Number of Rich Able to Avoid Taxes Falls Sharply, Study Finds

The number of rich Americans able to avoid all federal income tax has dropped significantly, but 13 of every 1,000 still pay a smaller percentage than an average middle-income family, a new government study shows.

The study by the Treasury Department, on returns filed in 1985, indicates that 325 couples and individuals with incomes of more than $200,000 paid zero tax. That was one of every 1,000 people at that income level. The figure dropped from 579 the previous year, when about two of each 1,000 high earners paid zero tax.

Pay Lower Percentage

The number of upper-income people who paid no tax or a lower percentage than is paid by the average wage-earner dropped slightly, to 3,930 on 1985 returns, representing about 13 of every 1,000 people at that income level who filed returns. A year before, 4,134 people (17 per 1,000) paid less than 10% of their earnings in federal income tax.

Treasury officials say a two-earner family of four with $40,000 in income and average deductions paid 12% to the government on returns filed in 1985.

These reports in past years, and similar reports on non-taxpaying corporations, have been cited as a major factor that led to the tax overhaul enacted last year. Backers of the new law say it will bring most upper-income non-payers onto the tax rolls.

However, most wealthy people do pay a substantial tax, the new report shows. Sixty-four percent of the 310,042 with incomes of more than $200,000 paid between 20 cents and 50 cents of each dollar to the government, Treasury officials said, and 566 paid more than 50 cents on the dollar.

The proportion of the over-$200,000 income people who paid zero tax on 1985 returns was the second-lowest since the Treasury began filing the reports in 1978. Returns filed in 1980 showed fewer than one of each 1,000 people at that level were non-taxpayers.

Analysis Promised

The Treasury Department released this year’s findings without explanation but promised an analysis of the figures later this year.