Working All Day for the IRS
Mitt Romney is not alone. I thought Mr. Romney’s 13.9 percent federal tax rate would be hard to beat. But among the 400 Americans with the highest adjusted gross incomes in 2008, 30 of them paid less than 10 percent and another 101 paid less than 15 percent. And these people earned, on average, more than 10 times Mr. Romney’s $21.7 million — an average of $270.5 million each.
Relatively few taxpayers pay an enormous percentage of the total federal income tax, and most of them are people who work for a living and have adjusted gross incomes of $100,000 to $500,000, which is the sweet spot for tax revenue. They account for 20.2 percent of total returns but pay a whopping 44.9 percent of total tax. The average tax rate for this group ranges from 11.9 percent for those with less than $200,000 in adjusted gross income to 19.6 percent for those with $200,000 to $500,000. Above those income levels, the rate rises to close to 25 percent and then declines to 22.6 percent for taxpayers earning more than $10 million.
[T]he results for the top 400 returns suggest that the rate continues to decline as incomes rise. The top 400 paid an average of $49 million, or 18.1 percent of their adjusted gross income, in federal tax — lower than taxpayers in the $200,000 to $500,000 bracket.
I spoke this week to the investigative reporters Don Barlett and Jim Steele, .... They said that tax inequities had gotten worse since 1994, when they published “America: Who Really Pays the Taxes,” and described the tax system as “out of control.”
Now, “The tax code has been so skewed against most people, with remarkable tax cuts for folks at the top, that the whole concept of fairness has gone out the window,” Mr. Steele said. Mr. Barlett, pointing to disparate rates even among people in the same income brackets, added: “There’s enormous horizontal inequity, enormous.”
The I.R.S. data makes clear that the differing treatment of earned and unearned income accounts for most of the disparity between tax rates for the ultrawealthy and those who make much less. Salaries and wages accounted for only 8.8 percent of adjusted gross income for the top 400 taxpayers. Interest and dividends made up 16 percent and net capital gains accounted for nearly 57 percent. So on average, 73 percent of their income was unearned and taxed at favorable rates.
“The people who pay all the taxes are the same people who are working,” Mr. Barlett said. “If you’re paying a huge amount of tax, then you’re working.”