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Friday, January 30, 2009

The Top 400 Taxpayers, 1992-2006: Income Up, Tax Rate Down

The IRS yesterday released data on the Top 400 tax returns for 1992-2006, which show a marked increase in the average amount of AGI and investment income (taxable interest, dividends, and net capital gains) reported by the Top 400 taxpayers over this 15-year period, along with a startling decrease in their average tax rate:

IRS 400 (Absolute)

Here are the figures in constant 2008 dollars:

IRS 400 (2008 Dollars)

Press and blogosphere coverage:

http://taxprof.typepad.com/taxprof_blog/2009/01/the-irs-400.html

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Comments

Average tax rate might go down, but using the 2008 numbers shows that actual revenue went up, except for 2002. However, there was a slight hiccup in the economy and Wall Street. In addition, the IRS table shows that the top 400's percent of the total taxes paid went up over time from around 1% to 1.77%

1992 - $28.1 M
1997 - $52.4 M
2002 - $48.4 M
2006 - $84.9 M

Wouldn't it make more sense to find the tax rate that produces the maximum revenue on the Laffer curve, and use that number if revenue is what is really needed? This data shows that raising taxes right now would most likely reduce total revenues.

Posted by: Laffer strikes again | Jan 30, 2009 6:26:14 AM

Why should it be bad news or even surprising when low tax rates on capital gains encourage the rich to sell their appreciated assets and report taxable income? That was the whole point of reducing the rates. At higher capital gains tax rates the rich will simply hold onto their assets and the government will get 28% of zero from them.

What's next? Complaints about how it's terrible that we have so many people in prison when crime is down? As if the former didn't cause the latter?

Get the cause and effect straight. When tax rates drop, reported taxable income goes up. Dog bites man.

Posted by: AMTbuff | Jan 30, 2009 7:57:47 AM

It is unsurprising that as tax rates are lowered, people recognize more income to be taxed. Tax revenues from high income individuals increased. We should be clear as to whether we believe the tax rates are for the purpose of imposing some agreed upon level of fairness, or whether tax rates are for the purpose of raising revenue for agreed upon government functions. I believe the latter.

Posted by: Caleb Standafer | Jan 30, 2009 8:43:26 AM

Laffer, FYI those should be and not

Posted by: Bigdaddy | Jan 30, 2009 4:13:33 PM

Because people with higher incomes are hit very hard by a recession, income inequality will be much less in 2009 compared to 2007 and earlier. Let's see what politicians try to claim credit for this effect. You heard it here first, so you know the real cause.

Posted by: AMTbuff | Jan 30, 2009 8:57:47 PM

The comments above are pretty hilarious.

To AMTBuff, who's so convinced "income inequality will be much less in 2009 compared to 2007:"

Even if you just want to focus on inequality, consider this quote from Barbara Ehrenreich:

"Canadian economist Armine Yalnizyan says, "Income polarization always gets worse during recessions." It makes sense. If the stock market has shrunk your assets of $500 million to a mere $250 million, you may have to pass on a third or fourth vacation home. But if you've just lost an $8-an-hour job, you're looking at no home at all."

from
http://www.thenation.com/doc/20090126/ehrenreich?rel=hp_picks

To LAffer: Check out Jonathan Chait's book on supply side ideology. To wit:

"American politics has been hijacked by a tiny coterie of right-wing economic extremists, some of them ideological zealots, others merely greedy, a few of them possibly insane. The scope of their triumph is breathtaking. Over the course of the last three decades, they have moved from the right-wing fringe to the commanding heights of the national agenda. Notions that would have been laughed at a generation ago--that cutting taxes for the very rich is the best response to any and every economic circumstance or that it is perfectly appropriate to turn the most rapacious and self-interested elements of the business lobby into essentially an arm of the federal government--are now so pervasive, they barely attract any notice."

from:
http://www.tnr.com/story_print.html?id=880f4273-e2d6-4914-b15b-ffcce401155a

Let's face facts: those who made $277 million in income in 2006 will probably not be out at the soup kitchens in 2009. They got while the getting was good, and they'll be using that money for campaign contributions and DC mouthpieces for decades. The fact that their effective rates are similar to or lower than those in the middle class is a national shame.

Posted by: Frank | Feb 1, 2009 4:52:07 AM

It looks like this is factoring in the money they pay to access money they've already earned, not the actual taxes they pay on profits. For example, it looks like it's saying that if someone's company mad $10 million, paid 35% of that in taxes, paid the rest as a dividend, and paid 15% on that, the owner was only paying the $100K or so in dividend taxes -- but clearly about 45% of the profits are being eaten up by taxes of one sort or another.

Posted by: taxrascal | Feb 2, 2009 8:54:55 PM