Monday, December 5, 2011

Who is preparing those very peculiar (mathematically impossible?) tax returns in Manhattan zipcode 10004?

Zipcode 10004 outlined in purple above

Strangely enough, the taxpayers in zipcode 10004 appear to have been massively OVERpaying their federal income taxes, based on IRS reported data for 2008 tax year returns.

That zipcode is just a stone's throw away from Zucotti Park!  (Maybe the OWS folks were secretly occupying the tax prep shops in that area before they occupied the park?)

Yes, that's silly, but it's really hard to figure out other reasons why the tax bills in that zip are so extraordinarily high.

Overall, the 1,967 returns filed for Tax Year 2008 from that zipcode paid over 39% of their AGI in taxes!  If we focus only on the subset of the 529 taxpayers with incomes over $200,000, those taxpayers supposedly paid 43.5% of their collective total AGI in federal income taxes.  As a proportion of taxable income, taxpayers in that zip with incomes over $200K reportedly paid 45.7% of their taxable income in federal income taxes.

This seems to be a mathematical impossibility, given that the top federal bracket was 35% in 2008.  Even subtracting out the much maligned AMT, the data still leaves the over $200K-bracket taxpayers paying over 44% of their taxable income in federal income taxes.  This rate is completely implausibly high, especially since those taxpayers had a big chunk of their income in the form of relatively lightly taxed capital gains.

Thanks to Nick Kaspar of the Tax Foundation for passing along the IRS Statistics of Income consolidated datafile he used to create the map I blogged about in my last post.   Warning:  the file is big!  (37 megabytes)  The big datafile is here.  Short explanatory files describing the data in each field are here and here.

I put the 10004 zipcode data in a conveniently sized and labeled spreadsheet below for anyone who wants to double check my figures.  One tab just has selected fields from the IRS database, but you can also take a look at the tab with all the IRS figures for 10004 zipcode as well.

2008 Tax Year return data for zipcode 10004

Here's the story behind my coming across the weirdly anomalous data in zipcode 10004.

After  seeing the mystifying Tax Foundation map I blogged about in my last post.  I went poking around to try to find one of those bright blue zip codes, where taxpayers are--in the aggregate--supposedly paying more than 25% of their income in federal income taxes.

I figured I would start with my home state of New York, since I have a bit more sense of "What's what" in my own state.

There did not seem to be any clearly bright blue zipcodes in my own neck of the woods (i.e., the Albany-Schenectady-Troy-Saratoga Springs region of upstate New York), so I figured I would look at Manhattan zipcodes, where there appeared to be a lot of bright blue on the Tax Foundation map.

Bingo!  I started at the lowest zipcodes in New York, and it did not take long before I came across the zipcode with completely bizarre numbers, 10004.

The obvious discrepancy in the 10004 zipcode makes me reluctant to do much more work investigating this dataset---and it also makes me highly reluctant to put much credibility into the other bright blue spots on the Tax Foundation map.

So--unless I get some sort of reasonable explanation for how the 529 taxpayers in zipcode 10004 with incomes over $200K managed to wind up paying  43.5% of their total 2008 AGI in federal income tax, I am not going to spend a lot of time investigating these numbers further in other zip codes.

But if you do have such an explanation, feel free to leave it in the comments.

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