS began tracking the 400 in 1992.

    Ok, so as a whole, the top 400 got 1.59% of the income, but paid out 2.05% of the taxes. So they did pay a disproportionately high share (which I personally think is appropriate).
    But almost half didn’t even qualify for the top tax rate, even though all of them easily lept over the boundary for it.
    So that really sounds like even among those top 400, a very few actually paid out the bulk of that $22.9 billion, raising the average for the rest.
    Is that just a natural effect of “Me and bill gates average a $10 billion income”? Were there a couple of billionaires who had bad tax lawyers and actually paid that 35% tax rate?

  14. foxorrabbit says:

    BR: I’m surprised you fell into this common slip-up: “looking at the returns of the nations wealthiest 400 people.” Wait, I thought “wealth” was measured by net worth (not income)? Wealth is a state, income is a flow. It’s an important distinction. Language like this implies that the top 400 in wealth also are also top 400 in reportable income. Is that an accurate assumption (e.g. I bet Buffett’s *reportable* income was so small he wouldn’t even make a top 10,000 list, let alone top 400)? If it’s not an accurate assumption, what are the implications of that incorrect assumption (confusing income with wealth) on tax policy decisions?

    ~~~

    BR: Yeah, I should have been more precise: “looking at the returns of the nations 400 highest income tax paying people.”

    I’ll fix above

  15. DeDude says:

    “Dividends are taxed twice”

    All money is taxed multiple times. The dollar I earn is income taxed, then I spend it and it is sales taxed (and that is actually true double taxing hitting the same person/entity, not the fuzzy type people use trying to run away from taxes on dividends and inheritance income). Furthermore, the owner of the store where I spend it is taxed on the income I gave him by spending that dollar etc., etc. That dollar gets taxed dozens of times until finally someone lights a cigarette with it.

  16. Marco says:

    We don’t live in a police state (or more precisely, a police world); so to suggest that you can somehow just tax those 400 people at the top is silly. They make their money from capital, it goes to where it receives the highest AFTER TAX returns, tax it more, the returns go down, and your capital leaves.

    The reason why the top 400 income earners pay so little in tax is because they are the most mobile (or at least their income earning capital is); they’re a lot more mobile than a family of 4 making $250K. That’s not to say the family of 4 with an income of $250K is immobile, but lets just say they aren’t prone to open a bank account in a tax haven.

    So, unless you’re willing to invade Bermuda, Bahamas, Cayman Islands, Lichtenstein, Monaco (the list probably goes on for another 20-30 places); the notion that you can simply get more taxes by increasing rates on that free flowing money is ill-informed.

    As to arguments that corporate tax rates are too low (based on average effective rates); that only applies to large companies, that can afford an army of lawyers and tax accountants who set up off-shore entities. The objective of lowering corporate tax rates would be to eliminate the loop holes that allow big companies to pay nothing, while small companies pay a higher effective rate. The problem is that both Dems want to close the loop holes without lowering the rate; which will just make companies leave (forget having tax shelters); the Reps want lower rates, but are too chicken to close the loop-holes.

  17. [...] here’s how the average tax rate has changed for the top 400: Hat tip: The Big Picture/WSJ Real Time Economics. Graphs by Alexander [...]

  18. [...] offer you this gem detailing the tax burden of the top 400 taxpayers in the nation courtesy of the Great Ritholtz…. • The top 400 U.S. individual taxpayers got 1.59% of the nation’s household income in [...]

  19. DeDude says:

    We need to drop consumption taxes (consumers give us 70% of the economy don’t punish these patriots who sacrifice themselves to keep the economy going). The most stupid thing we can do is to tax the main activity that keeps our economy going. All taxes should be on income and all income should be taxes by the same progressive scale. I agree with Curmodgeon that income up to the poverty line should not be taxed. After your income exceeds that, you can afford to pay according to a progressive scale that put a bigger load on the bigger shoulders. Some deductions for activities that clearly benefit society as a whole should be kept (having children, education, charity), whereas the biggest of them, the mortgage interest deduction, should be removed (it has done more harm than good to society).

  20. txandy58 says:

    Last year my reportable income took a huge leap, over 100k and I expected to pay maybe 35%
    I ended up paying only 20.7%
    I like what The Curmudgeon said although personally I would simplify it even more;
    All income is reportable and there are no deuctions beyond business expences incurred in the
    acquiring of income. Everyone pays the same rate single married young old whatever.
    I could live with 50%. Now wait a minute, everyone also gets a Basic Cost of Living deduction
    of $30,000 a year (adjusted every 3 yrs.)
    The effective tax rate on a couple with one earning $20k and the other $65k
    would be 20.6%
    For a self employed plumber making $112k it would be 36.6% she would keep $71k
    In addition I would propose the cessation of most “hidden” taxes Toll Roads would be outlawed,
    and no “Public” Parks could charge admission fees
    POWER TO THE PEOPLE!!!!

  21. flipspiceland says:

    And they all worked for Goldamn Sucks.

  22. [...] to my favorite economics blogger, Barry Ritholtz, and The Wall Street Journal for bringing this to my [...]

  23. winslow says:

    Obviously, the tax code needs to be changed so the extreme wealthy cannot continue to rape the U.S.
    If I end up paying at least 25% on my income, these individuals had better be paying at least this rate, but preferably higher.

  24. philipat says:

    I see from the latest data that 47% of Americans don’t pay any tax. Just a few more % and there will be self-sustaining socialism in the US. After all, those who don’t pay any tax are not going to vote for change now are they?

    Welcome to Europe, USSA.

    ~~~

    BR: No, that is incorrect.

    The datapoint is “47% pay no Federal income tax.” They actually pay sales tax, state tax, payroll witholding tax, gas and other federal excise taxes, FICA, etc. Only 9% of people pay zero tax at all. They tend to be poor, retired elderly folk.

    We discussed this yesterday. Try to keep up.

  25. philipat says:

    Heh, heh. Sorreeee already!

    Actually, the bottom line is the same. Europeans also pay VAT and large taxes on Gasoline etc. but will still vote against paying Income tax (Your equivalent of Federal tax). I forget who it was who said that Democracy breaks down when the majority realise that they can vote for a free ride. Or words to that effect. It’s actually a serious concern.

    Mind you, Congress doesn’t seem to need prompting on this issue.

    Maybe the Tea baggers have a point?

  26. Paul S says:

    @ The Curmudgeon:

    I love it. I always wanted to set the “minimum for survival” at $100,000 or so and then tax everything after that at a really high FLAT rate of %50.