A handful of the wealthiest people in America are still able to avoid paying federal income tax despite repeated congressional efforts to close loopholes.
Of 529,460 couples and individuals who reported total income above $200,000 on returns filed in 1987, 595 paid no tax, the Internal Revenue Service says in a new report. Those 595 had income averaging $600,000; two out of every three had capital gains averaging $490,000 apiece.An additional 33,805 over-$200,000 earners paid tax at an effective rate of less than 15 percent, typically less than a middle-income family would pay. Almost 3,000 paid less than 10 percent.
The estimates were reported without comment by the IRS in the quarterly "Statistics of Income" compilation. The IRS has been required since 1978 to estimate the number of high-income people who legally avoid paying any tax.
The rich were able to avoid taxes by reporting big losses on farm and partnership investments; by racking up large capital gains, 60 percent of which were excluded from taxation; by claiming itemized deductions averaging $262,000, and by using the credit for taxes paid abroad.
The figures do not include high-earners whose incomes are made up largely of tax-exempt interest. The report is based on unaudited returns; after an audit, some of the returns could lose their no-tax status.
The report showed the number of people with annual incomes over $200,000 grew from 370,430 on returns in 1985 to 529,460 a year later. The chief reason apparently was a big selloff of investments in 1986 to avoid a higher capital-gains tax that took effect in 1987.
Even so, the number who are able to "zero out" their taxes remains a tiny fraction of the total high-income earners. The most recent figures indicate that 112 of every 10,000 people with expanded income above $200,000 paid no tax, compared with 100 per 10,000 in 1977.
The percentage of wealthy people paying no income tax has risen in the face of repeated toughening of the "minimum tax," a levy aimed at requiring all high-income people to pay some tax despite the large number of credits and deductions they may claim legally.
Here are some of the income and deduction items reported by the 595 who paid no tax:
-457 had wages averaging $232,000.
-394 had capital gains - profits from the sale of investments - averaging $490,000.
-3 received unemployment compensation. Nearly 4,600 of the 524,460 with incomes over $200,000 reported some unemployment compensation.
-5 reported net income from farming, averaging $1,400 apiece. But 58 had farm losses, averaging $275,000 each.
-118 had state tax refunds averaging $21,000.
-548 received interest income averaging $133,000.
-262 reported net partnership income averaging $334,000 but 320 had partnership losses averaging $700,000.
-33 had taxable Social Security benefits averaging $6,000.
-9 received alimony averaging $267,000.
-373 reported dividends averaging $136,000.
-115 received rent averaging $140,000.
-261 reported rental losses averaging $84,000.