Taxes on the highest-earning Americans soared in 2013 as new taxes on income and investments implemented by the Obama administration came into effect, the Internal Revenue Service reported Wednesday.
In a report on 400 income tax returns showing the largest incomes, updated for 2013, the IRS reported that the group faced an average tax rate of 22.89 percent, the highest since 1997.
The 2013 rate paid by the highest earners was a major jump from the year before. In 2012, the average tax rate for the 400 top earners was 16.72 percent, although that rate was likely artificially low because of families shifting income and capital gains into 2012 to avoid new higher taxes in subsequent years.
Nevertheless, the average tax rate for top earners in 2013 represented a clear break with the tax trends of the past five years, which saw an average tax rate for the same earners of just under 18 percent.
The increase in taxes paid by top earners is attributable to the tax changes implemented in the “fiscal cliff” deal that ended the majority of the Bush-era tax cuts for high earners in the first days of 2013 and to the imposition of a new Obamacare tax on investment income.
The fiscal cliff deal resolved an impasse between President Obama and Democrats and congressional Republicans by raising the top income tax rate rise from 35 percent to 39.6 percent, reversing part of the Bush tax cuts pertaining to high income earners. The legislation also undid the capital gains tax cuts under Bush, raising the tax rate on long-term capital gains from 15 percent to 20 percent. The Obamacare investment surtax, used to finance the expansion of health insurance in the health care legislation, raised the tax rate on capital gains and other investment income to 23.8 percent for top earners.
The higher rates on investment income are especially important for the top 400 income earners, who earn the majority of their income not through wages and salaries but through interests in businesses, real estate, commodities and more.
The top 400 earners had average income of $265 million, according to the IRS data. On average, however, only about $30 million of that was from salaries and wages, while $183 million was income from interest, dividends or capital gains.
The group earned 1.2 percent of all adjusted gross income in the U.S. in 2013 and paid nearly 2 percent of all taxes.
Individual members of the group are not identified, but they likely comprise top investment managers in addition to some enormously successful business executives and celebrities. It took income of more than $100 million to crack into the group.
The composition of the top 400 earners is dynamic, the IRS data suggests. Since 1992, 4,474 taxpayers have been included. Only 129 individuals have made it into the group for 10 or more years.
