Friday, May 11, 2012

$1 Trillion in Personal Income not Taxed for Social Security or Medicare

Wages and Tax Data for FY 2010 from the IRS and Social Security

NOTE: FY 2010 is that last year when data from both the IRS and the Social Security Administration was made available. Social Security data for 2011 will be available in mid October 2012.


  • For tax year 2010 almost $1 trillion in personal income was not taxed at all for either Social Security or Medicare.
  • Of that, $446 billion in personal income was for capital gains and was taxed at 15% instead of the top marginal rate of 35%.
  • The U.S. Treasury took in $2,345,055,978,000 in tax revenues from a total adjusted gross income (AGI) of $8,045,020,527,000 for an average tax rate of 29.15%
  • In 2010 there were 15,093,157 people who filed tax returns for unemployment compensation income. The total was $121,101,218,000 --- up 44% from the year before.

During the fiscal year 2010 the IRS processed 230 million tax returns, including 142.8 million individual income tax returns, 2.4 million corporate returns and 8 million Partnerships and S corporations returns.

The IRS reports a total adjusted gross income of $8.04 trillion of which $5.9 trillion was in ordinary wages and salaries.

For 2010 the Social Security Administration reports compensation subject to payroll taxes (FICA/Social Security and Medicare) on wages for an AGI of $5,799,538,431,420 and a net compensation of $6,009,831,055,912.

* To be reconciled: The U.S. CENSUS reports 142,823,000 individual tax filers, the Social Security Administration reports 150,398,715 wage earners, and the IRS reports 142,856,282 tax individual tax returns.

First Tax Loophole: Currently* only "regular wages and base salaries" are taxed as payroll for FICA taxes. The top 1% does not pay the 6.20% tax for Social Security or the 1.45% tax for Medicare (FICA) on all earnings from non-business interest income, dividends, annuities, royalties, rents, capital gains on property, gains derived from the disposition of a partnership or S corporation, the sale of stocks, securities, and other financial instruments (such as a spots, forwards, futures contracts, stock options, carried interest and notional principal contracts - debt instruments or similar instruments, or combination or series of financial instruments, capitals gains on the sale of a vacation or a second homes, and gains accrued through SWAG investments (silver, wine, art, and gold).

* This may change. Unless it is struck down by the Supreme Court, starting on or after January 1, 2013, the 2010 Health Care Bill (aka ObamaCare®) will impose Medicare taxes on, not just "regular wages and salaries", but on the top one percent's formerly exempted "investment income". But it will only be taxed if it exceeds $250,000 (for joint filers) or $200,000 (for non-married filers). So most ordinary taxpayers wouldn't be affected at all.

Second Tax Loophole - The Social Security Cap: Only wages and base salaries are taxed for Social Security, but only up to $106,000 for regular income in 2010 (it's currently capped at $110,000). There should be no "cap", as lower income wage earners pay this tax on 100% of their wages, whereas the highest income earners only pay a tiny fraction. We have to get congress to remove the $110,000 "cap" for Social Security taxes so that EVERYONE has to pay the 6.20% tax on 100% of their income. More here: The Social Security and Medicare Loophole for the Top 1%

Third Tax Loophole: variable prepaid forward contracts, carried interest (e.g. Mitt Romney, etc.), capital gains (all the multi-billionaires on the Forbes 400 List and those not on that list), and qualified dividends are all taxed at 15% or less, rather than at the statutory tax rate on regular income (the highest marginal bracket being 35%).

It's worth noting that the tax rate on capital gains, now at 15%, are currently historically low, not since 1921 when the preferential treatment of capital gains was first introduced at 12.5%. This tax was once much higher than it is today. Essentially, with Obama's "Buffett Rule", this will raise capital gains tax rate from 15% to 30% for those who earn $1 million or more a year, which only affects about 93,725 of the highest "wage" earners --- and which is well below the historical high -- and 5% less than the current top marginal rate of 35%.

There are many more loopholes that the top 1% uses (e.g. gifts and generation-skipping inheritance taxes, etc.), and they all can be found in the 71,864 pages of the U.S. Tax Code. Most of us (the 99%) use a 100-page instruction booklet and a 1-page 1040-EZ form.

If the tax code is complicated (as are government regulations) the top 1% only has themselves to blame for using an army of lawyers to game the system (Two related links below).

In the chart below * denotes income exempted from Social Security and Medicare taxes. Unemployment compensation, Social Security benefits (under $25,000), pensions,401ks, and IRAs are taxed as regular wages for federal income tax only (no FICA). "Per" means according to gross adjusted income in one's corresponding marginal tax brackets, less exemptions and deductions.

Source of Income Adjusted gross income Tax Rate

Individual tax returns

% Change
Wages & Salaries $5,920,186,109,000

Per Tax Bracket

Total - 142,856,282 up
Capital gains* $320,126,367,000 15% 7,200,065 up 33.1%
Ordinary dividends* $155,453,034,000 per 27,951,339 up 5.6%
Taxable interest* $117,869,310,000 per 55,350,527 -
Qualified dividends* $115,605,831,000 15% 25,005,581 up 2.7%
Rents and royalties* $ 86,770,707,000 per 6,103,530 up 5.3%
Tax Exempt interest* $69,221,407,000 0% 6,091,192 up 2.1%
Estate and trusts*


0% for 2010 544,160 up 6.1%
SWAG investments* $10,646,805,000 15% 746,053 up 31.75%
Gifts over $1 Million* $5,618,834,486 per 1,317 Source (Excel)
[Businesses] $ 307,490,422,000 Separate tax


up 4.1%
[Partnerships and S corporations] $ 450,637,636,000 Separate tax


up 5.3%
Unemployment* compensation $121,101,218,000 per 15,093,157 up
Social Security* benefits $192,700,608,000 per 16,360,942 up 9.4%
Pensions,401s, IRAs* $567,746,880,000 per 26,971,722 up 6.9%
Sub-total 8,461,118,694,486 -


less deficit refunds




Total AGI > $8,045,020,527,000* $2.3 trillion in taxes

Source: IRS

up 5.2%

* What part of $8.06 trillion in total reported income in 2010 was not taxed as "ordinary wages" (according to the progressive statuary tax brackets, but only taxed at 15% for capital gains)? How much was exempted from all Social Security and Medicare taxes? How much wasn't reported due to tax evasion? One report says $385 billion lost to tax evasion (our taxes are automatically deducted from our paychecks...we don't evade taxes, but high incomer earners such as Mitt Romney has off-shore bank accounts).

Historical Wages from 2006 to 2009 as Reported to Social Security

(Social Security data for 2011 will be available in mid October 2012.)

2010 - Compensation subject to Federal income taxes $5,799,538,431,420.40
Net compensation 6,009,831,055,912.11

2009 - Compensation subject to Federal income taxes $5,686,344,461,605.08
Net compensation 5,894,034,621,402.63

2008 - Compensation subject to Federal income taxes $5,942,130,003,268.88
Net compensation 6,163,386,730,921.70

2007 - Compensation subject to Federal income taxes $5,815,546,063,947.82
Net compensation 6,030,057,342,572.14

2006 - Compensation subject to Federal income taxes $5,504,411,170,970.31
Net compensation 5,704,593,431,614.53

* Taxable unemployment compensation was up 44 percent in 2010. That increase was associated with the expiration in 2010 of taxpayers’ ability to omit the first $2,400 of unemployment compensation from income. For 2010, 15.1 million returns (a 32.2-percent increase from 2009) reported a total of $121.1 billion in taxable unemployment compensation. (Editor's Note: "I know, I paid tax on mine!")

* Trivia: More than 116 million returns were filed electronically in FY 2010.

* Total tax-exempt organizations (like the Tea Party and other 501c) and nonexempt charitable trusts: 1,789,554


  1. More statistics and data here:

    The Aftermath of the Great Recession

  2. ================== GIFT TAXES ====================

    The very wealthy also have a $5 million lifetime gift-tax exclusion. ($10 million for a married couple). The rich have the ability to shift assets out of their estates tax-free while they're still alive. Think of trust babies like Paris Hilton.

    You can now create a $10 million dynasty trust just by writing a check," Michael Gooen, a tax and estate attorney at Lowenstein Sandler. "All that appreciation is now locked up in a trust, and you will never pay estate tax or gift tax on it."

    (More here at Reuters)

  3. I'm trying to understand the large difference between total US gross income (about 13 trillion)

    and adjusted gross income (approx. 8 trillion).

    Who gets all the huge adjustments and what are they for?