Income Watch: The Rich are Getting Richer?and Getting Bigger Tax Breaks - June 30, 2003 Vol. 4 No. 13

June 30, 2003 Vol. 4 No. 13:

Published: 06/30/2003

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Income Watch: The Rich are Getting Richer?and Getting Bigger Tax Breaks

Top 400 are doing well…

The IRS has just released two reports on the status of the wealthiest Americans. The report on the incomes of the highest 400 income tax filers shows a dramatic rise in their income levels.

The average income of the 400 wealthiest US taxpayers was $173.9 million in 2000. This was three times average income in 1992. On average, they paid 22.4% of their income in taxes. With recent tax changes, their average tax burden is likely to be even smaller.

According to the New York Times, "Had President Bush's latest tax cuts been in effect in 2000, the average tax bill for the top 400 would have been about $30.4 million — a savings of $8.3 million, or more than a fifth, according to an analysis of the I.R.S. data by The New York Times. That would have resulted in an average tax rate of 17.5 percent."

What is “average” income?

When talking about tax issues, policymakers often talk in terms of a “typical American” or a “typical family.”

For example the White House website claims, “In 2003, 91 million taxpayers will receive, on average, a tax cut of $1,126 under the Jobs and Growth Act of 2003.” But is “average” the correct measure? For example, since the 184,000 tax filers making more than $1 million per year will receive over $93,000 from the latest tax cut, this means there are many, many more who will have to receive less in order to get to the $1,126 average. In fact, there are more than 116.5 million, or 84 percent of the total, who will get less than the average.

A better measure of the “typical American” is the median, not the average. (The median is the amount for which half of the distribution is greater than the median, and half is less than the median.) In the example above, the median taxpayer will receive a tax cut of about $217.

Here are some characteristics of the income distribution from the US Census Bureau.

There were 109,297 households in 2001
The median household income was $42,228
The average household income was $58,208
The median non-family household income was $25,635
Per capita income in the US was $22,851
The top 20% of income earners receive 50% of total US income, while the lowest 20% receive only 3.5%

Household income thresholds, by quintiles (20% blocks):

Bottom Quintile: Income Range: $0 - 17,970; Share of Total Income: 3.5%
Second Quintile: Income Range: $17,970 - $33,314; Share of Total Income: 8.7%
Middle Quintile: Income Range: $33,314 - $53,000; Share of Total Income: 14.6%
Fourth Quintile: Income Range: $53,000 - $83,500; Share of Total Income: 23.0%
Top Quintile: Income Range: $83,500 and up; Share of Total Income: 50.2%