The Final 400

Check this out. "Punishing the rich" my ass. Apparently our substantially (but inadequately) progressive tax regime falls off the map once you get to the very, very top of the economic pyramid.

The top 400 taxpayers in this country paid taxes, on average, equal to 18% of their reported income in 2005. They paid 30% in 1995, and they have gotten much richer since then - they now make on average 235% of what they made in 1992. And in 2005 a third of the top 400 taxpayers actually paid less than 15% of their income in taxes. The comparatively small cut taken from the rich has apparently led Progressive Plutocrat Warren Buffet to extend the offer of a $1 million bet to every Fortune 400 member that they cannot show that members of the Fortune 400 pay, on average, a higher percentage of their income in taxes than their receptionists do.

This reduction in tax burden is largely a result of the steep cuts in the capital gains tax since 1997 (28% before 1997, 20% until 2003, 15% since). About 54% of the income of the top 1% comes from capital gains - the percentage is almost certainly much higher for the richest 400. The dividend tax cut obviously didn't help either. The result of these policies is that, since 1995, the annual tax burden of the very wealthy has decreased by $25 million per filer. That's a federal revenue loss of $10 billion annually. That's even enough to fund the war for 25 minutes.

Raw data here.

Interestingly, according to that bastion of left-wing thought, the Heritage Foundation, total federal tax revenue is just over 18% of GDP. That means the hideously wealthy bear an average federal income tax burden that is slightly less, as a percentage of their average income, than total federal government revenues as a percentage of total national income (GDP). Of course there are other significant federal taxes to consider in evaluating the burden any income group bears in financing the cost of the federal government, like payroll taxes and the estate and gift tax. But including these taxes isn't likely to change much. The extremely rich pay a comparatively miniscule percentage of their income in payroll taxes since so much of their income is not from work and the social security payroll tax exempts any work income over $101,500. And the estate and gift tax is tiny in terms of its effect and the amount of revenue involved. (1% of federal revenues vs. 35% for federal payroll taxes). Not to mention, it can be largely avoided with a modest amount of tax planning.

So it would appear that the average federal tax burden borne by the hyper-wealthy as a percentage of their income isn't much more than the burden borne by the economy overall, and it is almost certainly much lower than the tax burden imposed on most of the middle class. This is because anyone who earns all of their income from work pays 7.65% of their gross income in payroll taxes; so if you don't have any capital income and you pay more than 10.35% of your gross income in income taxes, you will end up paying a higher percentage of your income in federal taxes than people in the top 400. In other words, a single person (or a married person who files separately) who earns all of his or her income from working, makes more than about $61,500 a year, and takes only the standard deduction pays a higher percentage of their income in federal taxes than the average person in the top 400 does.

(Note: My analysis does not include the indirect burden of the corporate tax on the very wealthy. Including this amount in the analysis would increase the percentage burden borne by the very rich, especially since financial wealth is so heavily concentrated among the very wealthy. But I really don't think including it would change my analysis very much, since the corporate tax is only 10-15% of federal revenues and my suspicion is that the very very rich earn a disproportionate amount of their income from investments in exotic hedge funds and private equity funds, which are usually organized as partnerships and therefore not subject to the corporate tax. And I really have no feasible way of including it either.)