The top 400 US individual taxpayers got 1.59% of the nation’s household income in 2007, according to their tax returns, three times the level they got in the 1990s, according to the Internal Revenue Service. The average tax rate was 16.6% - - down from 29.3% in 1993. They paid 2.05% of all individual income taxes in 2007.
To make the top 400, a taxpayer had to have income of more than $138.8 million. As a group, the top 400 reported $137.9 billion in income - - up from $105.3 billion a year earlier - - and adjusted for inflation, their average income rose almost fivefold since 1992, the figures show. They paid $22.9 billion in federal income taxes in 2007.
About 81.3% of the income of the top 400 households came in the form of capital gains, dividends or interest, the IRS data show, while only 6.5% came in the form of salaries and wages. Over the past 16 tax years 3,472 different taxpayers showed up in the top 400 at least once. Of these taxpayers, slightly more than 27% appear more than once. In 2007, the IRS received nearly 143 million individual tax returns, the year that ended with the beginning of the Great Recession.
Professor Emmanuel Saez of the University of California, Berkeley, has produced several studies on inequality in America.
Prof. Saez says Figure 1 above presents the income share of the top decile from 1917 to 2007 in the United States. In 2007, the top decile includes all families with market income above $109,600. The overall pattern of the top decile share over the century is U-shaped. The share of the top decile is around 45% from the mid-1920s to 1940. It declines substantially to just above 32.5% in four years during World War II and stays fairly stable around 33% until the 1970s. After decades of stability in the post-war period, the top decile share has increased dramatically over the last twenty-five years and has now regained its pre-war level. Indeed, the top decile share in 2007 is equal to 49.7%, a level higher than any other year since 1917 and even surpasses 1928, the peak of stock market bubble in the “roaring” 1920s.
Saez says it is the top 1% of earners who play a central role in the evolution of US inequality over the course of the twentieth century. He says the implications of these fluctuations at the very top can also be seen when trends in real income growth per family between the top 1% and the bottom 99% in recent years are examined, as illustrated on Table 2 below.
From 1993 to 2007, for example, average real incomes per family grew at a 2.2% annual rate (implying a growth of 35% over the fourteen year period). However, if one excludes the top 1%, average real income growth falls to 1.3% per year (implying a growth of 20% over the thirteen year period). Top 1% incomes grew at a much faster rate of 5.9% per year (implying a 122% growth over the fourteen year period).
This implies that top 1% incomes captured half of the overall economic growth over the period 1993-2007.
Saez says, in the economic expansion of 2002-2007, the top 1% captured two thirds of income growth.
The share of wage and salary income has increased sharply from the 1920s to the present, and especially since the 1970s. Therefore, a significant fraction of the surge in top incomes since 1970 is due to an explosion of top wages and salaries. Indeed, Saez says estimates based purely on wages and salaries show that the share of total wages and salaries earned by the top 1% wage income earners has jumped from 5.1% in 1970 to 12.4% in 2007.
The Washington DC based Economic Policy Institute think-tank said in 2008, that in 1965, US CEOs in major companies earned 24 times more than a typical worker; this ratio grew to 35 in 1978 and to 71 in 1989. The ratio surged in the 1990s and hit 298 at the end of the recovery in 2000. The fall in the stock market reduced CEO stock-related pay (e.g., options), causing CEO pay to tumble to 143 times that of the average worker in 2002. Since then, however, CEO pay has recovered and by 2007 was 275 times that of the typical worker. In other words, in 2007 a CEO earned more in one workday (there are 260 in a year) than the typical worker earned all year.