The richest 1 percent of Americans paid more than one-fourth of all individual income taxes in 1986, due in large part to an extraordinary increase in investment income, the Treasury Department said Tuesday.
The portion of taxes paid by those with incomes of less than $50,000 a year dropped from 66.8 percent in 1981, before enactment of across-the-board tax cuts, to 45.7 percent in 1986, the department said. During the same period, the share borne by those making over $100,000 more than doubled, from 15.2 percent of the total to 30.6 percent.Those whose incomes placed them among the wealthiest 1 percent saw their share of the tax burden rise from 18.1 percent in 1981 to 26.1 percent five years later.
The Treasury analysis is based on Internal Revenue Service sampling of returns filed last year, which reflected 1986 earnings.
Treasury said the increasing share of taxes paid by the very rich is part of a continuing trend that began with enactment of the 1981 tax cut, which slashed the maximum tax rate on the wealthy from 70 percent to 50 percent. It since has been cut to 33 percent.
"The 1986 increase also reflects the extraordinary level of capital gains realized in 1986 in anticipation of the 1987 rate increase on capital gains," the analysis said. While capital gains represented only 11 percent of the income of the richest Americans in 1981, the share rose to 15 percent in 1985 and nearly 25 percent in 1986.
Capital gains are profits from the sale of stocks, real estate and other investments. The top tax rate on these profits was 20 percent in 1986. Knowing that rate would climb to 28 percent in 1987, upper-income taxpayers unloaded billions of dollars worth of assets in the closing days of 1986.
Capital gains represented less than 2 percent of income for other Americans in each of the three years.
About 12 of every 1,000 couples and individuals have adjusted gross incomes over $100,000 a year. The analysis found those taxpayers paid $43 billion in taxes in 1981, $77 billion in 1985 and $115 billion in 1986.
Part of that increase is attributable to the fact that the number of people with incomes at that level has increased significantly in recent years. Treasury provided no estimate of how many people earned over $100,000 in 1986, but IRS figures show the number in 1985 more than 1.2 million was 63 percent higher than in 1982. The number earning over $1 million a year more than doubled to 17,312 in 1985 from 1981.
Between 1981 and 1986, taxes paid by those with incomes between $50,000 and $100,000 increased from $51 billion to $89 billion. The burden on those under $50,000 dropped from $190 billion to $172 billion.
About half of Americans have incomes under $35,000 a year.