Never before in modern American history, suggests a new look at America’s highest 400 incomes from the IRS, have so few made so much at the expense of so many. Or paid so precious little in taxes.
The IRS has released, with not a trace of fanfare, the latest figures on America’s 400 highest incomes. A shame. These new IRS figures deserve fanfare, at least a trumpet blast or two. Our top 400, the new numbers show, have moved into an exalted realm. They now rank among the greatest plunderers of all time.
Vandals and Huns, move over. Conquistadors, make room. You all have met your match — in the kingpins of high finance, hedge funds, and Silicon Valley who sit at the tippy top of 21st century America’s economic summit.
In 2007, the new IRS data show, the top 400 tax returns filed in the United States reported, on average, an incredible $344.8 million each in income.
Need some help placing this sum in perspective? How about a little history? The $344.8 million average the top 400 reported in 2007 — the year before the economy crashed — represents more than five times the average income of 1992’s top 400, and that’s after taking inflation into account.
The IRS official figures on top 400 incomes only go back to 1992. But we can assemble comparable totals from earlier IRS data releases. For 1961, we can calculate an average income for the top 398. This near-400 averaged, in 2007 dollars, just over $14 million, or 25 times less than their top 400 peers in 2007.
Enough history? How about geography? America’s 400 highest earners in 2007 reported more income than the entire population of Kentucky, a state over 4.2 million people strong.
Want more of a workplace perspective? The typical American private sector worker in 2007 would have had to work over 11,000 years to equal the income the average top 400 deep pocket took home in just one.
We don’t know, from the new IRS stats, the identities of the top 400, in 2007 or in any other recent year. The IRS doesn’t name names. But we do have a fairly good idea, from previous news reports, about some of enormously fortunate who almost certainly spent 2007 in top 400 territory.
A good chunk of this top 400 hailed from the hedge fund world. In 2007, according to the financial industry trade journal Alpha, 50 hedge fund managers made at least $210 million each, well above the $138.8 million minimum needed over the course of the year to reach top 400 status.
The biggest hedge fund income in 2007 belonged to John Paulson. His achievement? Paulson bet that the housing bubble would pop and profited royally — to the tune of well over $3 billion — from the misery that resulted.
Other top 400 incomes in 2007 came from private equity, that shadowy world where power suits borrow other people’s money to buy out troubled publicly traded companies, then pay off their debt by axing jobs and squeezing consumers. The windfall profits — for the private equity wheelers and dealers — come when the “fixed” company gets sold back to Wall Street investors.
Private equity firms, unlike publicly traded companies, don’t have to reveal their executive pay. But sometimes details sneak out, as they did in 2007 when the Blackstone Group, the nation’s top private equity outfit, decided to sell its own shares on Wall Street. That sale handed $684 million to Blackstone CEO Stephen Schwarzman, on top of the $180.1 million he drew that year as chief exec.
Not all the top 400 of 2007 made their fortunes speculating on mortgages or playing private equity games. Some of the year’s highest incomes came out of the executive suites of America’s biggest corporations.
Oracle software CEO Larry Ellison, for instance, collected $61.2 million in annual pay for 2007 and pocketed another $181.8 million cashing out stock options he took home in previous years. Ellison’s money-making genius? He buys up competitors, grabs their customers, then fires their workers.
The most amazing aspect of the top 400 picture in 2007 may actually not be the hundreds of millions the 400 individually pocketed. That most amazing aspect may be the hundreds of millions that remained in their pockets after taxes.
In 2007, the top 400 paid only 16.6 percent of their total incomes in federal income tax, down from 17.2 percent in 2006 — and down even more from the 29.9 percent effective tax rate on the top 400 in 1995. In other words, in just a dozen years, the tax rate on America’s super rich dropped by almost half.
Go back a few decades and the current tax “burden” on our super rich becomes even more remarkably light. In 1955, the nation’s top 400 — to be precise, the top 427, the total available from IRS historical records — paid 51.2 percent of their incomes in federal tax, over triple the tax rate on top 400 incomes in 2007.
How huge a tax break are today’s super rich getting? If 2007’s top 400 had paid their federal taxes at the same rate as 1955’s most financially favored, the federal treasury would have collected an additional $47.7 billion.
Those billions, in 2007, would have been enough to increase federal aid to state and local governments for infrastructure projects by over two-thirds. Or nearly double the nation’s entire 2007 outlay for scientific research.
We can’t, of course, undo the great plundering of 2007, that wild chase after grand fortune that would go on, in 2008, to collapse our economy. But we can take steps to prevent that wilding in the future. Our forbears did just that. Back in the Great Depression they started changing the rules — on everything from taxes to banking — that gave the greedy such an insatiable incentive to grab.
The new rules worked. By the 1950s, we had a top 400 that no longer lorded over us. We had an America that worked for average Americans. We don’t now.
Sam Pizzigati edits Too Much, the online newsletter on excess and inequality published by the Washington, D.C.-based Institute for Policy Studies. Too Much appears weekly. Read the current issue or sign up to receive Too Much in your inbox.