In ’06, Rich Earned More, Paid Less Tax

William G. Gale
William G. Gale The Arjay and Frances Fearing Miller Chair in Federal Economic Policy, Senior Fellow - Economic Studies, Co-Director - Urban-Brookings Tax Policy Center

January 30, 2009

In 2006, the 400 richest Americans had an average income of $263 million, a 23 percent jump over the previous year, the Internal Revenue Service says. That same year, the very wealthy paid, on average, an effective tax rate of 17 percent — the lowest in 15 years. NPR ‘s All Things Considered host Robert Siegel discusses the issue with Bill Gale.

From NPR News this is All Things Considered, I’m Robert Siegel. F. Scott Fitzgerald once wrote, let me tell you about the very rich. They are different from you and me. And yesterday the IRS proved once again how right Fitzgerald was. The agency calculates that in 2006, the average income of the 400 wealthiest Americans was $263 million. 2006 of course was the good old days. And it turns out that the good old days were really good for the very rich. Two hundred sixty three million was 23 percent increase over the average in 2005. Bill Gale is co-director of the Tax Policy Center at the Brookings Institution here in Washington. Bill Gale, what do you make of that eye-popping figure from 2006?

Well, I think there’s two things going on, one is as you said 2006 was really the good old days in terms of the market in general and the economy as a whole, and so we’ve seen for a while that there’s been a big rise in the income of – and wealth of the wealthiest individuals in the country, and this is just sort of stunning confirmation that continued at least through 2006. The other aspect of it is that the relatively low tax burden that this households paid, and that is due to the fact that almost – well, most of their income is in the form of capital gains which are taxed at very low rates relative to wage income.

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