Wealth, Taxes, and the IRS 400

The IRS, taking a page from Forbes has realeased their own top 400 list. It's the top 400 taxpayers from 1992-200. It only contains statistics, and not names, but it is doubtful that any of them are people found on the Forbes 400 list. Many on the Forbes list got there by not realizing gains and thus avoiding taxes. Many Americans probably don't realize it, but there is a difference between wealth and income.

For the IRS group, average federal taxes paid as a percentage of AGI was 22% for 2000. Taxes relative to net worth is a much lower number. Compare the average federal tax bill in the IRS group, $39 million, to the average net worth of the FORBES group, $3 billion: Circumstantial evidence is that the very rich forfeit barely 1% of their net worth to the U.S. Treasury every year.

How do the superrich get away with paying so little? Not, evidently, from exotic tax shelters, but from a simple and long-standing rule of tax law that you don't have to pay taxes on unrealized gains. Start a company, watch its value grow, hold on to most of your shares, avoid dividends–that's one way to accumulate a huge net worth without ever having to report your good fortune on a Form 1040.

I've heard Warren Buffett claim that his secretary pays more taxes than he does.

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