The IRS’ Top 400

The recent presidential campaign featured quite a bit of debate on taxes, focusing especially on whether top earners were paying their fair share. Last month, the Internal Revenue Service (IRS) published what it says will be its final report on the taxes paid by the 400 taxpayers with the highest adjusted gross income (AGI). The IRS has been keeping data on the top 400 back to 1992.

According to the IRS, our nation’s top earners paid an average effective federal income tax rate of 23.13% on AGI averaging $318 million in 2014 (the most current year studied). That’s an increase over their effective tax rate of 16.72% on average AGI of $336 million in 2012. Remember, though, that in 2012 the highest tax rate for long term capital gains was just 15%. In 2013, that rate jumped to 23.8% for many taxpayers, thanks to a 20% top rate on long-term capital gains and the additional 3.8% Medicare surcharge imposed by Obamacare.

How might those percentages change? President-elect Donald Trump and the Republican Congress have pledged to repeal Obamacare’s 3.8% surcharge, which would reduce the top long-term capital gains rate to 20%. And, as reported in a pre-election Forbes article, top earners will get a tax break from the Trump administration. Drawing on data from the Tax Policy Institute, Forbes reported that under the Trump tax plan, members of the 1% would receive an average $214,690 tax cut in 2017, boosting their after-tax income by 13.5%.

Here are some additional highlights from the IRS report highlighted in the Wall Street Journal article, The Really Rich Got Richer, According to IRS’s Top 400:

  • Between 1992 and 2014, 4,585 different taxpayers made the top 400 earners list, and 3,262 of that group appeared for just one year.
  • The minimum income needed to make the IRS’ 2014 list was $126.8 million.
  • Total income reported on the top 400 individual tax returns rose 20% in 2014 over the previous year.
  • Out of nearly 150 million tax returns in 2014, this group of 400 earned 1.3% of all income and accounted for 10% of all capital gains.
  • The top 400 paid 2.13% of all individual income taxes paid, their highest share since 1992.
  • The top 400 claimed 6.9% of all deductions for charitable contributions.

Going forward, instead of reporting on the top 400, the IRS said that it will focus on the top 0.001% earners. In terms of 2014 numbers, that would have meant reporting on 1,396 taxpayers.

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