IRS Stats are out. Surprise. See Justin Brayer, High-Income Tax Returns for 2008. The number of high-income taxpayers (with incomes of 200 thousand or more--i.e., those in the top 3.1% of the income distribution) that had no US tax liability was doulble in 2008 what it was in 2007--.43% rather than .23%.
Why? American Enterprise Institute economist Alan Viard is quoted by Bloomberg as saying "I don't know." See Rubin and Zajac, High-Income, No-Tax Returns Almost Doubled in 2008, Bloomberg.net, June 14, 2011.
Note that the IRS stats uses adjusted gross income (the "line" amount on the tax return) and "expanded income" that adds and subtracts various items, such as adding back in the excluded municipal bond interest. Neither of these is as great as true economic income, so many of the highest income Americans have much higher real income than reported.
Just a guess would suggest that the increasing number of elite-friendly tax provisions--preferential rates on capital gains extraordinarily low, foreign tax credit now extraordinarily manipulable to allow use against US taxes otherwise due, charitable tax deductions (for value, not for actual after-tax investment amount), dividend taxes extraordinarily low, the complete exclusion of interest from municipal bonds and other huge percs and breaks in the Code that only the wealthy elite use--are the culprit. The wealthy can skew their income in directions to generate less tax much more readily than the rest of us, especially with the Code provisions that operate in their favor. Include a loss or two (maybe generated by a tax-planned transaction, in your partnership or S corporation, that results in what appears to be a loss but isn't a true economic loss) and you really have it made.....Provisions that are likely to be of special value to the wealthy are the charitable deduction (only of use to the top 30% who benefit from itemizing), medical expenses (many of which may be for capital purchases of equipment that just happens to serve a general recreational need as well as a quasi-medical need, like a hot tub or swimming pool that the wealthy can easily find a medical doctor to substantiate), and investment interest expenses (ah, the deductions one has to gin up to account for all that almost non-taxable income).
The IRS report attributes the non-taxability to several of these factors.
The items, which had the largest effect in reducing taxes for high expanded- income returns with no worldwide tax, thus contributing to this increase in nontaxability, were total miscellaneous deductions (including casualty theft losses from income-producing property), the taxes paid deduction, partnership and S corporation losses, and tax-exempt interest.
Ah, the difficult life these days of the rich.
Recent Comments