Wealthiest 1% Paid 1.6% Of All US Taxes In 2000 Says IRS

by Leroy Baker, Tax-News.com, New York

27 June 2003

Data released by the IRS on Wednesday shows that the top 400 wealthiest American taxpayers accounted for just over 1% of all income earned in the country in 2000, whilst they paid 1.6% of all taxes.

Nevertheless, despite the fact that the top 400 earners appear to be paying a disproportionate amount of tax in relation to their income, the average earnings of this group was substantially higher in 2000 at $174 million than it was in 1992 when the average was $46.8 million. Also, the minimum income level to qualify for the top 400 list was increased, from $24.4 million in 1992 to $86.8 million eight years later.

Accordingly, the proportion of total national income has also risen. In 1992, the top 400 accounted for 0.5% of the nation's earnings, whereas by 2000 this had risen to 1.1%. Their tax burden has also risen, albeit at a slower rate. In 1992 the top 400 paid 1% of all taxes, a figure which had reached 1.6% in 2000, averaging a tax bill of $38.6 million each.

The average rate of federal income tax paid by the top 400 was equivalent to 22.3% in 2000, which again was an improvement on the 1992 figure of 26.4%, and significantly lower than the 29.9% peak reached in 1995.

According to the IRS, a major contributor to the increasing wealth of this group was the reduction in capital gains tax in 1997 which encouraged many to sell long term assets. Also, the stock market boom in the late 1990's combined with a sharp increase in executive pay were other major factors the revenue cited. Despite the dramatic reversal in fortunes in the equity market since 2000, the IRS has evidence that incomes have continued to rise.

According to calculations made by New York Times analysts, had President Bush's recent tax cuts been in place in 2000, the average tax saving for the top 400 would have been around $12 million per year.

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