The Richest Americans and Their Tax Rate

The GOP has been saying in ad nauseam that the way to grow the economy is not by raising taxes on the wealthiest because they are the ones that create jobs, the trickle down economics theory.

Needless to say this has been proven wrong over and over. Just in the past decade, tax rates were decreased to their lowest levels in over 50 years (I have also previously posted an interview with Warren Buffett who acknowledged the inequality in our current tax system stating that his secretary pays more in taxes than he does).   

 The IRS has released data on the tax rates for the 400 richest Americans in 2008. 

The IRS report shows that in 2008 (the latest year for which data are available), the 400 richest income tax filers paid just 18.1 percent of their adjusted gross income (AGI) in federal income taxes. That is down from 22.3 percent in 2000, and is just more than half of the top statutory income tax rate of 35 percent. More than half of the income reported by those 400 taxpayers consisted of capital gains and dividends subject to the preferential rates.

The IRS report, which shows the effective federal income tax rates paid by the 400 highest-income Americans in each year since 1992, offers an important opportunity to understand how the tax system affects the most privileged Americans.

  • Only those with at least $109 million of AGI were members of this group in 2008, and the average AGI for these 400 taxpayers was $270 million. 
  • Each one of these 400 taxpayers enjoyed, on average, more than $155 million of net capital gains and dividend income that was subject to special lower tax rates in 2008.
  • Although 400 returns are less than 1/1000th of a percent of the total individual tax returns filed, these 400 taxpayers collected more than 10 percent of the total preferential-rate capital gains and dividends in the nation in 2008.
  • These 400 taxpayers paid income taxes averaging just under $49 million in 2008. As a share of AGI, their tax bills averaged 18.1 percent. 
  • This decline from 22.3 percent to18.1 percent represented a total tax cut of $4.5 billion in 2008 for this group, or an average tax cut of over $11.3 million each.

“This valuable data confirms what we already knew—that the very richest Americans are paying much less of their income in tax than many would have us believe,” noted Citizens for Tax Justice director Robert S. McIntyre. “These taxpayers are now paying lower effective tax rates than at virtually any time since the IRS began publishing these data in 1992—and the Bush Administration’s capital gains and dividends tax cuts are the main culprit.”

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15 responses to “The Richest Americans and Their Tax Rate

  1. John Chambless

    Could you post names and pictures of the wealthiest 400 and their net worth. Compare this with Rothschild family [http://en.wikipedia.org/wiki/Rothschild_family].

  2. John Chambless

    I’d love to put it in an Excel spreadsheet with a column for David’s (and others) pictures. You know my medical history… if I could, I’d do it myself.
    Are any of your other followers up for this request?

  3. As you said, most of these 400 earned their income through investments and dividends that are taxed at a different rate. So is your beef with this tax rate or with people making more money in general?

    • I support people making money, it is the tax rate that I have a problem with. Below is an excerpt on what the current tax rates are and the proposal for future tax rates on dividends (link to full article below as well). I firmly believe that our government should create an environment that promotes ingenuity and allows people to earn their “share of the pie.” However, we all must pay taxes and preferably at an even rate. At the moment, based on information provided by IRS, the middle and lower classes are paying disproportionately more in taxes than the wealthiest Americans (or corporations). We truly need to have shared sacrifice, which that term has been bantered around a lot, but it is true. Right now this isn’t happening.

      http://consumerboomer.com/2011-dividend-tax-rates/

      In current financial news there has certainly been plenty of discussion of what the future tax burdens will be for many Americans across the country in 2011. For instance, it has been known for some time now that there will be rate increase for long-term capital gains in the new year. This means that the 0% rate will be removed and the 15% tax rates will increase to around 20%. In perspective, this really isn’t that high of a tax hike when you consider how low the current rates are at present. However, fewer have discussed the increases expected in dividend tax rates in 2011.

  4. Pingback: The Richest Americans and their Tax Rate | The Blue States | Top Celebrity

  5. “I firmly believe that our government should create an environment that promotes ingenuity and allows people to earn their “share of the pie.””

    A few things. First, the effect of a tax is that you get less of what you tax. When you increase the tax on something, less are sold. The same goes with ingenuity. When you increase the taxes on corporations, incomes, and even investment returns, you reduce the incentive to work hard.

    The analogy of their “share of the pie” is inaccurate. I really don’t want to argue about analogies, but this implies that there is only so much pie out there and everyone is scrambling for a piece. The reality is that trade and innovation make us richer as a society and thus the “pie” is ever expanding. There is not a static amount of wealth in the world.

    “the middle and lower classes are paying disproportionately more in taxes than the wealthiest Americans”

    I would disagree with you here. I’m sure you’ve seen the articles out there saying that about half of Americans pay no Federal income tax (not including payroll taxes). Beyond that, about 25% of Americans have no net Federal tax liability at all or even a net negative liability.

    Here’s a CNN article from 2009, but the numbers really haven’t changed a whole lot since then.
    http://money.cnn.com/2009/09/30/pf/taxes/who_pays_taxes/index.htm

    Ok, last thing here.

    “However, we all must pay taxes and preferably at an even rate.”

    What do you mean an even rate?

    • 1. “A few things. First, the effect of a tax is that you get less of what you tax. When you increase the tax on something, less are sold. The same goes with ingenuity. When you increase the taxes on corporations, incomes, and even investment returns, you reduce the incentive to work hard.”

      I believe that is true for small business whose success depends on tax breaks and their ability to hire and provide insurance, etc, however, the fortune 500 companies do need to pay their share. Their profits are so exorbitant that tax breaks/subsidies do not equate to incentivizing their employees. A good, recent example is that of the oil industries $40 billion tax subsidies that GOP voted to continue. This occurred at a time when their profits are record breaking and they are listed as the 5 most successful companies on earth (no exaggeration). We need to make sure these subsidies go to where they are useful, which are the small businesses, not for example the Wall Street banks or oil companies. See below.

      http://bit.ly/j5ykPA
      CTJ analyzes the pretax U.S. profits, federal taxes paid and effective tax rates of a dozen Fortune 500 companies over the 2008-10 period. From 2008 through 2010, these 12 companies reported $171 billion in pretax U.S. profits. But as a group, their federal income taxes were negative: –$2.5 billion.

      Another great site: http://thenewpolitical.com/2011/04/04/corporate-tax-evasion/

      2. “I would disagree with you here. I’m sure you’ve seen the articles out there saying that about half of Americans pay no Federal income tax (not including payroll taxes). Beyond that, about 25% of Americans have no net Federal tax liability at all or even a net negative liability.”
      The reason the top 1% paid more in taxes was because their earnings were so much greater than that of the bottom 95%. Excerpt below and link to full article.

      http://www.taxfoundation.org/news/show/250.html
      Each year from 2005 to 2007, the top 1 percent’s constantly growing share of income earned and taxes paid set a record. That trend reversed in 2008. In fact, the income share for the top 1 percent of tax returns was lower in 2008 than in 2000, largely due to differences in capital gains.

      Another indicator of this reversal in the income and tax shares of the top 1 percent is that during 2007, the top 1 percent had actually paid more in federal income tax than the bottom 95 percent, a comparison that was much remarked on a year ago. But the diminished income of the top 1 percent in 2008 means that the comparison no longer holds. During 2008, the bottom 95 percent (AGI under $159,619) paid 41.3 percent of the total collected, a larger share than the 38.0 percent paid by the top 1 percent (AGI over $380,354).

      The top-earning 5 percent of taxpayers (AGI over $159,619), however, still paid far more than the bottom 95 percent. The top 5 percent earned 34.7 percent of the nation’s adjusted gross income, but paid approximately 58.7 percent of federal individual income taxes.

      3. Lastly, when I say “even tax rate” I mean that everyone should be paying their fair share of taxes. At the moment the middle and lower classes are paying more taxes than the wealthiest who pay a rate of approximately 18%. This is due to lack of taxes on dividends, tax havens, and tax loop holes, which the bottom 95% do not benefit.

  6. Just to clarify, that $40 billion in subsidies you are referring to is for a ten year period. While I’m opposed to subsidies in general, it would be remiss not to mention that the tax rate for oil companies far exceeds the tax rate of other industries. Even the CTJ report you cited, which cherry picks 12 companies, shows that the only oil company on that list payed the highest percentage in taxes. To aggregate the tax rate over these 12 companies and draw a conclusion that Fortune 500 companies aren’t paying taxes is irresponsible. And to be fair, by problem is with the CTJ report, not you citing it.

    Tax rates go into business decisions for large and small companies alike. For example, when analyzing projected cash flows of a proposal, the tax rate has an effect on the net present value and the internal rate of return numbers that are used to justify proceeding with or terminating a project. To increase taxes on larger corporations will have an effect on their business dealings.

    On your second point. I was making the point that a quarter of all Americans have a net negative federal tax burden. For the most part, these are not the millionaires you demonizing, but the lower end of the tax bracket. To say we all have to share the burden, and then to tell 1 out of every 4 that you don’t have to share the burden is a bit hypocritical.

    And third, I will restate my question. Is their “fair share” based on percentage of income, or money spent, or what? Could you quantify a tax structure you would consider fair?

    Side note: All people benefit from the lower taxes on dividends. I know your just trying to illustrate the disparity because wealthy people earn more in this way, but they way you worded it makes it sound like this tax rate is exclusive to the rich.

    • We will have to agree to disagree. I would ilke to make just one final note on this issue. I do think the tax code in this country is written in a way to favor the wealthy. If you go back in history and analyze the tax rates and the prosperity of our country, the lower the tax rate the less prosperous we are.

      Finally, when I say “fair share” I mean close the loop holes, end the tax havens being used by the wealthiest in our society. I don’t have any problem with the wealthy making money, but they need to pay their taxes, and we will just have to disagree on if they are paying their share. I obviously do not believe that.

  7. Agree to disagree is fine with me. Thanks for the discussion.

  8. Each one of these 400 taxpayers enjoyed, on average, more than $155 million of net capital gains and dividend income that was subject to special lower tax rates in 2008.

    We have decided that a tax rate on Capital Gains is better when it’s low. Not when it’s high. By the very definition, the money made on capital gains is money made by investing in business. If you raise that tax, you get less investment in business and we suffer even more.

    No one is saying that we need a tax rate of zero. What we’re saying is that government expands to spend all the money it brings in. And much of THAT is wasted. Limit revenue = limit spending.

    Hopefully.

    And yes, closing loopholes is a good thing; we all agree. The simpler the better.

    By the way, what is the effective tax rate of the LOWEST 400 earners? I certainly HOPE it’s higher than 18.1%. If not, it is very hard to claim that the rich aren’t paying their fair share.

    • (Also, please refer to my response to your comment for the post “Bush Tax Cuts…”)

      I must say though I am very surprised by your defense of the wealthy/corporations and their tax rates. After the past decade we had with very little job growth, lowering of tax rates, the debt reaching such a level when in 2000 the Republican administration was handed surplus and in 2008 our economy had been so poorly managed via the tax code and lack of regulation that tax payers were forced to bail out Wall Street (which now shows made the same people that caused it even more wealthy than before).

      JOB CREATION:
      Job creation per Politifact (nonpartisan) comparing job creation throughout Clinton and Bush administrations: http://www.politifact.com/ohio/statements/2010/jul/25/sherrod-brown/sherrod-brown-touts-job-grown-during-clinton-presi/

      Number of jobs as of January, 1993, a week before Clinton took office: 109.725 million.
      Number of jobs as of Jan. 2001, a week before Clinton left office: 132.469 million
      Net Gain under Clinton: 22.7 million jobs.

      Now for Bush, who succeeded Clinton in the White House.
      As already noted, the nation had 132.469 million jobs as he was taking office.
      Number of jobs on Jan. 12, 2009, a week before Bush left office: 133.549 million.
      Net gain under Bush: 1.08 million jobs.

      THE DEFICIT AND TAX CUTS
      As for the deficit’s cause, the single most important factor is the legacy of President George W. Bush’s legislative agenda. Overall, changes in federal law during the Bush administration are responsible for 40 percent of the short-term fiscal problem. For example, we estimate that the tax cuts passed during the Bush presidency are reducing government revenue collections by $231 billion in 2009. Also, because of the additions to the federal debt due to Bush administration policies, the government will be paying $218 billion more in interest payments in 2009.

      Had President Bush not cut taxes while simultaneously prosecuting two foreign wars and adopting other programs without paying for them, the current deficit would be only 4.7 percent of gross domestic product this year, instead of the eye-catching 11.2 percent—despite the weak economy and the costly efforts taken to restore it. In 2010, the deficit would be 3.2 percent instead of 9.6 percent.
      http://www.americanprogress.org/issues/2009/08/deficit_numbers.html

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