Millionaires pay no federal income taxes
Chuck Sheketoff
In case you missed it, last week the IRS published income tax data for 2009.
In 2009, of the 236,883 taxpayers with $1 million or more in adjusted gross income, 1,470 (0.62 percent) paid no federal income taxes.
By contrast, in 2007, before the Great Recession, there were more millionaires — 392,221 — but fewer escaped paying federal income taxes. That year, 961 (0.25 percent) paid no federal income taxes.
How can it be that someone who earned a million dollars or more pays no income taxes?
It’s because our tax code is riddled with deductions, credits and exemptions that favor the well off.
While it’s true that most millionaires still paid income taxes, it’s also true that the income taxes paid by the wealthy (and especially the super wealthy) as a share of their total income has shrunk significantly since the early 1990s.
And somehow, Congress and the White House reached a debt ceiling deal that fails to require the wealthiest Americans to chip in more. Instead, the deal aims a chainsaw to the programs that protect the middle class and vulnerable Americans.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.
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1:36 p.m.
Aug 10, '11
Do you know the primary source of income for all these millionaires that arnt paying any taxes? Income from State and Local Bonds (specificly IRC section 103 and 141-150). Are you really suggesting that we should be taxing that? This whole section is protected under the idea of reciprocal immunity in that the federal government does not tax state and local bonds, and the states do not tax federal bonds. See the Supreme Court Case of Collevtor v. Day.
3:12 p.m.
Aug 10, '11
What's your citation to a source that shows "primary source of income . . .State and Local Bonds?"
4:49 p.m.
Aug 10, '11
Am I 100% that they do, no. Many probably also include people that donated heavily to charities (which reduces the taxable income). But you asked for a source of my claims so let me give it to you based on http://money.cnn.com/2011/05/09/pf/taxes/millionaires_income_tax/index.htm:
"A lot of these are people who probably made it very big on Wall Street years ago and who turned around and put it all in tax-exempt bonds," Johnson said.
Many of her clients are in their 50s or older, and "they're very leery of equity markets."
Williams offered a hypothetical example: A retired person with $10 million invested in municipal bonds paying 5% interest, or $500,000 a year.
"Because there is no limit on how much tax-exempt interest you can earn without having to pay taxes, she pays nothing to the federal government," he said.
(they also gave a few other ways this can occur such as investing in foreign companies, and paying taxes their instead of in the US).
10:27 p.m.
Aug 10, '11
So, your comment is based on one article, from CNN, quoting a CPA in NY who gave hypotheticals? You said primary source of income is state and local bonds. I'll bite - how the heck does that create jobs? And if they are taxed (which has not been suggested, that I know of) how will it that hurt job creation? BTW - if the income is tax exempt, it would not show up in AGI. It should be listed on the return, assuming it is reportable, but it is not counted in AGI...
11:27 p.m.
Aug 10, '11
Yes I know that that untaxed income from municipal bonds, isn’t included in AGI, but I figure the initial article on this page is just wrong and probably his source is wrong (and was looking at gross income not AGI). His numbers just don’t add up if you’re talking “taxable income”.
Having municipal bonds taxed will make them compeate on an even playing field with corporations and the state and local governments will therefor have higher borrowing costs, which means less money for government employees. Frankly I don’t care about that all that much (as other jobs in the private sector will be created in their place, which I value more), I just figured you might. I care because I believe the power to tax is the power to destroy, and I don’t like the idea of the federal government taxing local governments.
Look I was asked to quote a source, and I gave a source. Maybe you don’t like that source, I can give another, there are plenty out there if you take a look, if you don’t like CNN, how about ABC? http://abcnews.go.com/Politics/1500-millionaires-pay-income-tax/story?id=14242254 : "According to a recently released IRS report, almost 1,500 of America's 230,000 millionaires avoided paying any federal income tax in 2009.
So how did they do it? Were they scamming the system? Evading the IRS? Stashing their cash in elusive off-shore, untraceable bank accounts?
Actually, they were probably donating to charity, investing in local and state government bonds and making most of their money overseas. "
9:34 p.m.
Aug 11, '11
So you're saying the IRS info isn't good enough for you?
9:58 p.m.
Aug 11, '11
So, that's your story & you're sticking with it? Well, if that floats your boat. In reality, the rich have the means to manipulate the tax code and get gov't to pass more breaks for them. While the average joe struggles to figure out the EIC. And where in the world ~ in this post ~ did anyone say that bonds should be taxed?
3:17 p.m.
Aug 10, '11
Also, this is adjusted gross income....so that isn't even counted in calculating that they are millionaires.
4:24 p.m.
Aug 10, '11
Actually, I think that tax exempt interest isn't part of your "gross income" but it is part of your "adjusted gross income". Adding tax exempt interest back to gross income is one of the "adjustments"
But, I'd still like to see Devin's source for his statement.
10:47 p.m.
Aug 10, '11
See http://www.irs.gov/pub/irs-pdf/f1040.pdf line 8b - tax exempt interest is NOT included in income and thus not included in adjusted gross income at bottom of page.
11:32 p.m.
Aug 10, '11
Yes I know that that untaxed income from municipal bonds, isn’t included in AGI, but I figure the initial article on this page is just wrong and probably his source is wrong (and was looking at gross income not AGI). Your numbers just don’t add up if you’re talking "income from taxable sources less tax deductions that are allowable".
12:15 p.m.
Aug 11, '11
The numbers add up perfectly.
2:23 p.m.
Aug 11, '11
Whatever, I think we can all agree that claiming the “Foreign Tax Credit” for taxes already paid overseas by millionaires with foreign investments (such as BP), would not be included in the AGI, and could easily explain at least some of those “millionaires that didn’t pay taxes” (they paid them just not to the US government).
9:31 p.m.
Aug 11, '11
The title of the article is "millionaires pay no FEDERAL INCOME TAX" ~ paying foreign taxes doesn't do us any good. How does that create jobs here? How does that help our budget issues? And they may claim they paid foreign taxes, but if the IRS doesn't or can't verify it, who's to say they really did?
8:40 a.m.
Aug 12, '11
Millionaires and Billionaires do spend their money occasionally. No mattress is big enough <smile>
Buying something here indirectly does support someone's employment.
As for capturing "a fair share", recall what happened the last time our government went after the privileged few who paid little or no taxes in past decades. We got the AMT which is now hammering millions of tax payers; many more than the targeted hundreds.
Also, nice to know that interest from tax free bonds won't be showing up in AGI.
1:58 p.m.
Aug 10, '11
Never mind about that Supreme Court case, South Carolina v. Baker overrides. The reason for reciprocal immunity have been around a long long time. Are you really sure you want to tax income from state and local bonds? That will make it a lot harder for your public employee unions to get more money if the local governments cant borrow money as effectively (As they will need to complete on an even bases with business for bond money).