How America's 400 highest earners are doing
While most Americans have been struggling with stagnant or falling income, the country's top 400 high earners have been enjoying a very sweet post-recession streak.
In 2012 (the latest data available), the top 400 earners reported average income of $335.7 million, or a 53 percent jump from the previous year, according to the IRS. Even better for their bank accounts, the top 400 earners paid only 16.7 percent of their adjusted gross income in taxes, far below the tax rate for many Americans who earn middle-class salaries.
It hasn't been all beers and skittles for the top 400 earners since the financial crisis, however. Their incomes dropped sharply in 2008, declining by 22 percent in 2008, and the next three years saw their income yo-yo. But by 2012, the annual adjusted gross income for the top 400 earners had almost reached its prerecession peak of $344.8 million, according to the data.
The research appears to back up the best-selling economics book "Capital in the Twenty-First Century" by economist Thomas Piketty, who argues that wealth inequality is widening sharply partly because the rate of return on capital has historically outpaced the rate of economic growth, allowing those with the ability to access capital -- the rich -- to gain increasing share of a country's wealth.
At the same time, most Americans continue to confront declining or stagnant incomes during the economic recovery. The middle class has shrunk in every state in the U.S., thanks to lower median income and rising housing prices, according to The Pew Charitable Trusts.
On top of that, real median hourly wages have slipped 3.4 percent since 2009, making middle-class households feel increasingly pinched.
For America's highest earners, federal and state rules are helping them revive their massive fortunes, according to Pulitzer Prize-winning investigative reporter David Cay Johnston in an Al Jazeera report.
Those at the very top have been helped by the zero interest rate policy instituted by the Federal Reserve in the wake of the financial crisis, which helped those with the capital at hand to invest in more capital, he noted. For instance, an American with the resources to buy real estate or private equity stakes in businesses could find loans at extremely low rates, making such purchases less expensive than when interest rates were higher.
But for senior citizens and others who had banked on earning interest from their savings, the Fed's low rates have sapped their ability to build their income, Johnston noted.
So, how do the top 400 American earners pay so little in taxes? That's due to the quirks of the tax system, where capital gains enjoy a much lower tax rate than wages. The richest Americans socked away $54.3 million each in dividends in 2012, for example. Aside from the income itself, the upside to dividends is that they were taxed at 15 percent in 2012, far below the 35 percent top tax rate for earned income.
While the tax rate on dividends has since jumped to 20 percent for people earning more than $400,000 annually, that's still far below the tax imposed on wages for America's highest earners.