Wednesday, June 03, 2015

how the richest .0001 pay income taxes

thinkprogress |  Tax day doesn’t sting much if you live at the gilded edge, according to new data on how the top one-hundredth of one percent and the top one-thousandth of a percent of all filers pay their income taxes. People who make tens of millions of dollars enjoyed falling income tax rates and ballooning wealth for a decade as middle-class taxpayers floundered.

The new Internal Revenue Service (IRS) data helps illustrate the logic behind Sen. Bernie Sanders’ (I-VT) call for radically reshaping the American income tax system to create pricey new brackets for extremely high earners. The numbers provide a deeper look inside the highest income echelon, breaking out data on income tax rates and total yearly earnings in previously unpublished detail. In the last year of the Bush tax cuts, there were well over a thousand people who reported more than $60 million in earnings but paid federal income tax rates far below 20 percent.

In late May, Sanders called for restoring top income tax rates as high as 90 percent. The graduated income tax system means that policymakers could create new tax brackets up at that level without raising taxes on everyone below whatever level of wealth they choose to target.

Sanders based his comments on generalized information about wealth inequality, but the new IRS data on income inequality bolster his argument. Currently, the highest income tax bracket and capital gains tax bracket each kick in at a little over $400,000 in annual income. But there are nearly 14,000 tax filers who earned more than $12 million in 2012 as members of the best-paid 0.01 percent of all taxpayers, according to the IRS, and about 1,360 who earned over $62 million that year. Their vast earnings were not taxed any more heavily – and indeed, they paid a lower overall income tax rate than their merely one-percent brethren.

It is the first time the IRS has ever broken out income tax data at the very top end of the earnings spectrum. Previous releases have shown the top 1 percent and the top 0.1 percent of filers, but the new data drill deeper. There were a little under 1,400 income tax returns filed in that very richest sliver of data in 2012, the agency reports, with an average income of roughly $161 million for the year.

The poorest filer to qualify for that group in 2012 made $62,068,187 in adjusted gross income (AGI). Like a tax wonk’s version of the “must be this high to ride” sign at a carnival, these threshold income levels for each grouping in the IRS data offer working definitions of the economic class each category depicts.