Author F. Scott Fitzgerald, chronicler of America's moneyed class, once famously said the rich are very different from you and me. Fitzgerald's jazz age compatriot Ernest Hemingway reportedly responded "yes, they have more money"! So how different do you think their tax returns look from ours?
Last week, the IRS released their annual report on the top 400 incomes in the entire country. This year's report covered 1992 through 2008 and offers a fascinating peek into the wallets of America's highest earners.
What does it take to join the club? For 2008, you had to make $109,736,000 — up from "just" $24,421,000 in 1992. 2008's top 400 reported an average adjusted gross income of $270.5 million. That amount represented 1.31% of all personal income, up from 0.52% in 1992.
How do the top 400 make their money? Just 8.18% of it came from salaries and wages. 6.78% came from taxable interest; 9.23% came from taxable dividends; and 19.92% came from partnership and S corporation net income. By far the biggest portion — 56.71%, or $155,748,000 per taxpayer — came from capital gains, taxed at just 15%. In fact, the top 400 reported 10.49% of the entire country's capital gains! This suggests that the top 400 consist largely of business and real estate owners cashing out at the end of a successful career, or of hedge fund superstars whose income consists largely of "carried interest" taxed as long-term gains.
On average, the top 400 are a generous group. 394 of them reported charitable contributions, with the average contribution weighing in at $22,688,000. The top 400 as a whole claimed 5.17% of the nation's total charitable deductions, up from 1.03% in 1992. (Of course, "on average" whitewashes a lot of exceptions. You have to wonder about the six world-class misers who made nine-figure incomes without reporting a dime in charitable contributions! Were they just born with hearts two sizes too small?)
The top 400 averaged $227,362,000 in taxable income and paid $48,983,000 in tax. That represents 1.90% of the nation's total income tax bill — nearly double the 1.04% the top 400 paid in 1992. But their average tax rate was just 18.11% — down from 26.38% in 1992. Why do they pay such a dramatically lower rate now than in 1992? The main explanation is capital gains, which have grown to represent an ever-larger share of the top 400's total income. Taxing more of their income at preferential rates (then 20%, now 15%) actually brings the overall rate down.
3,672 taxpayers have appeared in the top 400 list since the IRS started tracking them in 1992. 2,676 of them have appeared just once, 439 have appeared twice, and 171 have appeared three times. The data reveals a changing group over time, rather than a fixed group of taxpayers.
But — four lucky winners have appeared in the top 400 for all 17 years. The IRS knows who they are. But they're not telling. So who do you think they are are? Bill Gates? Warren Buffet? Oprah Winfrey?
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