(Bloomberg News) The number of people who reported incomes of at least $200,000 and paid no U.S. taxes jumped 79.5 percent in 2008 from 2007, according to an Internal Revenue Service study released today in Washington.
In all, 18,783 people filed U.S. tax returns with adjusted gross incomes of at least $200,000 and no U.S. income taxes due. That represents 0.43 percent of high-income taxpayers, the biggest percentage of non-payers in an IRS study that includes data going back to 1977.
Even with the dollar threshold held constant for inflation, the 2008 totals and percentages were the highest on record. The percentage of non-payers in 2008 nearly doubled from 0.23 percent of filers who reported no income tax liability in 2007.
"It's kind of a surprise to me. I don't know what the reason for that would be," said Alan Viard, an economist at the American Enterprise Institute, a Washington policy research group that advocates low taxes and market-driven policies.
The data are estimates based on sampling conducted by the IRS and are subject to sampling error. The numbers vary depending on the measure of income and the measure of tax the IRS uses.
Under an "expanded income" concept that adds items such as tax-exempt interest that are not included in adjusted gross income, 27,399 people had annual incomes of $200,000 or more without paying U.S. taxes. Using the AGI definition and an analysis that looks at taxes paid worldwide, 10,824 returns in the high-income group owed no tax. Both of those figures, on an absolute and percentage basis, were records in the years covered by the study.
The reasons why people can earn high incomes without paying taxes include deductions for charitable contributions, medical expenses and investment interest expenses, the report said.
These taxpayers are able to avoid paying the alternative minimum tax, which was created in 1969 following reports that 155 high-income taxpayers had paid no taxes. The AMT was restructured in 1986 and operates as a parallel tax system with a structure that tends to affect people with high state and local taxes or with large families.
Nearly half of U.S. households don't pay federal income taxes. Most of the non-payers are at the lower end of the income scale, where tax credits meant to encourage work and cover the costs of raising children help to eliminate tax liability.