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The Internal Revenue Service (IRS) 
recently released new data showing that the number of individuals paying zero US income taxes on an adjusted gross income (AGI) of $200,000 or more almost doubled between 2007 and 2008.
In 2008, the number of returns declaring an AGI of over $200,000 represented about 3.1 percent of the total returns filed to the IRS. Out of these returns, as many as 18,783 had no U.S. income tax liability whatsoever in 2008; that’s nearly double the 10,465 who owed nothing in 2007.
Although this may represent only 0.43 percent of taxpayers reporting an AGI of over $200,000, it is the biggest percentage of non-payers in this category since the IRS began reporting the data in 1977.
The IRS report also revealed that the much publicized top marginal rate of 35 percent exists primarily on paper: according to the data, only 0.007 percent of ALL taxpayers pay an effective tax rate of 35 percent or higher. Put differently, nine times as many high income taxpayers pay zero in taxes than pay an effective, actual 35 percent tax rate.
Much of the explanation for the low effective rates for higher income individuals can be explained by the over $1 trillion in special tax deductions and treatment often referred to as tax expenditures. Examples of expenditures that rich taxpayers exploit would be: special treatment of capital gains, tax-exempt interest and the mortgage interest deduction.
Reducing or eliminating tax expenditures for businesses and investors would not only help reduce the deficit, it would also make the system more fair by reducing the number of higher income taxpayers who are able to avoid paying a substantial part or all of the taxes they owe.
The IRS data proves once again what Citizens for Tax Justice has said all along, our tax system is not as progressive as you think.