The IRS yesterday published "The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2008." The TaxProf summarizes some of the findings:
- The Top 400's average AGI fell 21.5%, to $270.5m (down from $344.8m in 2007)
- The Top 400 received 1.31% of all AGI (down from 1.57% in 2007)
- The Top 400's average net capital gain fell 32.7%, to $153.7m (down from $228.6m in 2007)
- The Top 400's average charitable deduction fell 20.4%, to $22.7m (down from $28.5m in 2007)
- The Top 400's average federal income tax fell 14.6%, to $49.0m (down from $57.3m in 2007)
- The Top 400's average AMT increased 47.5%, to $3.2m (up from $2.1m in 2007)
- The Top 400's average tax rate increased 8.2%, to 18.11% (up from 16.62% in 2007)
Articles about the "top 400" taxpayers often are written as if it's the same 400 every year. The statistics show that very few taxpayers make the cut more than once in their tax lives. 3,672 taxpayers have been in the top 400 in the 17 years beginning in 1992; 2,676 of them have made the cut only once. Only four taxpayers have made the top 400 every year since 1992.
That's not surprising when you think about it. Most taxpayers have their biggest income year when sell their business or have some other once-in-a-lifetime capital gain. 56.81% of the AGI of the top 400 in 2008 was capital gain income.
Because so much of the income of the top 400 taxpayers is capital gain, their effective rate tends to be low, as capital gains are taxed at a lower rate (15% instead of 35%). This bothers people like David Cay Johnston, who feel that the "super-rich" are getting over on the rest of us. Yet as long as tax policy favors lower capital gain rates, this will be impossible to change.
Capital gain rates are lower because a significant part of the gains is inflation -- meaning no real gain at all. Another important part of the gain is from corporation stock, the value of which includes earnings that have already been taxed inside the corporation. Many economists believe that low capital gain rates are sound economic policy, and some countries don't tax capital gains at all. A higher tax on capital gains for the highest earners would say that capital gain rates should be low, except when it really matters.
The items included in the Tax Update Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation.
Joe Kristan writes the Tax Update items, and any opinions expressed or implied are not necessarily shared by anyone else at Roth & Company, P.C. Address questions or comments on Tax Updates to