High Incomes, Low Taxes: It's Good to Be in the Fortunate 400

The IRS recently released new data on individual income taxes paid in 2009, including a report on “The 400 Individual Income Tax Returns Reporting the Largest Adjusted Gross Incomes Each Year, 1992-2009.” So interesting, right?!

...ok, so maybe the IRS could have come up with a catchier title. But the report really is fascinating, in a “wow, that’s crazy and unfair” sort of way – especially when you compare the data on the richest 400 American households (with annual incomes averaging around $200 million) to income tax data for the rest of us, as David Cay Johnston did in his excellent piece on “The Fortunate 400.” Johnston’s whole article is well worth a read, but here are a few particularly shocking statistics:

• Six of the 400 richest American households paid no federal income taxes in 2009. Yes, you read that correctly – a few of the people with the very highest incomes in the country, raking in on average half a million dollars every day, managed to pay zero federal income tax in 2009.
• 110 of the top 400 paid a federal income tax rate of 15 percent or less... just like a whole lot of people making a whole lot less than $200 million! For example, a typical single worker who made $61,500 in 2009 paid a 15 percent federal income tax rate. (On top of that, the worker paid thousands of dollars in payroll taxes out of her earnings, while the top 400 paid no payroll taxes on income from their investments.)
• The top 400 paid an average income tax rate of 19.9 percent, about the same rate paid by a single worker who made $110,000 in 2009.

All told, Johnston found that only 82 of these fortunate 400 paid enough federal income tax to be in compliance with the “Buffett Rule” proposed by President Obama and others, which would establish a minimum 30 percent tax rate for households with annual income over $1 million. That’s in large part because our tax system favors income from wealth over income from work: more than half the income of the top 400 in 2009 came from capital gains and dividends, and thanks to the Bush-era tax cuts, that income was taxed at a max rate of 15 percent. In contrast, income from wages and salaries – which was less than 10 percent of income for the top 400 in 2009 but a much higher share for the rest of us – is taxed at rates of up to 35 percent and is subject to payroll taxes.

These findings underscore the fact that some of the wealthiest in our country aren’t paying their fair share. And because women disproportionately rely on programs funded by federal tax revenues to protect their health, achieve a secure retirement, and meet their basic needs, women especially lose out when unfair tax preferences shortchange investments in critical programs. Enacting a Buffett Rule is a good start, but we’ll need Congress to take many more steps – like ending the Bush-era tax cuts for the top two percent, eliminating preferential treatment for capital gains and dividends, and closing tax loopholes that benefit companies that ship jobs and profits overseas – to achieve a fair and responsible tax code that works for all Americans, not just the richest among us.