Taxing the Rich: Lessons from the Returns of the ‘Fortunate 400’

(Washington, D.C.) – The tax returns of Americans with the largest incomes demonstrate some fascinating trends, including the fleeting nature of being among the nation’s highest earners and the steadily increasing portion of income taxes being paid by those at the top. The most recent data also show that tax revenue collected from those reporting the highest incomes increased during the same period of time when marginal tax rates fell, according to a new analysis by the Tax Foundation.

“The Fortunate 400 pay a lot of income tax—about enough to fund the Department of Interior, which includes the National Park Service and the National Science Foundation,” said Tax Foundation economist Will McBride.

For several years, the Internal Revenue Service has issued annual data on the top 400 tax returns by adjusted gross income – the so-called “Fortunate 400.” The most recent release shows that for that group, taxes have doubled in real terms since 1992. Likewise, the Fortunate 400’s share of income taxes paid has also doubled to 2 percent—almost the share paid by the bottom 69 million filers combined.

This year’s IRS report also demonstrates that there is a lot of income mobility at the top. Of all the filers who have made the list since 1992, 73 percent were on the list just once. In last year’s report, just 4 people had remained on the list for all 17 years. This suggests that most top earners do not have a portfolio of big investments that can be cashed in year after year, but rather one big asset, such as a family farm or business or stock, the sale of which triggers a capital gain.

While incomes reported by the Fortunate 400 have been rising, wages and salaries have remained basically flat, going from $7.5 billion in 1992 to $6.9 billion in 2009. In fact, filers with the highest incomes pay more in income taxes than they receive in wages and salaries, and have for every year since 1992. Virtually all of the growth is from “pass-through” business income and capital gains.

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