Thursday, October 27, 2011

Who really is the top 1%?

Every person dialed into the American political discussion knows that a lot of thought and consternation has been applied to the top 1% of income earners.  I decided to use IRS data to determine who exactly is being talked about.

The Tax Foundation has compiled recent IRS data concerning individual income taxes.  Income earners are segmented into progressively smaller portions from the bottom 50% all the way to the top .1%.  This report is ideal to determine just who is the top 1% of income earners in the United States.

Two important characteristics to be examined are:  1. The minimum adjusted gross income (AGI) to be a member of the top 1% and .1%, and 2. The per capita income of members of those two groups.

AGI: Adjusted Gross Income is defined as gross income minus adjustments to income found on the Form 1040 under adjusted income.  AGI is higher than taxable income as credits and exemptions have not been applied yet.

Table 7 in the report shows the minimum AGI of different income percentiles.

At the Peak of the Bubble (2007):
               Minimum AGI to be in the top 1%  = $410,096
               Minimum AGI to be in the top .1% = $2,155,365

Most Current IRS Data (2009):

               Minimum AGI to be in the top 1%  = $343,927
               Minimum AGI to be in the top .1% = $1,432,890

Over those two years the total number of tax filers in the United States dropped from approximately 141,070,000 filers to 137,982,000, a 2.2% decrease (which correspondingly means 2.2% less people in the top 1% of filers, this makes an impact later)

It's expected that the minimum AGI to qualify for the top 1% will increase this year, but unlikely reaching the 2007 level.

To determine the per capita income in the top 1% and .1% I divided - Table 3 - (Total adjusted gross income of taxpayers) by Table 2 - Total returns filed per percentile bracket.

At the Peak of the Bubble (2007):
               Average AGI in the top 1%  = $1,423,104
               Average AGI in the top .1% = $7,439,716

Most Current IRS Data (2009):

               Average AGI in the top 1%  = $960,869
               Average AGI in the top .1% = $4,420,290

Total AGI of the top 1%:  2007 - 2.008T; 2009 - 1.326T.
This is a 34% decline in income going to the top 1% since 2007.  Stated another way - 682B less income (though it is shared with 2.2% less people).

For a comparison, the total decline in AGI between 2007 and 2009 = 974B.  682B/974B = 70% of the total drop in AGI is attributable to the drop in the top 1%'s AGI.