Posts Tagged ‘IRS’

top400

The total income reported on the top 400 individual tax returns rose 20 percent in 2014, according to Internal Revenue Service (pdf) data released last Thursday.

The figures reveal the concentration of earnings at the summit of the income distribution, in a club that required $126.8 million of adjusted gross income to enter. That tiny group, out of nearly 150 million tax returns in 2014, took home $175.5 million on average (that’s in 1990 dollars) and 1.3 percent of total U.S. adjusted gross income.

President-elect Donald Trump and the Republicans who control Congress have promised to lower the taxes on this group. First, they plan to repeal Obamacare and its taxes, which would bring the long-term capital gains rate down to 20 percent. A potentially even bigger benefit for the top 400 will come from  Trump’s proposal to slash the tax on corporate income from 35 percent to 15 percent. That rate would also apply to at least some of the “passthrough” income from S Corporations and partnerships that is reported directly on individual income tax returns and is now taxed at a top rate of 39.6 percent.

A lower rate for passthrough income would disproportionately benefit the über rich, just as the lower rate on capital gains does. In 2014, the top 400 earners reported 1.3 percent of all adjusted gross income in the U.S., but 2.94 percent of all partnership and S corp net income, and 10 percent of capital gains taxed at a lower rate.

We know the top 400 will benefit enormously from those tax changes. But we won’t be able to measure it, since the IRS also announced it would no longer release data on the top 400, which it has compiled going back to 1992. Instead, future reports will focus on the top 0.001 percent, which included 1,396 households for 2014.

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According to a new IRS report [pdf], for tax year 2012, the top 0.001 percent of tax returns had an adjusted gross income of $62,068,187 or more. The income threshold for the top 0.001 percent of returns in 2012 was thus close to its highest mark in 2007 of $62,955,875.

This income threshold represents an increase of 47.9 percent—the largest increase of any percentile and year for this group since before 2003—over the previous year when the top 0.001 percent of tax returns had an adjusted gross income of $41,965,258 or more.

The top 0.001 thus managed to capture 21 percent of the income gains of the top 1 percent and accounted for 2.4 percent of total income in 2012.

As David Cay Johnston explains,

Keep in mind that reality is even worse than what the report shows.

Researchers at the IRS Statistics of Income division looked at more than 136 million tax returns. They ignored nine million tax returns filed by dependents, primarily children with jobs or trust funds. That means the IRS analysis understates household incomes at the very top, where trust funds are common.

Also, don’t forget that many of the very richest Americans show little or no income on their annual tax filings because they borrow against their wealth, paying interest at about one tenth of the tax rate on long-term capital gains.

In other words, the tiny group at the top of the distribution of income in the United States continues to obtain a large portion of the surplus produced by everyone else in the economy—and their tax returns only show a portion of those distributions of the surplus.

Just imagine what we could do, then, if that surplus were actually used not to enrich the already-rich top 0.001 percent, but to satisfy the social needs of everyone else.

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