Today’s rich pay far less tax than in 1992

The top 400 U.S. income tax returns for 2007 (the most recent year for which numbers are available) paid an average tax rate of just 17% on income averaging nearly $345 billion (in that one year alone).

For comparison, in 1992 the top 400 U.S. tax returns had an average tax rate of 26%. One reason for the difference: The tax on most stock dividends, and on capital gains from the sale of assets held for over a year, is now just 15%.

Overall, the average income tax rate for all taxpayers was 9.3% in 2007 versus 9.9% in 1992. Today’s rate is probably even lower thanks to various tax breaks instigated by President Obama.

There’s more information in this AP article, but it unfortunately contains some oversimplifications, for example omitting to mention the tax break on dividend income and suggesting that the 15% rate on “long-term” (over one year) capital gains applies to all capital gains. And it’s worth remembering that what the U.S. calls “income tax” is not the only federal tax on income.

In fact, for the majority of working people, Social Security and Medicare payroll taxes take a bigger bite than income tax. Both of these apply only to earned income (not dividends, interest, or capital gains), and the Social Security tax rate drops to zero above $106,800.

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