Not even the 400 wealthiest American households were immune from the 2008 financial crisis. New data released by the Internal Revenue Service says the mega rich saw their income drop 21.5 percent to a mere $108.2 billion in 2008. But hey, that still works out to a cool $270 million average for each of the top 400, or about 5,400 times the average household income.
Before your jealousy meter kicks in, you might want to skip straight to righteous indignation. According to the IRS, the average effective tax rate for the top 400 was 18.1 percent in 2008. While that tax rate is indeed 33 percent higher than the national average of 13.6 percent, it is also lower than the 19.6 percent average effective tax rate paid by folks with 2008 adjusted gross income between $200,000-$500,000, and the 24.1 percent average rate for filers with AGIs of $500,000-$1,000,000.
As Warren Buffett has repeatedly railed, there is something rather askew when his tax rate is lower than the rate his employees pay. And now that deficit reduction has become a part of the national conversation, poll after poll shows that a majority of Americans support raising tax rates on folks with incomes above $250,000, let alone $270 million. Yet just the other day House Speaker John Boehner insisted that tax hikes are "off the table" during the current debt ceiling/deficit chats. Seriously? For everyone? This sort of data dump from the IRS sure makes it hard to defend the current system for the uber-wealthy.
To be sure, raising the rates on the top 400 won't make a huge dent in the deficit. But when you have a system that gives the wealthiest Americans such a glaring tax advantage over people making less than 1 percent as much, that's not just bad optics, it's flat-out inequity. (For the record, a group of progressive Democrats recently floated legislation that would raise the marginal tax rate on income between $100 million and $1 billion to 48 percent, and tax income over $1 billion at 49 percent. But don't bet on it gaining any traction.)
The 18.1 percent average for the uber-wealthy is actually up a bit from 16.6 percent in 2007, but it's still near a record low. As recently as 1995, the 400 wealthiest had an average tax rate of nearly 30 percent. In 2001, just before the first round of Bush tax cuts arrived, the rate was already down to 23 percent. And the 2003 reduction in the capital gains and dividend tax rates was another big boon for the wealthy, dropping their effective tax rate to 19.5 percent.
Taxes of the Ridiculously Rich
In 2008, there were 90.7 million tax returns filed that had total taxable income above $0. So that means the 400 wealthiest don't even represent a rounding error as a percentage of all returns with taxable income. But their footprint is a lot larger. As a share of total income and taxes paid in the U.S. in 2008, here's what the 400 wealthiest households contributed:
- 13.1 percent of all capital gains
- 4.6 percent of all dividend income
- 3.6 percent of all taxable interest
- 1.3 percent of the value of all itemized deductions
- 1.3 percent of total adjusted gross income
- 0.15 percent of all salaries and wages
Add it all up, and in 2008 the total tax bill for the 400 wealthiest was $19.6 billion, accounting for 1.9 percent of all the income tax collected by the IRS.
Lifetime Membership Is Rare
The IRS began tracking the uber-rich in 1992. Interestingly once you get into the top 400, it's not exactly a ticket to perpetual membership. During the past 17 years, only four households have been among the 400 wealthiest in every year. In fact, there have been 3,672 different taxpayers since 1992 that have at some point found themselves in the Fortunate 400. In any given year, nearly 40 percent of the households on the list are newcomers. Some turnover is no doubt a function of deaths (and split up estates), and I'm guessing when you're that wealthy, you're paying gobs of money to tax and estate pros to get your adjusted gross income lower so you're not constantly on this list. And maybe you're also going all Buffett and giving away plenty once you hit this level of wealth. One thing's clear, though -- the super wealthy are very different from you and me, and from just the merely wealthy, too.