"THEY EARNED IT"

UPDATE: David Cay Johnston left a note in the Comments section that corrects this post. Here's what he sent:

You are misinterpreting my work. This is a subtle area so that is not surprising.

The huge incomes at the top may indeed come from work even though they are reported for tax purposes as capital (lower rates) than compensation for services (tax rate more than twice as high for top earners).


If you start a business with $1,000 (Ross Perot), build it up and then sell it the gain comes from your work.

An executive who makes an 83(b) election (tax code section) can have gains in stock he is paid with treated as capital gains instead of as compensation.

For the years we have Top 400 data one trend is clear. The number with salary or wage income is trending downward, from 366 in 1992 to 306 in 2007. The latest year still means 76% of the top 400 had labor income taxed as labor income.

Mike Lux at Crooks & Liars has a clip of AEI President Arthur C. Brooks giving the traditional conservative moral argument for reducing taxes on the wealthiest: they earned it.  In the same post, Lux tipped me off to Joan Williams claim that the very wealthiest Americans, the top 400 families, only derive about 18% of their income from working.

David Cay Johnston wrote about the top 400 of 2007 and found that work accounts for little of their total income:

Most of the income going to the top 400 tax returns is from capital. Salaries and wages accounted for only 6.5 percent of the top 400's income in 2007, down from 7.4 percent in 2006 and 26.2 percent in 1992. The average salary rose from 2006 to 2007, however, just at a slower rate than overall income growth.

The biggest source of income was capital gains, which are taxed at a maximum rate of 15 percent. Gains accounted for 66.3 percent of 2007 income for the top 400, up from 62.8 percent in 2006 and 36.1 percent in 1992.