Tax Returns of the Rich and Famous
/America's first billionaire, John D. Rockefeller, once said that "if your only goal is to become rich, you'll never achieve it." But some of us still manage to achieve it, and the rest of us want to know how. Since 1992, the IRS Statistics of Income Division has issued an annual report examining The 400 Individual Tax Returns Reporting the Largest Adjusted Gross Incomes. I know what you're thinking — the IRS "Statistics of Income" division is where fun goes to die. But read on — there's some pretty interesting stuff buried in this year's 13-page report.
What does it take to join the club? Well, for 2009, you had to report $77.4 million in adjusted gross income. Now, that may sound like a lot. But it's actually down from $109.7 million in 2008, and down even further from the $138.8 record high in 2007. Of course, $77.4 million just gets you in. The 400 earners averaged $202.4 million. (If that sounds like a lot, it's actually down from a staggering high of $334.8 million in 2007.)
How do the top 400 make their money? Probably not how you imagine. Just 8.6% of it came from salaries and wages. 6.6% came from taxable interest; 13.0% came from taxable dividends; and 19.9% came from partnerships and S corporations. Once again, capital gains made up the biggest share of the top 400's income. For 2009, it was 45.8%, or $92.6 million each. In fact, the top 400 individuals reported 16% of the entire country's capital gains! However, that amount was significantly down from 2008, when the top 400 averaged $153.7 million in gains. Clearly, the 2008 economy and stock market crash took a toll on the super-rich as well as the rest of us.
What do they actually pay? 2009's top 400 averaged $170.3 million in taxable income and paid $40.9 million in tax. That makes their average tax rate 19.9% — up from the 18.1% they paid in 2008. Why the higher rate? Remember, most of their income consists of capital gains, taxed at a maximum of 15%. When the percentage of their income consisting of capital gains goes down, their average rate goes up.
On average, the top 400 are a generous group. 387 of them reported charitable contributions, with the average deduction weighing in at $16.4 million. The top 400 as a whole claimed 4.0% of the nation's total charitable deductions, down from 5.2% in 2008. (You've got to wonder what goes wrong in 13 people's lives that let them earn tens or hundreds of millions of dollars without deducting a dime for charitable gifts. Maybe they just want to "give" more to Uncle Sam!)
3,869 taxpayers have appeared in the top 400 list since the IRS started tracking them in 1992. But just 27% have appeared more than once. And only 2% have appeared 10 or more times. It's worth noting that some of today's highest-profile earners fall short of this group. Billionaire Warren Buffett, who inspired the "Buffett Rule" that would tax million-dollar incomes at a minimum 30%, reported earning "just" $62.9 million in 2011. He probably won't make the cutoff. Republican presidential candidate Mitt Romney reported earning $20.7 million in 2010 and $20.9 million in 2011. As rich as that sounds, he's nowhere near the top 400.
We realize you may find these numbers comical. Who makes $200 million in a single year? But someday when your business catches fire and lands you in the top 400, you'll get pretty heated at the thought of paying $40 million in tax. That's when you'll be glad we gave you a proactive plan for paying less tax. Don't forget us when you make the big time!