Taxes Paid by the Highest Paid Americans

by: Bespoke Investment Group

The IRS recently issued an interesting report which summarizes the returns of the 400 highest earning Americans each year (on an anonymous basis). In the most recent available year (2007), the 400 highest paid Americans (ultra-rich) had an average adjusted gross income of $137.9 million. This was up from an average of $105 million in 2006, and $37.2 million ten years earlier (1997). As the old saying goes, the rich are certainly getting richer.

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Whether you think the ultra rich pay too much in taxes or too little in taxes, this report has some ammo for both sides. On the one hand, as a percent of total tax revenues, the ultra rich are paying a larger share than ever before. Even though top marginal rates have gone down, the richest Americans paid 2.1% of total income taxes paid in 2007. Ten years earlier (1997), their share of total taxes paid was only 1.2%. While the ultra-rich are paying a larger share of taxes than ever, their average tax rate has gone down.

Warren Buffett has remarked in the past about how his tax rate is lower than his secretary's, and he's right. In the 2007 tax year, the ultra-rich had an average tax rate of 16.6%, which is down over 30% from the 24.2% rate they paid ten years earlier. One thing that we should all be able to agree on is that any tax system that is so complex and full of loopholes that the highest earners pay an average rate of less than half the top marginal rate is too complicated and in desperate need of an overhaul.