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Memo Pad

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David Cay Johnston: The Fortunate 400

June 6th, 2012 3:00 pm David Cay Johnston

On top of his $9,225 federal income tax, he also paid $9,409 in payroll taxes, which include Social Security and Medicare taxes. Half of the payroll tax was deducted from his check. His employer paid the other half, which was really hidden wages taxed at a 100 percent tax rate.

His total federal tax burden was 30.3 percent, exactly 50 percent more than the 20.2 percent tax burden, measured the same way, on the 400 at the top.

This comparison illustrates how Congress has created two income tax systems, separate and unequal, burdening millions much more heavily than the few, those with gigantic incomes and a propensity to make campaign contributions.

One system is for wage earners and pensioners, whose taxes are withheld from their checks. This rigorous, efficient system taxes them fully.

The other system is for business owners, executives, managers of hedge and private equity funds, name brand athletes and entertainers, and many others with huge incomes. Congress lets them put unlimited amounts of income in sheltered accounts and put off paying taxes for years or even decades.

Deferral does not prevent these super rich Americans from spending their money. Hedge fund managers and others can borrow against their untaxed wealth, currently at interest rates close to zero. So long as their wealth grows faster than their borrowing their net worth continues to increase.

The IRS report covers only the 400 highest incomes reported on tax returns, not the 400 highest actual incomes, which I am certain are much larger on average because of deferrals. That means the report overstates the tax burdens of the richest Americans pay.

If you like this, see: “Did Mitt Romney Impersonate A Police Officer?

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  • montanabill

    Excuse me, but the President (and the left) has not limited demagoguery to just the top 400. It’s “millionaires and billionaires”, remember? And your very first chart shows they, indeed, are paying high rates. When local and state taxes are included, around a 50% rate. If fact, this group, who make 25% of the income is paying 40% of the income taxes. So just what is a ‘fair share’?

    • http://www.facebook.com/profile.php?id=75400933 Chris Riley

      You’re looking at “fair share” from the wrong angle. We look at fair share from the “income %” angle.

      If your piece of the pie gets larger, someone else’s piece is getting smaller. As the amount of income going to the middle class has halved (~18% in the 70s to what, around 9% today), the share of income going to the richest families have increased by almost that exact 9%. The poor and the 80-99% have remained mostly stable, with the middle class bearing almost the entirety of a massive redistribution of income from the middle class to the richest.

      The lesson learned is: If you’re not paying your workers, and you’re keeping the money in your business for yourself and your executives — great, that’s Capitalism, but expect your workers to use government to make you pay a larger share of your income to pay for the services and functions that would have been paid for through natural federal revenue growth via natural income growth. That’s Democracy.

      Taxation is a poor way to distribute income, but sadly the Capitalist Economy has completely delinked business success with middle class income. Raises are rare and most companies prefer to give their workers yearly pay cuts in the form of letting inflation devalue a salary or wage much faster than raises keep up.

      Taxation is a poor second choice to the Capitalists actually paying their labor appropriately. But as the power of Unions dies, as income gains for middle class slow, as pensions are gutted and benefits denied, we can expect an acceleration of income inequality and a massive growth of income concentrated in the top 0.1%, almost totally at the cost of the middle class.

      And yes, they will be paying more taxes, and that will be a direct result of their inability to pay their employees enough to make our current tax system feasible.

      • http://www.facebook.com/jake.colston Jake Colston

        FINALLY AN EDUCATED PERSON SPEAKS

        • Diogenes67

          Did you notice that the educated person didn’t post in caps?

          • buckstag

            It is class warfare and I am not afraid to admit it. I would gladly go to “war” if that is what it takes to make our taxation system more equitable. As a retired business owner I can assure you that the system is hugely tilted in favor of those who are in a position to craft a tax avoidance plan with the help of their “creative” accountants. I once read that the IRS collects $3 for every $1 they spend on investigating tax fraud. Talk about an easy way to balance the budget!

      • http://pulse.yahoo.com/_D5HPWVIJUUCDCQIWUV636LNM4A Elsa

        Well said Chris. Too many of the very rich are greedy and I think a bit on the stupid side. They cannot in anyway support the US economy without a strong Middle class to buy their goods. Their profits are directly linked to how much money the rest of society has to spend on food, clothing and fun stuff. If they want to keep it all, they will end up cutting off their own noses to spite their face.

        • squarloey M

          The US middle class is irrelevant, when you have China and India to buy your products. Profit in the US market comes from interest on debt, nothing more, and that’s plenty good enough for the 1%. We can starve for all they care, we’ll still need a place to live and things to buy, and debt will carry us (and them) there.

      • montanabill

        My angle looked at the ‘fair share’ from the ‘income %’ angle. The rich make 25% of the income and pay 40% of the taxes. That is pretty straight forward.

        There is no ‘pie’. Just because one person makes more does not mean that someone else has to make less. The difference in the so-called class incomes is that the rich (using generalizations) make their wealth through owning or running businesses or investments. The middle class make their wealth through working and the poor live off the government. Since over 80 million people who were previously employed are now unemployed or under-employed, naturally their ‘share’ is down. The poor’s share has increased slightly because of government largess. The middle class share has not been redistributed to the wealthy. It is simply missing from the economy. The businesses that used to employ these workers have cut back to survive or have gone out of business. The main problem we are having with governments, is that they do not want to cut back on services and functions when everyone else is cutting back. Most local and state governments, like businesses, don’t have a choice and have been forced to cut-back. The Federal government is a far different story. There is no one reading this who can argue that there is no place for the Federal government to cut spending. I’d be glad to provide a laundry list to those who are oblivious.
        Until the Feds have made a significant effort to make real spending cuts, asking for more taxes is the sign of an out-of-control addict.

        You have made a basic, and I submit invalid, assumption that companies do not want to pay their workers fairly and will only do so through unions. The demise of unions is due to two things: an economy that will no longer support the increases and benefits always demanded by unions which previously could be passed on to the consumer, and their own greed and demands for power.

        Finally, the amount of increased revenue to be gained from taxing the top 0.1% or even the top 10% is insignificant. The numbers touted always sound big, but that is simply because they are 10 year guesstimates, not 1 year numbers.

        The economy can be brought back and brought back pretty quickly. When that happens, the middle class will also grow and prosper. It will not happen with the current administration’s policies. The best, and I do mean very best, that can happen under the current administration is a very, very slow recovery. If blind faith dictates you must stick with Obama, I hope you are one of the 1% who can survive another 4 years.

        • dtgraham

          There is a pie montana. A nation will only produce so much wealth. GDP isn’t infinite. When you: i)keep minimum wage at absurdly low levels for excessive periods of time ii)legislate labour unions out of existence iii)keep cutting taxes to the point where there’s no money for the New Deal, Great Society, Pell grants, etc etc…. there will be money that will go upwards at the expense of others. Redistribution of income to the top is done in a thousand ways.

          As Chris Riley pointed out, there are plenty of stats that show where the middle class’s share has gone to. The United States’ gross national product keeps increasing (for now). It didn’t just disappear.

          Bringing back 90′s tax rates would reintroduce fiscal sanity. The economy took off in that decade after rates were increased. Not because of increased rates of course, but they didn’t hurt. Even a slight increase at the top would help some. It’s estimated that Wisconsin will lose 2.3 billion dollars over the next 10 years, in tax receipts, largely due to changes in capital gains and combined reporting thanks to Walker.

          Bill, the budget crises of state and municipal governments were not brought on by spending or excessive pay to civil servants but, rather, by a banking meltdown that enriched those who engineered it. Housing values, and the local taxes dependant on them, are down because of financial shenanigans that wrapped mortgages into collateralized debt obligations, and that is the root cause of gov’t red ink at the moment. Social spending and gov’t employees just happen to be awfully convenient scapegoats.

          By the way, Obama has kept the Bush tax rates (made still further cuts) and passed fewer regulations than Bush did at this same point. What has he done, precisely, that’s so Marxist and so crushing to business (unless you want to count the ACA)?

          • montanabill

            Minimum wage is hardly absurdly low. Besides, every time it is raised, prices are raised. It becomes more of tax on the middle class than to the rich class.
            Labor Unions have not been legislated out of existence, though most public service unions need to be. (We should have heeded Roosevelt.)
            We did not need the New Deal or Great Society. Those were boondoggles, at best.
            Many of us from very poor starts were able to succeed and complete school and college without Pell grants or other forms of government aid.
            The banking meltdown was caused by the Affordable Housing Act that demanded banks loan to people who could not pay the money back. Bankers looking for a way out tried to fool people by bundling bad mortgages and calling it an investment. Banks were holding trillions of dollars worth of bad mortgages that were going to cause a housing bubble burst regardless, largely because Barney Frank and Chris Dodd blocked any action that might have lessened the ultimate blow.
            Listen to people like Clinton and other Democrats if you don’t believe Republicans. Raising taxes now (or anytime for that matter) will do more harm than good.
            It might make the wealth envious feel better, but it will have a negative impact on everyone.
            If you recall, the tax rates got raised only because Clinton agreed to actual spending cuts, not cuts to proposed increases. When Democrats pulled a fast one on George H.W. Bush by promising to cut spending if taxes could be raised, and didn’t, no Republican will believe them again.
            When civil servants have a higher pay rate than equivalent private sector employees and a much better retirement than Social Security, it is excessive.
            Obama did not further cut taxes. He simply stopped collecting some portion of Social Security deposits. That is not a cut and it is starving a program that is already headed for trouble. A program that is really counted on by the middle class.
            ACA is the mother of all regulation generators, bar none. And it is already, even though not even really in effect, crushing to business. I know from personal experience.

          • dtgraham

            I’ll just respond to a very few things montana, because I’m afraid that you and I are existing in two different realities (parallel universes) and are looking at life through opposite ends of the telescope. There isn’t much point in this. I should have added that excessively low minimum wage rates have a dampening effect on all lower and semi-skilled wage rates because they tend to get pegged to the minimum wage. Similarly, lost union wage rates (6% of the private sector now) have the same dampening effect from the other end.

            Yes, I believe that there should be strong oversight on public sector negotiations, of course. Their paymaster has an unlimited source of funds…..the taxpayer. Government has an obligation to drive a hard bargain, but they still deserve a living wage and benefits don’t they? So does everybody else who goes to work.

            The New Deal and Great Society not needed? Can you tell me which wealthy, advanced, democracy doesn’t have pensions and health care for seniors and, also, a basic safety net for the indigent. Which one? Why would you want the U.S. to be the only one who didn’t? You’re competing with Somalia or something? Wouldn’t that embarrass you? This new era in U.S. politics is not normal conservatism. I blog back and forth with Canadian conservatives all the time, and not one of them ever questions our universal health care, pensions, etc… That would unthinkable to them. We argue about other things. I’m sure that would also apply to French, German, and British conservatives too. Actually I do know because I watch the BBC and a German cable news service too.

            Check out Canada’s debt compared to the U.S. It’s a hell of a lot less with more social spending, higher taxes and more regulations. Hasn’t seemed to have hurt.

          • montanabill

            You are right about different realities. When I see minimum wage raised, I see the price of hamburger go up. Which groups predominately buy hamburgers? It becomes just another hidden tax and, in the end, nothing changes. The same goes for union wages. The perfect example is the auto industry. Demand, threaten, strike. Executives cave thinking some production is better than none and praying every day that a lower price producer doesn’t come along. (don’t read into this that I don’t hold their executives responsible for a lot of the industries problems) How many jobs were lost when unions would rather see their factory close rather than reduce their incomes a fraction to stay competitive in the world? It is not an insignificant number.
            I don’t have a problem with pension plans or health plans, if they are defined contribution plans. As they have become nothing more than moocher plans that allow people to avoid responsibility for their own lives, I do have a problem with them. There will always be a portion of society that is unable to fend for themselves, those born with severe problems and those who contract severe illness or injury through no fault of their own. They deserve whatever private and public support we can provide. But our society has allowed simple moochers to dominate the system. Do I think someone who has allowed themselves to get obese deserves special privileges and public welfare? Absolutely not. Do I think someone who is debilitated because of choosing to use drugs needs public help? Absolutely not. Do I think someone who is poor because of their own choices deserves special treatment? No. The list goes on. We have, in our “compassion”, created a self destructive class who expect someone else to take care of them. In my world, I donate directly to the charities that I know will help people who deserve help. When the government uses my taxes for welfare, they are doing it to buy dependency and votes.
            Canada is a wonderful country, but with totally different demographics and place in the world. I also know a number of western Canadians who many times wish their provinces were part of the States.

          • dtgraham

            I hear you montana. We’re now hearing new conservative voices out of the prairies who’re competing with the provincial Progressive Conservative message. They’re still significantly different than modern U.S. Republicans, but there is a slight variance from traditional Canadian conservatism. I’m glad to see the very conservative province of Alberta re-elect the old time Progressive Conservatives, recently, instead of what some have referred to as the Canadian Tea Party (Wildrose).

            Speaking of unions, do you ever wonder how a country like Germany can have such a highly unionized workforce and yet be such an economic powerhouse built mostly on manufacturing? They even have laws that stipulate that corporations must have a minimum percentage of their board made up of union representatives. Still, they more than successfully compete with low wage countries and continually led the world in total exports until China finally passed them a few years ago. I have theories on it but only theories. They’re doing better than our two countries in many ways and they show that unions are not necessarily the boogeyman that you’re thinking Bill.

          • montanabill

            Actually, I don’t wonder a bit about Germany. I am thoroughly familiar with the German psyche, but it doesn’t hold for the nongermanic European states. However, the Germans are not immune from petty strikes either.

          • dtgraham

            Good talkin’ to you montana. Well, typing anyway.

          • montanabill

            You too,dt.

      • rockin_the_bay_in_Tampa

        One thing that is never mentioned in the so called budget for the US government, and that is the military budget. No one ever associates it with the rest of the economy, yet it plays a major roll in it. Most people don’t think about the military as a major part of the economic woes. Now, our dear John McCain is, now, beating the war drum to invade Syria or Iran…the usual GOP way to “fix” the ailing economy, go to war! If you don’t have a fight to fight, pick one…

      • audiorago

        Does this take Capital Gains into account? As I understand things, people with amount of wealth don’t actually work for wages and income but instead subsist on Capital Gains which is taxed at a much lower rate anyway.

  • Pingback: Top 400 Taxpayers Payed a Lowly Average of 11.6% Tax Rate

  • Pingback: America's Richest 400 families paid avg 11.6% effective tax rate last year. | The 99 Percent - Occupy Wall Street

  • bob dylan

    When you actually read the article it shows that the average rate is 11.6% percent and the top 400 families actually paid almost double that at 19.9%. It also shows they pay at least 4 times as much by percentage than people making less than $50,000.
    Basically the headline is complete bullshit

    • Gammaanya

      Wrong. Understand the difference. I do books for large Corp. and some pay next to nothing sad to say but I do it and it’s all legal. Last year 1 Co. did business in range of 6M after all deductions write off it paif 12% taxes while warehouse worker on his 55K paid almost 22%. Fair??? Romney on his 25M paid 13%, Obama on less than 1M paid 20%, My neighbor on his SS and return on his inv. (capit. gains etc pd 23% (51K income). Fair???
      Other neighbor made over 250K with all the write offs paif 13%. Fair??? What we need is tax reform and pay according to income levels. In 2013 we will have 5 tax rates instead of 6 and it will increse by 5%, again the Corp. will benefit more than a middle class.
      With what is going on we became United States of Austerity. The rich will be getting richer and the middle class will dissapear. One thing the rich should keep in mind, with out middle class spending they will fade away over time. Corp. do not create jobs in any shape or form. Supply and demand does. If nobody shop at Walmart, eat atMcDonald etc they will fade away. But they have ammassesd so much wealth that they can survive and if they go bankrupt the middle class absorbs the cost and is still paying. Why do you think Bain and Trump, buy and borrow money to either expand or bankrupt the companies?? They will take all they can while running then bankrupcy whipes all out and taxpayers on the low end hold the bag. while their personal wealth is not touched or taxed very much, because they reinvest under different name and the cycles goes on and on. Ever file for bankruptcy?? Most people do it and guess who gets paid first banks the rest out of luck ( depend what Chapter) most people file and still keep houses cars etc, while taxpayer gets stuck with the rest. Like they teach us in school get rich on OPM (Other People’s Money).
      Wanted to be rich?? Start non profit organization and start sending letters and as a CEO you will make a lot of money. Why do you think Santorum is starting. He has no job, best deal ever, he have enough followers and believers in his agenda that they will donate to spread the word. He is making money on your stupidity and gullibility. Wisconsin was sold to the highest bidder rather cheap. Research, research, put ideology a side – never work in working world. Americans will buy anything if you run commercial day and night.
      “If you tell a lie big enough and keep repeating, eventually they will come to believe it” J. Goebbels – Hitler Propaganda Minister and Germany got Hitler. Walker was pumpig his message and Wisconisn got Koch Bros, Citizen United, C, Rove to name a few. Good ROI (Return on Investment).

      • http://pulse.yahoo.com/_D5HPWVIJUUCDCQIWUV636LNM4A Elsa

        It is good to see that other people understand how this Country is being ruined by greedy Corporations and wealthy people; The Country will not survive without a strong middle class and that is slowly and surely being distroyed.

  • youni89

    Hey rich ppl, lets pay the same % rate as us well-off people shall we? thanks.

  • mikebow

    Chris Riley shows the basic flaw in the liberal philosophy. The size of the “pie” is NOT fixed. In a capitalist system, the “pie” expands as more people take advantage of the opportunities afforded them. The rich get richer because they keep doing the things that make them rich and the poor get poorer because they keep doing what makes them poor. Yes, I know there are exceptions. The problem is so many people don’t know how to take advantage and compete in our system. I blame this on our education system. Capitalism has created more wealth for more people than any economic system ever devised.

    • Matt Menke

      Exactly…That’s why you tax the wealthy and help those less fortunate. Those who aren’t well off spend almost everything they take in, increasing demand, which is good for business.

      Reduce taxes on the rich, and most of it goes into stocks…Which just has the effect of increasing stock prices, and the money doesn’t really more around much.

      • mikebow

        When you invest in a stock, you are investing in a company. This gives the company the capital to expand and create more jobs. In a capitalist system, the entrepreneur puts their money or their investors’ money at risk in hopes of making a good return (profit). In doing so, jobs are created where other people sell their labor for an agreed upon price. The workers earn a living without putting their money at risk. If the company fails the workers lose their jobs, but can go elsewhere to sell their labor. They keep the money they have earned. The investors lose the money they have invested and have gained nothing but experience.

        If the possible reward is not great enough, why would someone risk their money to start a business and create new jobs instead of just working for someone else? I have no problem with a progressive income tax, but if you destroy the incentive to invest, people will not put their money at risk, and no jobs will be created.

        • http://www.facebook.com/profile.php?id=501526634 Ben Richey

          Buying and trading stocks is totally disconnected from investment in a company, and have been for years. How else can you explain the CEO who is handsomely rewarded by his board for making short-term decisions to bump the quarterly stock price, while ignoring the vision for long-term business planning? Boards and executives have absolutely no taste for investment that won’t show an immediate return. It’s obvious, when stock prices jump every time a company announces massive layoffs, that it’s all about the return for the hedge fund manager and not the least bit about the health of the company.

          US companies are sitting on billions of dollars in capital reserves while demand stagnates because of widespread unemployment. If companies would invest these dollars in their business, they would create hundreds of thousands of new jobs, and by doing so would restore demand for the goods and services they provide because there would be workers with income to purchase them. There needs to be a return to the ideas of Henry Ford, who understood that paying his workers enough to be able to afford his product (a living wage) was a smart business decision that ensured long-term growth for his company and his profits.

      • DurdyDawg

        May I intercept for a minute?.. Mike, you say, “The problem is so many people don’t know how to take advantage and compete in our system.”.. No! The problem is there’s a certain amount of people who know how to take advantage of others through the system, doesn’t care who they stomp on in their quest to riches and has no use for morality when it relates to b’ness.. There are those who do not walk about with a corporate knife behind their back ready at any time to stab even their own ilk in the back for that one more rung up the ladder.. B’ness takes a special kind of character and on the whole, decent people aren’t willing to stoop that low nor willing to sell their souls for other people’s toil in order to make them richer. You attempt to throw guilt trips on honest people, telling them if they want to succeed in life then they must treat everyone else as prey. By manipulating the cost of living and refusing to include COL increases, then you systematically keep the poor living from day to day as they toil for little more than minimum wage and produce products for you to gain in wealth.. (not ‘you’ you but the one’s your seemingly defending).

        • mikebow

          I meant take advantage of the opportunities afforded to them not of other people. I was a small business owner until my retirement. We employed 15 people. They were my employees and my friends. Sometimes I had to let people go, usually because of business slowdowns. They understood it was necessary for the business to survive, and I did all I could to help them out. Large companies can’t operate this way even if they wanted to. Government regulations require that they follow rigid personnel policies or be subjected to lawsuits.

          You have a very warped view of what it takes to get ahead in business. The vast majority of people in business are decent people. The vultures you describe get all the headlines but are the exception rather than the rule. In spite of what you see in the news, they usually fail in the long run. I do think that there has been a decline in business ethics, and business schools are now placing more emphasis on this.

          In general, wages are based on demand for a skill. If a job can be done by anyone with a pulse, the wages will be low. If you have a skill that is in high demand, you can demand a high wage because companies have to compete for your labor. No one wants to pay more than they have to for anything that they purchase, including someone’s labor. In slow economic times, the demand for labor in general goes down, so wages go down unless you have a “recession-proof” skill which is always in demand.

          • DurdyDawg

            “The vast majority of people in business are decent people.”…

            Fact is, that’s EXACTLY what I said in that I focused on: “The vultures you describe get all the headlines but are the exception rather than the rule.” But here you are taking it personal, as if you had been counted in this vile category. Yes, it is those types who have the loudest voice but no different that so-call liberals when you (or others) blame all DEMS for the antics of a few and in turn they view all PUBS as rich usurpers. Read as a third party, not as it revolves exclusively around you and you just might understand what I was trying to say because it is true and they give the honest employer a bad name because of their underhanded ambitions.. I’ve worked for both types and although they are similar when letting their employees go, their worlds apart in taking away their accumulated pensions and investments.. So don’t take it as an all out war that every employer is blood suckers, only those who would destroy the lives of others in order to gain a profit in their bankruptcy. And as far as being the exception rather than the rule.. that may be so but unlike you (and those who are honest) they wouldn’t screw their employees but not so these vermin, and there’s many more that you let on.. just visit wall street and the check out the b’ness men/turned investor if you don’t believe.. hell, they’d give up their g’ma if it meant a profit. So, I don’t care what you call me nor do I care that you view the opinion personal but if you read it correctly you’d have no choice but believe it’s true with these users.

      • dtgraham

        Exactly right Matt. You learn that in economics 101. There’s a velocity factor to money in that the further down the scale it goes, the more the compounding of the effect that it has on the total economy, after it’s spent.

  • cpfstock

    Anyone who has not seen their returns should refrain from comment.