How the IRS Helps the Rich Get Richer

This U.S. presidential campaign, and particularly that of Democratic Senator Bernie Sanders of Vermont, moved the issue of income inequality front and center. Now there are some new numbers in that department, and they won’t make many people happy. At best, maybe just 1 out of 100.

The top 1 percent of Americans as measured by income rake in 17 percent of all U.S. income on an annual basis—before taxes, of course. And that caveat is important, according to a new analysis by the Tax Policy Center (TPC),1 because that select group of citizens gets 27 percent of the tax breaks doled out by the federal government.

The TPC’s calculations show an estimated $1.17 trillion in federal revenue last year going to individual tax expenditures (a fancy way of saying taxes we didn’t have to pay because of deductions, like for giving old clothes to the Salvation Army—or, in this case, collections to the Metropolitan Museum of Art). While the wealthy see an outsize benefit compared with their share, the lowest-income households get just about 4 percent of federal tax breaks, close to their portion of all pretax income. That same trend holds for taxpayers in middle- and upper-middle-income households.

Those 1.1 million folks in the 1 percent, as measured by the TPC, have annual income that averages a little less than $700,000. The top one-tenth of that group, some 110 households, average about $3.6 million, according to Howard Gleckman, a senior fellow at the TPC.2

The middle of the pack, some 33 million people, have pretax income ranging from $45,000 to $80,000. The lowest one-fifth of taxpayers, a universe of about 47 million Americans, have income up to about $24,000.