Feb. 18 (Bloomberg) -- The 400 highest-earning U.S. households reported an average of $345 million in income in 2007, up 31 percent from a year earlier, IRS statistics show.
The average tax rate for the households fell to the lowest in almost 20 years.
The figures for 2007, the last year of an economic expansion, show that the average income reported by the top 400 earners more than doubled from $131.1 million in 2001. That year, Congress adopted tax cuts urged by then-President George W. Bush that Democrats say disproportionately benefit the wealthy.
Each household in the top 400 of earners paid an average tax rate of 16.6 percent, the lowest since the agency began tracking the data in 1992, the Internal Revenue Service statistics show. The top 400 paid $23 billion in taxes in 2007, up from $18 billion a year earlier, and a bigger amount than any year since 1992.
Their average effective tax rate was about half the 29.4 percent in 1993, the first year of President Bill Clinton's administration, when taxes were increased. The top 400 earners reported an average of $46 million of income that year.
Income 'Exploded'
The statistics underscore "two long-term trends: that income at the very top has exploded and their taxes have been cut dramatically," said Chuck Marr, director of federal tax policy at the Center on Budget and Policy Priorities, a Washington-based research group that supports increasing taxes on high-income individuals.
The top 400 earners received a total $138 billion in 2007, up from $105.3 billion a year earlier. On an inflation-adjusted basis, their average income grew almost fivefold since 1992, the data show. The data doesn't disclose the identities of the top 400 taxpayers, and the people on the list change from year to year as their incomes rise and fall. Some 6,400 households have been included in the top 400 since the IRS began tracking their incomes 16 years ago.
The data may provide ammunition for President Barack Obama and Democrats led by House Speaker Nancy Pelosi of California who say they intend to increase the capital gains tax rate to 20 percent and let tax rates for the highest earners increase in 2011 to 36 and 39.6 percent from 33 and 35 percent now, respectively.
Capital Gains
Almost three-quarters of the highest earners' income was in capital gains and dividends taxed at a 15 percent rate set as part of Bush-backed tax cuts in 2003, the statistics show. Of the 400 earners, 289 paid a total effective federal tax rate of 20 percent or less in 2007, the last year for which figures were available, the data show.
Bill Ahern, director of policy and communications for the Tax Foundation, a Washington-based research group that advocates lower taxes, said the 2007 data doesn't reflect the current economic circumstances.
"In a good year like 2007, it's not surprising to see that the owners and managers of the nation's largest firms made a fortune," Ahern said. "Notice that two-thirds of their 2007 income was in capital gains, which have dropped like a rock since then."
The data were previously reported by Tax.com, a blog run by Virginia publisher Tax Analysts.
A household had to earn at least $143 million in 2007 to be included on the top 400 list, according to the IRS.
CBO Study
At 16.6 percent, the top 400 earners pay a lower actual individual income tax rate than the rest of the top 1 percent of earners, according to a Congressional Budget Office study of effective tax rates in 2004 and 2005. The top 1 percent at that time -- those who made more than $1.3 million -- paid an average of 19.7 percent of their income in federal income taxes.
The 16.6 percent effective tax rate for the top 1 percent is higher than actual taxes paid by middle-income families, that CBO report showed. The middle 20 percent of earners -- those making between $58,000 and $84,500 -- paid on average 3 percent of their income in income taxes.
When the effect of Social Security payroll taxes are counted, the tax burden on middle-income families increased to 12.5 percent, according to the CBO. Social Security taxes are collected on only the first $106,800 of income.
To contact the reporter on this story: Ryan Donmoyer in Washington at rdonmoyer@bloomberg.net
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