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During a Sept. 20, 2011, interview with Al Sharpton on MSNBC, Sen. Barbara Boxer, D-Calif., sought to highlight how America’s richest taxpayers have benefited economically in recent years.
"The top 400 earners in this country are worth more … than half of the American people," Boxer said. "And since 1995, the top 400 wealthiest families have seen their incomes go up 400 percent and their tax rates go down 40 percent."
We checked the first part -- that the top 400 tax payers saw their incomes grow by 400 percent -- in March 2010, giving it a rating of True. But the second half of her statement was new to us, so we decided to look into it.
When Boxer made her comments, the question of how much the wealthy should pay in taxes was at the top of the national agenda. In remarks on Sept. 19, 2011 about his plan for reducing the federal debt, President Barack Obama said that "middle-class families shouldn’t pay higher taxes than millionaires and billionaires. That’s pretty straightforward. It’s hard to argue against that. Warren Buffett’s secretary shouldn’t pay a higher tax rate than Warren Buffett." (Buffett is the legendary investor who for years has placed high on the list of richest Americans.)
As we explored elsewhere, Obama is correct that it’s possible for a secretary to pay a higher tax rate than a very wealthy person, but it’s also not typical. In general, wealthier taxpayers do in fact pay a higher percentage in taxes than less-affluent people. The main exceptions are people in Buffett’s category -- the richest of the rich, whose income comes mainly from capital gains and dividends, which are taxed at 15 percent rather than the maximum of 35 percent for wages and salaries, and hedge fund managers, who benefit from a tax code provision that also taxes their earnings at 15 percent.
In her comment, Boxer explicitly focused on Buffett’s peers.
Her data comes from a periodic Internal Revenue Service report that looks at the income and tax data from the 400 tax returns with the highest adjusted gross income. (In case you’re wondering, these 400 titans aren’t named, and their data is aggregated.) Technically, these aren’t "families" necessarily, but for a comment made during a television interview, we think it’s close enough.
We’ll take Boxer’s two claims in order. The data we’re using, which goes back to 1992, is adjusted for inflation.
"Since 1995, the top 400 wealthiest families have seen their incomes go up 400 percent."
In 1995, the aggregate adjusted gross income for all 400 tax returns worked out to $17.4 billion, or an average of $43.6 million per return.
By 2008 -- the most recent year available -- the aggregate income for the top 400 soared to nearly $66 billion, or more than $164 million in adjusted gross income per return.
That amounts to a 276 percent increase. If Boxer had been using data one year older, she would have been correct: Using 2007 data, the rise was almost exactly 400 percent. This illustrates how sensitive this measurement is to economic conditions.
"Since 1995 the top 400 wealthiest families have seen … their tax rates go down 40 percent."
From the same IRS document, we can see that the average tax rate for the top 400 returns was 29.93 percent in 1995 and 18.11 percent in 2008. That’s a decline of 39 percent -- for our purposes, close enough to Boxer’s claim to be accurate.
On the data, Boxer is right for one claim and wrong for the other, though on the one for which she’s incorrect, she would have been right using data from one year earlier.
More broadly, even the smaller, 276 percent increase supports her underlying point -- that for the richest of the rich, incomes have grown by leaps and bounds while average tax rates have declined for the same group by 40 percent.
As we’ve noted, extrapolating tax-burden patterns from the super-rich (like these 400 tax-paying units) to the merely very rich, the rich or the plain old affluent should be done with care. As the Congressional Budget Office has determined, the tax system is generally progressive, despite the lower tax rates for Buffett and his peers. The poorest one-fifth has an effective tax rate of 4.3 percent, the next fifth has a rate of 10.2 percent, the middle fifth has a rate of 14.2 percent, the second-highest has a rate of 17.6 percent, and the top fifth has a rate of 25.8 percent. And the rates keep going up the higher you climb. The top 10 percent of earners had an effective tax rate of 27.5 percent, the top 5 percent had a rate of 29 percent, and the top 1 percent had a rate of 31.2 percent.
In other words, the top 400 have a distinctly different tax pattern than even the richest 1 percent of American taxpayers, a much larger group that includes about 1.1 million households with an average pre-tax income of $1.7 million.
Still, Boxer chose her words carefully. She referred to the top 400 taxpayers, and by that standard, her numbers, while imperfect, largely stand up. We rate her statement Mostly True.
Barbara Boxer, interview on MSNBC, Sept. 20, 2011 (CQ subscribers only)
Internal Revenue Service, "The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2008," accessed Sept. 21, 2011
Congressional Budget Office, "Historical Effective Federal Tax Rates: 1979 to 2006," April 2009
PolitiFact Wisconsin, "Michael Moore says 400 Americans have more wealth than half of all Americans combined," March 10, 2011
PolitiFact, "Does a secretary pay higher taxes than a millionaire?" Sept. 21, 2011
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