Lawmakers are considering year-end tax breaks for corporations. A little help for families like yours and mine would go much further.
America’s 400 richest are collecting far more of the nation’s income than they did two generations ago — and paying Uncle Sam far less. To fudge these facts, pals of plutocrats are having to work overtime.
By Sam Pizzigati
We don’t know who exactly filed the tax returns with America’s 400 largest incomes in 2010. The IRS won’t reveal any of these 400 individually by name.
But a just-released new IRS annual report on America’s highest incomes has revealed just about everything else about these top 400, from how much they claim in deductions to how much their incomes have swelled over time.
And these top 400 incomes, the IRS data show, have done some significant swelling.
Back in 1992, the 400 highest incomes reported on America’s tax returns averaged $46.8 million. In 2010, the top 400 averaged $265.1 million.
Inflation does explain some of that increase, but not most. Before taking inflation into account, top 400 incomes multiplied nearly six times over between 1992 and 2010. After inflation, top 400 incomes quadrupled — over the same years that incomes for typical American households barely increased at all.
Top 400 households, after taxes, have actually done considerably better over the past two decades than these before-tax figures suggest. In 1992, after exploiting every tax loophole they could find, top 400 taxpayers paid 26.38 percent of their incomes to Uncle Sam. In 2010, they paid their taxes at an 18.04 percent rate.
The impact — in dollars — of this rate drop? If 2010’s top 400 had paid taxes at the same rate as their counterparts in 1992, they would have each paid, on average, $22.1 million more to Uncle Sam than they did.[pullquote]Go back a few decades beyond 1992 and the good fortune of today’s super richest becomes even more striking.[/pullquote]
Go back a few decades beyond 1992 and the good fortune of today’s super richest becomes even more striking. The IRS hasn’t published exact top 400 income numbers for years before 1992, but the agency’s historical stats do offer up figures for comparably sized cohorts in some earlier years.
In 1955, for instance, taxpayers with the nation’s 427 highest reported incomes paid taxes at a 51.22 percent rate. If 2010’s top 400 had paid taxes at that rate, they would have each shelled out an average $88 million more in taxes!
Those top 427 taxpayers back in 1955, by the way, didn’t just pay taxes at a much higher rate than today’s richest. They also pocketed far less in pre-tax income. The flushest taxpayers of 1955 averaged, in inflation-adjusted dollars, only $13.4 million in income for the year. The top 400 in 2010 averaged considerably more than $13.4 million every month.
The bottom line: 2010’s most affluent Americans took home 20 times more before-tax income than their 1955 counterparts and 33 times more after taxes.
Figures like these pose a problem for the pals of our modern-day plutocrats. With average Americans stuck on an economic treadmill that has them exhausted and getting nowhere, how can the friends of grand fortune possibly defend the explosion of wealth at America’s economic summit?
Give these friends of fortune credit. They have a strategy. The best defense, the scribes at rich people-friendly think tanks and media outlets understand, can be a good offense. And take to the offense they have. They’ve fashioned a counter narrative that paints America’s fabulously wealthy as the terribly wronged victims of an economy and polity gone senselessly redistributive.[pullquote]The best defense, the scribes at rich people-friendly think tanks understand, can be a good offense.[/pullquote]
This upside-down world view has just turned up again on the editorial pages of the Wall Street Journal. America has suffered, insists the Journal, an Obama “redistribution” that has left the rich harried and everybody else no better off.
The Wall Street Journal rests this latest screed in part on a new analysis from the American Enterprise Institute, a conservative D.C. think tank bankrolled by right-wing foundations and appreciative corporate sponsors.
This analysis purports to show that America’s highest-income fifth is “basically financing the entire system of transfer payments to the bottom 60% AND the entire operation of the federal government.”
“And yet,” continues the AEI study author Mark Perry, “don’t we hear all the time that ‘the rich’ aren’t paying their fair share of taxes and that they need to shoulder a greater share of the federal tax burden?”
Perry claims that his rich-pay-everything analysis reveals “a yet-to-be discussed major implication” of a recently released report on American household income and taxes from the nonpartisan Congressional Budget Office.
But Perry’s “major implication,” counters Institute for Policy Studies tax analyst Bob Lord, plays fast and loose with the actual data in the new CBO study.[pullquote]An American Enterprise Institute analysis purports to show that taxpayers in America’s highest-income fifth subsidize the entire federal government.[/pullquote]
The CBO study divides Americans by income into five groups, from the poorest 20 percent of the nation’s households to the richest. For each of these “quintiles,” CBO highlights the average “market” income from work and investments, the average value of federal benefits received, and the average federal taxes paid.
In 2011, for instance, households in the nation’s poorest quintile averaged $15,500 in market income, $9,100 in federal benefits, and $500 in taxes paid.
The American Enterprise Institute’s Perry, in his new paper, manipulates these numbers to fit the right wing’s rich-as-victim narrative.
Perry subtracts, for each quintile, the value of benefits received from the amount of federal taxes paid, something the CBO does not do. Average households in America’s poorest 20 percent, he then pronounces, come out $8,600 ahead. They get that much more in benefits, Perry asserts, than they pay in taxes.
Households in the highest-income quintile, the AEI analyst continues, pay on average $46,500 more in taxes than they get in benefits. That, says Perry, gives them “an average net tax rate after government transfers” of 18.9 percent.
By contrast, according to Perry’s American Enterprise Institute take, the three bottom income quintiles each show a negative “net tax rate.”
So forget, Perry urges, that debate over whether the rich are paying their fair tax share. We ought to be debating instead, he pronounces, why the poorest 60 percent of Americans — “net recipients of transfer payments” from the top 20 percent — are “not paying anything” in federal taxes.
[toomuch_promo]But Perry’s math makes no logical sense, notes the Institute for Policy Study’s Bob Lord. Each of America’s bottom three income quintiles, he explains, include people whose income comes all or mostly from market sources and others — mostly the retired and unemployed — whose income comes mostly from government benefits.
Perry’s paper subtracts the benefits received by the second group from the taxes paid by the first and ordains the resulting numbers the determinant of whether an entire quintile has paid its “fair” tax share.
“It’s hard to fathom why Perry thought it appropriate to net the tax payments made by a McDonald’s worker in Brooklyn and the Social Security benefits paid to a retiree in Fresno,” muses Lord, “but that’s essentially what he’s done.”
This distorting math, in fact, may not be too hard to fathom at all. How else, after all, can fortune’s dearest friends make the case that out-of-control “redistribution” is somehow squeezing America’s rich?
Sam Pizzigati edits Too Much, the Institute for Policy Studies online weekly on excess and inequality. His latest book: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class (Seven Stories Press).