Incomes for Super Rich Grow Faster Than Their Taxes

Incomes for Super Rich Grow Faster Than Their Taxes
By Robert Frank
Wall St. Journal, March 5, 2008,

A new report by the IRS on America's top 400 income-tax payers shows that the super-wealthy are gaining a larger share of the income pie, but are paying a lower share of taxes.

The report, obtained by my Journal colleague Tom Herman, profiles the so-called Fortunate 400 (as measured by adjusted gross income or AGI). The last time the IRS released such a report, it sparked a heated war of words between the right and left over inequality.

This time, the data are even more provocative.

In 2005, you needed at least $100.3 million in AGI to make the list - more than triple the amount needed in 1995. This is roughly in keeping with the increases in the Forbes 400 list, where the wealth needed to make the 400 has more than tripled since 1992 to $1.3 billion. Of course, this doesn't necessarily mean that the same rich people are getting richer, since the income list tends to be fluid. It just means that the fortunes being made today are much greater than those of the past.

What's most striking however is the income and tax shares. The IRS report shows that the Fortunate 400 now control 1.15% of the nation's income - twice the share they controlled in 1995. Over the same period, however, the average income tax paid by this same group has fallen from 30% to 18%. That's due mainly to the Bush tax cuts.

Many argue that the super-rich pay a disproportionately high share of taxes. And that's true to a degree, according to the report. The Fortunate 400 paid 1.67% of the nation's total income tax bill, even though they account for 1.15% of the income.

Yet the the growth in incomes by the super-rich has far surpassed their growth in their income taxes paid, since their tax rates have fallen. Their share of total income has more than doubled since 1995; yet their share of taxes has only gone up less than 50%. Whether this is good or bad will be up to partisan pundits and economists to fight over. But one thing is certain: The report will likely provide new ammunition for both sides of the wealth wars.