The real '1 percent' may surprise you

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As Occupy Wall Street protesters descend on the nation's cities to bash the rich and root for the poor, you might be wondering how your household income and tax bite stack up against your fellow Americans.

New data from the Internal Revenue Service may surprise you.

If you thought it took millions to land in the top 1 percent of earners targeted by demonstrators, you should know the actual threshold is $343,927, according to IRS statistics for the calendar year 2009, the latest available.

That's down from a minimum of $410,096 in 2007 when the economy was in better shape.

Still, that's far more than what the bottom half of all U.S. households made.

Of the 138 million tax returns filed for 2009, 69 million reported income below $32,396.

The IRS data is based on adjusted gross income, or the amount after adding interest income and subtracting certain expenses but before subtracting standard or itemized deductions. It's the figure on line 37 of Form 1040, line 21 of the 1040A or line four of the 1040-EZ.

Households making at least $154,643 made it into the top 5 percent of earners, while it took a minimum of $112,124 to get into the top 10 percent and at least $66,193 to place in the top 25 percent.

A family of four making $50,000 generally is considered to be middle income these days, said David Logan of the Tax Foundation, a nonprofit tax research group based in Washington, D.C.

Mr. Logan said what stood out the most to him in the latest data was that incomes of the wealthiest Americans came down in 2009 vs. 2008 while the group's average tax rate went up.

"That surprised me because of what we hear about the wealthy getting all the tax breaks," he said.

Total income for the top 1 percent fell 21 percent (to $1.3 trillion in 2009 from $1.7 trillion in 2008), while the average tax rate rose to 24 percent from 23.3 percent, the IRS data showed.

Total income for the bottom 50 percent fell 2 percent (to $1.06 trillion from $1.08 trillion), but the average tax rate also fell to 1.85 percent from 2.59 percent.

Nationally, the average effective income tax rate across all income levels was 11.06 percent, the lowest level since the IRS began tracking the rates in 1980.

The previous low was 11.9 percent in 2003, when the bear market of 2002 wiped out capital gains, a problem that probably also affected the 2009 results, Mr. Logan said.

The three highest average tax rates were in 1981 at 15.76 percent, 1980 at 15.31 percent and in 2000 at 15.26 percent.

Since 2000, the average tax rate has been trending downward, Mr. Logan said.

The 138 million tax returns analyzed for 2009 included returns from people who did not owe any federal income taxes.

Roughly 59 million returns, or 43 percent, used exemptions, deductions and tax credits to wipe out their entire federal income tax liability, the Tax Foundation said.

Despite overall declining tax rates in recent years, a government study released this week showed the income gap between the rich and the poor has been widening.

After-tax income for the richest 1 percent of Americans almost tripled from 1979 to 2007, according to a report from the Congressional Budget Office.

At the same time, people in the middle of the scale saw their incomes grow by just under 40 percent and those in the bottom 20 percent saw a gain of about 18 percent.

"The distribution of after-tax household income in the United States was substantially more unequal in 2007 than in 1979," the CBO said.

The full CBO report is available at

For the Tax Foundation's summary and analysis of the latest federal individual income tax data, go to

Patricia Sabatini: or 412-263-3066.


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