Income and Taxes

New York Times story, Very Richest’s Share of Income Grew Even Bigger, Data Show:

The 400 wealthiest taxpayers accounted for more than 1 percent of all the income in the United States in the year 2000, more than double their share just eight years earlier, according to new data from the Internal Revenue Service. But their tax burden plummeted over the period.

But wait, there’s more:

All of the I.R.S. data is based on adjusted gross income, the figure reported on the last line on the front page of individual income tax returns.

This is a very important point in any discussion of income and taxes. This is the ADJUSTED income AFTER DEDUCTIONS. Here is a bit about why this matters:

The figures do not include the incomes of the many wealthy Americans who use shelters to reduce their reported incomes below the level of the top 400.

In 1999 and 2000, for example, William T. Esrey – then the chief executive of Sprint, the telecommunications company – earned more than $150 million in stock option profits, lofting him onto many lists of the best-paid corporate managers.

That income might have put Mr. Esrey in the I.R.S.’s top 400 taxpayers. But, as later came to light, Mr. Esrey bought a tax shelter from Ernst & Young, the accounting firm, designed to let him delay reporting the profits for tax purposes until the year 2030. Sprint’s board forced Mr. Esrey to resign in March after he acknowledged that the shelter was the subject of an I.R.S. audit.

Got that? This is the income that they could not hide from taxes. There could be a tremendous amount of income that is not included in reports like this one. So when you hear right-wingers complain that the poor, suffereing rich pay a high percentage of income taxes, remember that the share of income they receive is also high, and even the shocking studies showing that the very richest are bringing in extremely high incomes – an ever higher proportion of the country’s wealth – don’t report the income that is sheltered from the IRS. This report, for example, saying that only 400 people receive over 1% of all the income in the United States, is skewed because it only report SOME of the income they receive!

The concentration of wealth and how it is affecting the economy is a great subject for discussion.

Oh yeah, one more thing from the story:

A second report that the I.R.S. will make public today shows that the number of Americans with high incomes who pay no taxes anywhere in the world has reached a record. In 2000, there were 2,022 Americans with incomes of more than $200,000 who paid no income tax anywhere in the world, up from just 37 in 1977, when the report was first issued.

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