The Audacity of Hope Tackles the Enormity of Inequality

By Sam Pizzigati, Too Much: A Commentary on Excess and Inequality. Posted February 14, 2009.

Millions of average Americans actually pay more in federal payroll tax -- for Social Security and Medicare -- than they do in federal income tax. If you take these payroll taxes into consideration, the top 400 pay federal taxes at a lower rate, as billionaire Warren Buffett likes to quip, than their receptionists.

Buffett isn’t kidding. In 2006, he paid 17.7 percent of his income in taxes. His secretary, who made $60,000, paid 30 percent.

Should we be aghast at all this, at the mammoth concentration of income that currently sits at America’s economic summit? One conservative think tank, the Tax Foundation, thinks the new IRS top 400 data offer nothing in particular that should alarm us.

The latest IRS top 400 snapshot, a Tax Foundation analysis trumpets, "clearly shows that wealthy Americans are not a static elite club that no one can penetrate."

From 1992 through 2006, the Tax Foundation goes on to note, only just over a quarter of the high-income Americans who have appeared on an IRS annual top 400 list have appeared more than once. Only eight individuals on the 2006 list also showed up on the 1992 list and every list in between.

The Tax Foundation seems to believe that this "churning among the top 400" should leave us feeling comforted. But let’s go back, before we get too comfortable, a little bit further in time, back a half-century to a quite different American economic scene.

In 1955, America’s top 400 collected on average, in dollars inflation adjusted to 2006 levels, $12.3 million in income each, an amazingly tiny fraction of the over $263 million in average income the top 400 reported in 2006.

Should we dismiss this spectacular increase in top 400 income because no one on the 2006 top 400 list also appeared in the 1955 top 400? Or should we worry about an economy that's generating colossal windfalls at the top while Americans at the middle and bottom are getting nowhere fast?

We do need to note one other fundamental difference between the 1955 and 2006 top 400s, a tax difference. In 1955, the top 400, after exploiting every tax loophole they could find, paid 51.2 percent of their incomes in federal tax, almost triple the 17.2 percent tax rate on the 2006 top 400.

If the 2006 top 400 had paid taxes at the same rate as the top 400 in 1955, the IRS would have collected another $90 billion in revenue. But the IRS didn’t collect that revenue, a reality that left the pockets of America’s richest stuffed with tens of billions of dollars they could use to make their influence felt on the American body politic.

These tens of billions have been piling up in the pockets of America’s richest, year in and year out, ever since tax rates on the rich started plunging a generation ago, with the Reagan revolution.

Our body politic, in every way that counts, still hasn’t recovered.

See more stories tagged with: obama, irs, financial crisis, wealth gap

Sam Pizzigati is the editor of the online weekly Too Much, and an associate fellow at the Institute for Policy Studies.

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