The Buffett Rule: Lessons from the Recession on Taxing Millionaires January 26, 2012 Scott Hodge Scott Hodge President Obama’s proposed “Buffett Rule” reminded me of a blog I wrote a few months ago on the impact of the recession on millionaire incomes and the taxes they pay. It may sound circular, but if you are going to tax millionaires, you need millionaires to tax. But recent IRS data for 2009 indicates that the recession did more to reduce the number of millionaires than any surtax. Comparing the 2009 data to the pre-recession data for 2007 shows that not only did the number of millionaires fall by 40 percent, but the overall income of millionaires fell by 50 percent. The result for the U.S. Treasury was that 54 percent of the total drop in tax revenues during this period was due to the falling tax collections from millionaires. Table 1 shows the total number of tax returns by income group. In 2007, there were 392,220 tax returns reporting $1 million or more in adjusted gross income (AGI). In 2009, by contrast, there were 233,435 millionaire returns, a drop of nearly 159,000, or 40 percent. Of the total number of tax returns filed each year, millionaires’ share of returns declined from 0.3 percent to 0.2 percent. Table 1, Total Tax Returns 2007 2009 Change in the Number of Returns Percent Change in Returns Total 142,978,806 140,532,115 -2,446,691 -2% $1 under $25,000 56,985,652 56,556,838 -428,814 -1% $25,000 under $30,000 9,005,337 8,678,265 -327,072 -4% $30,000 under $40,000 14,740,807 14,392,315 -348,492 -2% $40,000 under $50,000 11,150,798 10,791,227 -359,571 -3% $50,000 under $75,000 19,450,744 18,749,631 -701,113 -4% $75,000 under $100,000 11,744,132 11,518,935 -225,197 -2% $100,000 under $200,000 13,457,876 13,550,244 92,368 1% $200,000 under $500,000 3,492,353 3,222,198 -270,155 -8% $500,000 under $1,000,000 651,049 484,497 -166,552 -26% $1,000,000 under $1,500,000 166,362 105,114 -61,248 -37% $1,500,000 under $2,000,000 70,733 43,936 -26,797 -38% $2,000,000 under $5,000,000 108,641 61,689 -46,952 -43% $5,000,000 under $10,000,000 28,090 14,236 -13,854 -49% $10,000,000 or more 18,394 8,460 -9,934 -54% Millionaire Returns 392,220 233,435 -158,785 -40% Millionaires’ share of returns 0.3% 0.2% 6.5% Source: http://www.irs.gov/pub/irs-soi/histab3.xls Table 2 compares the amount of AGI reported by each income group in 2007 to 2009. Overall, American’s incomes dropped 12 percent from 2007 to 2009. However, millionaires’ income dropped 50 percent during this period to $702 billion from $1.4 trillion. While the total amount of AGI for all taxpayers dropped by roughly $1.04 trillion, the reduction in millionaires’ income comprised 67 percent of that total loss in AGI. The AGI of taxpayers earning over $10 million fell 61 percent, the biggest decline in AGI of any group. Their incomes dropped $342 billion in two years, from $561 billion in 2007 to $219 billion in 2009. Their lost income comprised roughly 33 percent of the overall fall in AGI over those two years. Table 2. Adjusted Gross Income 2007 ($1,000s) 2009 ($1,000s) Change in AGI ($1,000) Percent Change in AGI Total $ 8,687,718,769 $ 7,648,676,270 $ (1,039,042,499) -12% $1 under $25,000 688,240,125 700,676,480 12,436,355 2% $25,000 under $30,000 247,203,999 238,452,112 -8,751,887 -4% $30,000 under $40,000 512,920,309 500,601,864 -12,318,445 -2% $40,000 under $50,000 499,464,109 482,877,753 -16,586,356 -3% $50,000 under $75,000 1,195,768,325 1,152,652,934 -43,115,391 -4% $75,000 under $100,000 1,014,677,916 995,242,402 -19,435,514 -2% $100,000 under $200,000 1,793,040,262 1,805,900,040 12,859,778 1% $200,000 under $500,000 1,004,658,688 912,206,732 -92,451,956 -9% $500,000 under $1,000,000 441,439,447 327,098,479 -114,340,968 -26% $1,000,000 under $1,500,000 200,785,834 126,626,692 -74,159,142 -37% $1,500,000 under $2,000,000 121,767,964 75,416,770 -46,351,194 -38% $2,000,000 under $5,000,000 324,592,983 182,741,962 -141,851,021 -44% $5,000,000 under $10,000,000 192,327,659 98,152,397 -94,175,262 -49% $10,000,000 or more 561,612,712 219,219,775 -342,392,937 -61% Millionaires AGI $ 1,401,087,152 $ 702,157,596 $ (698,929,556) -50% Millionaires’ Share of AGI 16% 9% 67% Table 3 shows the amount of income taxes paid by each income group for 2007 and 2009. Overall, income tax revenues declined by 22 percent in those two years, or $247 billion. However, collections from millionaires dropped 43 percent, or $133 billion. Collections from those earning over $10 million collapsed even more, falling by 54 percent or roughly $60 billion. In 2007, millionaires contributed 28 percent of the roughly $1.11 trillion in tax revenues collected that year. By contrast, in 2009, their share of income tax burden fell to 20 percent. Overall, the lost revenues from millionaires comprised 54 percent of the total drop in tax collections between 2007 and 2009. Table 3. Income Taxes Paid 2007 ($1,000s) 2009 ($1,000s) Change in Taxes Paid ($1,000s) Percent Change in Taxes Paid Total $ 1,115,601,803 $ 868,049,646 $ (247,552,157) -22% $1 under $25,000 14,912,814 8,372,973 -6,539,841 -44% $25,000 under $30,000 10,244,160 6,781,372 -3,462,788 -34% $30,000 under $40,000 27,853,208 20,052,556 -7,800,652 -28% $40,000 under $50,000 33,514,554 25,290,967 -8,223,587 -25% $50,000 under $75,000 96,882,330 77,997,120 -18,885,210 -19% $75,000 under $100,000 93,832,750 80,807,704 -13,025,046 -14% $100,000 under $200,000 228,687,547 213,407,586 -15,279,961 -7% $200,000 under $500,000 196,380,629 178,586,369 -17,794,260 -9% $500,000 under $1,000,000 103,163,081 80,291,445 -22,871,636 -22% $1,000,000 under $1,500,000 48,354,319 32,259,395 -16,094,924 -33% $1,500,000 under $2,000,000 29,351,266 19,461,595 -9,889,671 -34% $2,000,000 under $5,000,000 77,554,612 48,039,157 -29,515,455 -38% $5,000,000 under $10,000,000 43,929,717 25,479,130 -18,450,587 -42% $10,000,000 or more 110,843,388 51,168,777 -59,674,611 -54% Millionaires Taxes Paid $ 310,033,302 $ 176,408,054 $ (133,625,248) -43% Millionaires’ Share of Taxes Paid 28% 20% 54% The lesson from this IRS data is that we don’t need higher tax rates on millionaires to collect more tax revenues from them. We need economic growth to create more millionaires. Once we have more millionaires, the tax collections will take care of themselves. Stay informed on the tax policies impacting you. Subscribe to get insights from our trusted experts delivered straight to your inbox. Subscribe Share Tweet Share Email Topics Center for Federal Tax Policy Individual Income and Payroll Taxes Tags Millionaires and High Income Earners
