35,000 Rich People Aren't Paying Any Income Tax? How Is That Possible?

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It turns out that the rich aren't different from you and me. They're not paying their federal income taxes, either.

Some of them, anyway. The chart below, via Felix Salmon, gives us an idea of how has changed over the past two decades. The light blue line shows the number of taxpayers making $200,000 or more who don't pay any federal income taxes. Notice the sharp tick up since 2007.

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First, a big caveat. Only a very, very small percentage of top earners have zero federal income tax liability -- 0.88 percent in 2009, to be exact. Still, how do these lucky duckies pull it off? The chart below from the IRS helpfully breaks down which loopholes and deductions have driven this trend.


NoTax.png


This tells us what's happening now, but it doesn't tell us why things are changing now. Without similar data for past years, it's hard to say exactly why more rich taxpayers aren't paying federal income tax payers today. Although we can certainly speculate. This looks like a story about the Great Recession -- remember, this data is from 2008 and 2009. Maybe rich taxpayers suffered bigger tax deductible losses. Or maybe they shifted their investment portfolios towards less risky, and tax-free, municipal bonds.

Whatever the case, the ranks of the rich among the notorious 47 percent of households that don't pay any federal income tax is on the rise. But I wouldn't hold my breath waiting for Eric Cantor to explain that it's only fair for them to have some skin in the game too.
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Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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