Friday, January 30, 2009

The Wall Street Journal on the "Fortunate 400"

Here is the Wall Street Journal's take on the IRS data released yesterday:

The nation's top 400 taxpayers made more than $263 million on average in 2006, as the stock market was rallying, but paid income taxes at the lowest rate in the 15 years that the Internal Revenue Service has tracked such data, according to figures released Thursday.

Each year, the IRS releases information on the so-called Fortunate 400, the 400 U.S. taxpayers with the highest adjusted gross income.

The average income of this group was the highest recorded by the IRS and was up from $213.9 million the year before. In constant dollars, the average income of the top 400 taxpayers nearly quadrupled from 1992, the first year such data were collected. The group's share of the adjusted gross income of all taxpayers in the country nearly doubled between 2002 and 2006, the data show -- from 0.69% to 1.31%.

Meanwhile, the group's average income tax rate -- calculated as income taxes paid as a percentage of adjusted gross income -- fell to 17.2%. in 2006 from 18.2% the prior year. That's down from a high of 29.9% in 1995.

The main factor driving low tax rates among the wealthiest group has been cuts in the tax rate levied on capital gains. The IRS data show that 64% of the income reported by the top 400 in 2006 came from capital gains and dividends subject to the low 15% rate.

The average tax rate for the top 400 has closely tracked the falling capital-gains tax rate, which dropped from 28% to 20% in 1997, and then to 15% in 2003. Proponents of low capital-gains taxes argue that they encourage investment, and many conservative economists say that raising taxes on the wealthy limits economic growth.

The entire article is here.

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