The Difference In How The Wealthy Make Money—And Pay Taxes – TPC

“For policy makers concerned about long-term fiscal shortfalls and high levels of economic inequality, our work reinforces the notion that raising the tax burden on the wealthy requires a special focus on how those households gain wealth and skirt taxes. We highlight four ways to effectively raise taxes on the wealthiest Americans.

“Most Americans receive almost all their income through wages and retirement income (pensions, 401(k)s, social security, and individual retirement accounts). The most recent available IRS data (2014) shows that wages and retirement income made up 94 percent of adjusted gross income (AGI) for households in the bottom 80% of the income distribution. Even for households in the 98th to 99th income percentile, wages and retirement income accounted for 71 percent of AGI.

“At the very, very top, though, these sources are less important, accounting for just 15 percent and 7 percent of the income of the top 0.01 percent and the top 0.001 percent of households, respectively. These households receive most of their income from investments (interest, dividends, and especially realized capital gains) and businesses (including sole proprietorships, partnerships, and S corporations). These items constituted 82 percent of income for the top 0.01 percent and 88 percent for the top 0.001 percent, compared to just 7 percent for the bottom 80 percent of households….”

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