President Obama's proposed "Buffett Rule" reminded me of a blog I wrote a few months ago on the impact of the recession on millionaire incomes and the taxes they pay. It may sound circular, but if you are going to tax millionaires, you need millionaires to tax. But recent IRS data for 2009 indicates that the recession did more to reduce the number of millionaires than any surtax.
Comparing the 2009 data to the pre-recession data for 2007 shows that not only did the number of millionaires fall by 40 percent, but the overall income of millionaires fell by 50 percent. The result for the U.S. Treasury was that 54 percent of the total drop in tax revenues during this period was due to the falling tax collections from millionaires.
Table 1 shows the total number of tax returns by income group. In 2007, there were 392,220 tax returns reporting $1 million or more in adjusted gross income (AGI). In 2009, by contrast, there were 233,435 millionaire returns, a drop of nearly 159,000, or 40 percent.
Of the total number of tax returns filed each year, millionaires' share of returns declined from 0.3 percent to 0.2 percent.
Table 2 compares the amount of AGI reported by each income group in 2007 to 2009. Overall, American's incomes dropped 12 percent from 2007 to 2009. However, millionaires' income dropped 50 percent during this period to $702 billion from $1.4 trillion. While the total amount of AGI for all taxpayers dropped by roughly $1.04 trillion, the reduction in millionaires' income comprised 67 percent of that total loss in AGI.