New IRS data show that 72% of US taxpayers who make it into the ‘Top 400’ are there for only a single year

From Mark Perry.

"Frequency of Appearing in the Top 400 Tax Returns, 1992–2013

Number of Years in the Top 400	Number of Taxpayers in Group	Percent of Taxpayers Represented by Each Group
1	3,213	71.8%
2	535	12.0%
3	213	4.8%
4	135	3.0%
5	95	2.1%
6	58	1.30%
7	40	0.89%
8	31	0.69%
9	27	0.60%
10 or more	129	2.88%
Total	4,474	100%

The IRS just released a new report on the 400 US taxpayers with the highest adjusted gross incomes (AGI) from 1992 to 2013, and the table above shows the frequency of individual taxpayers appearing in the Top 400 (Table 4 in the IRS report). Of the 8,800 tax returns filed in the 22 years from 1992 to 2013 for the 400 highest earners in each year, there were 4,474 unique, individual taxpayers, since obviously some taxpayers made it into the Top 400 group in more than one year. The new IRS data show that:

1. Of the group of 4,474 top earners from 1992-2013, there were 3,213 individual taxpayers who made it into the “Fortunate 400” only one time during the 22-year period. Those 3,213 one-timers represent 71.8% of the total 4,474 taxpayers, and therefore only 1,261 taxpayers that make up the rest of that elite group (28.2% of the total, or about one in four) were able to make it into the Top 400 more than one year between 1992 and 2013.

2. Moreover, since 3,213 earners made it into the Top 400 once (71.8%) and another 535 taxpayers (12.0%) made it into the top group twice between 1992 and 2013, that means that about 84% of the top earners made it into the “Fortunate 400” only once or twice (3,748 out of 4,474), and only 16% (726 taxpayers out of 4,474) were able to make it into the top group in more than 2 years out of 22.
3. There were only 129 taxpayers out of the 4,474 total taxpayers in the top earner group (2.88%) who were in the Top 400 in 10 or more years out of 22.

4. Why is there such a high turnover among the Top 400 and why are most taxpayers in that group for only a single year? Data in Table 1 of the IRS report provide an answer. The combined salaries and wages of the Top 400 were about $9 billion in 2013, which represented only 8.5% of those taxpayers’ combined Adjusted Gross Income (AGI) of about $106 billion. But those top taxpayers as a group had about $55 billion in income from sales of capital assets in 2013, which was almost 52% of their combined AGI of $106 billion. So while the Top 400 are certainly high earners (average salary of about $31 million in 2013), what puts them into the Top 400 in a given year isn’t their high salaries, but rather their large gains from the sale of capital assets (average capital gain for the Top 400 taxpayers in 2013 was $138 million) – which are often one-time sales of appreciated stock, or one-time gains from selling a business, partnership, farm, or real estate.

5. Data from Table 1 also reveal that the Top 400 are a pretty generous group based on their reported charitable contributions. In 2013, the Top 400 combined gave about $13 billion to charity, at an average of nearly $33 million per taxpayer. Even though that Top 400 group represented only about three one-thousandths of 1% of all 147 million taxpayers in 2013 (0.000272%), those 400 taxpayers accounted for nearly 7% of all charitable contribution deductions in 2013 (roughly $195 billion).

According to the IRS from a previous report on the dynamics of the Top 400 earners (updated here with 2013 data), “The data reveal a mostly changing group of taxpayers over time. In fact, there were 4,474 different taxpayers represented in total for the 12-year period between 1992 and 2013. Of these, a little more than 28 percent appear more than once and slightly more than 2 percent were represented in 10 or more years. Nearly three out of four taxpayers (72%) were in the Top 400 in only a single year.”

MP: Whenever we hear commentary about the top or bottom income quintiles, or the top or bottom X% of Americans by income (or the Top 400 taxpayers), a common assumption is that those are static, closed, private clubs with very little dynamic turnover. Once you find yourself in a top or bottom quintile, or a certain income percentile, or the Top 400, you’ll likely stay there for decades or even for life. But economic reality is very different – people move up and down the income quintiles and percentile groups throughout their careers and lives. The top or bottom 1/5/10% by income, just like the top or bottom income quintiles, are never the same people from year to year, because there is constant, dynamic turnover as we move up and down the income categories.

Many members of the IRS’s Top 400 very likely started in one of the lower income quintiles early in their lives and careers, and advanced into the higher income quintile and eventually into the Top 400 as they become successful, and they may drop into a lower income quintile later in life. As the new IRS data show, almost three out of every four members of the ever-changing “Fortunate 400” over the last 22 years were only “members” of that group for a single year, which reflects the dynamic nature of the US economy and the significant income mobility that exists for Americans — at all levels of income."