Treas. 

HJ 

4652 

.H54 

1978 

(;,, :) 

High Income 

Tax Returns 

1975 and 1976 

A Report 

Emphasizing Nontaxable 

and Near1y Nontaxable 

Income Tax Returns 

~ Office of Tax Analysis {9J U.S. Treasury Deparbnent 

August, 1978 
L 

MAR 0 R 2000 

ROOM 53JO 

US DEPT. OF THE TREA SURY 

· High Income 

Tax Returns 

1975 and 1976 

A Report 

Emphasizing Nontaxable 

and Nearly Nontaxable 

Income Tax Returns 

/®.,.;;;"'; Office of Tax Analysis 

: ~ U.S. Treasury Department ~ ~ ~ 

August, 1978 

For sale by the Superintendent of Docum~nts, U.S. Government Printing Office 

Washington, D.C. 20402 

Stock No. 048-000-00319- 2 
l. 

2. 

Table of Contents 

Introduction ......•........................• 

Highlights ................................. 

3. The Measurement of Income ..••...•••.•....••• 

Economic Income, the Ideal Measure .••.•. 

Adjusted Gross Income ........•..•...•... 

Redefining Income ..........•.....••..... 

Om i t t e d I n c om e . . . . . . . . . . . . • . • . • • . . . . . 

Investment Expenses ..........•.•....• 

Expanded Income ••.•..••.••....••..•..... 

Four Income Measures ..•.•............... 

4 . . High-Income Tax Returns ....•.•••.••......... 

Distribution of Effective Tax Rates .•••• 

Nearly Nontaxable ....•....•.••.... · .....• 

A Note on Taxable Income ••.•....•......• 

An Overview of High Income Tax Returns •• 

Summary ................................ . 

5. Avoiding ~axes: Exclusions, Deductions, 

Credits, and Other Devices ..•....••.•••..• 

Attributing Nontaxability: Methodology .• 

How to Make a Return Nontaxable •.•.•.••. 

Findings ............................... . 

6. 22 High Adjusted Gross Income Nontaxable 

Returns in 1976 ..••.•••...••...••..••.•.•• 

Fewer Nontaxable Returns ....•.•..•.••.•• 

The 22 High-AG! Nontaxables in 1976 ..•.• 

Foreign Taxes and the Foreign Tax 

Credit ............................... . 

Conclusion .....••....•......•••.••...•.. 

7. Tax Policy Considerations ....••...•.•.••.•.• 

Nontaxables ......•.•..••..•..•..•...•.•• 

Nearly Nontaxables .....•.....••••••..••• 

Foreign Tax Credits ••..•••.•.•••.•••.••. 

Perennial Tax Avoiders ....•...•••..•..•. 

-iiil 

5 

9 

9 

9 

11 

11 

12 

14 

15 

17 

24 

24 

34 

34 

38 

41 

41 

45 

57 

59 

59 

62 

69 

70 

71 

71 

72 

72 

73 
Appendix A: 1976 Data ........................... 75 

Appendix B: 1975 Data ........................... 93 

Appendix C: 1974 Data ........................... 109 

Appendix D: Comparing Deductions, Credits, 

and Special Tax Computations ...... 121 

-v-
List of Tables 

Table 

Number Title 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

Number and Percentage of Nontaxable Income 

Tax Returns with Income of $200,000 or Over 

Under Alternative Concepts 

Number and Percentage of Nontaxable Income 

Tax Returns with Income of $100,000 or Over 

Under Alternative Concepts 

Number and Percentage of Nontaxable Income 

Tax Returns with Income of $500,000 or Over 

Under Alternative Concepts 

Number and Percentage of Nontaxable Income 

Tax Returns with Income of $1,000,000 or 

Over Under Alternative Concepts 

Distribution of Tax Returns by Income Class 

and Effective Tax Rate -- 1976 

Distribution of Tax Returns by Income Class 

and Effective Tax Rate -- 1975 

Distribution of Tax Returns by Income Class 

and Total Income Tax -- 1976 

Distribution of Tax Returns by Income Class 

and Total Income Tax -- 1975 

Number and Distribution of Tax Returns with 

Income of $200,000 or Over Under Alternative 

Concepts, Classified by Taxpaying Status -- 1976 

Number and Distribution of Tax Returns with 

Income of $200,000 or Over Under Alternative 

Concepts, Classified by Taxpaying Status -- 1975 

Comparison Between Cumulative Percentages of 

Tax Returns Classified by Taxpaying Status 

with Income of $200,000 and Over Under 

Alternative Concepts -- 1974-1976 

-viiPage 

18 

21 

22 

23 

25 

26 

27 

28 

30 

31 

32 
List of Tables (Continued) 

12 Relationships Between Four Income Concepts for 

Tax Returns with Income of $200,000 or Over 

Under Alternative Income Concepts -- 1976 35 

13 Relationships Between Four Income Concepts for 

Tax Returns with Income of $200,000 or Over 

Under Alternative Income Concepts -- 1975 36 

14 Average Income, Average Income Tax, and Average 

Tax Rate for Tax Returns with Income of 

$200,000 and Over Under Alternative Concepts 

-- 1976 39 

15 Average Income, Average Income Tax, and Average 

Tax Rate for Tax Returns with Income of 

$200,000 and Over Under Alternative Concepts 

-- 1975 40 

16 Largest Deduction or Credit on Tax Returns with 

Income of $200,000 or Over, Under Alternative 

Income Concepts -- 1976 43 

17 Largest Deduction or Credit on Tax Returns with 

Income of $200,000 or Over, Under Alternative 

Income Concepts -- 1975 44 

18 Itemized Deductions and Credits as Percentages 

of Expanded Income for Nontaxable Returns with 

Expanded Income of $200,000 or Over -- 1976 46 

19 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income for Nontaxable Returns 

with Adjusted Gross Income of $200,000 or Over -- 1976 47 

20 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income plus Preferences for 

Nontaxable Returns with Adjusted Gross Income 

plus Preferences of $200,000 or Over -- 1976 48 

21 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income less Investment Interest 

for Nontaxable Returns with Adjusted Gross Income 

less Investment Interest of $200,000 or Over 

-- 1976 49 

22 Itemized Deductions and Credits as Percentages 

of Expanded Income for Nohtaxable Returns 

with Expanded Income of $200,000 or Over 

-- 1975 so 

-ix-
List of Tables (Continued) 

23 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income for Nontaxable Returns 

with Adjusted Gross Income of $200,000 or Over 

-- 1975 51 

24 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income plus Preferences for 

Nontaxable Returns with Adjusted Gross Income 

plus Preferences of $200,000 or Over -- 1975 52 

25 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income less Investment Interest 

for Nontaxable Returns with Adjusted Gross Income 

less Investment Interest of $200,000 or Over 

==-T976 53 

26 Itemized Deductions and Credits as Percentages 

of Adjusted Gross Income for 22 Nontaxable Returns 

with Adjusted Gross Income of $200,000 or Over 

in 1976 63 

27 Largest and Second Largest Deduction or Credit 

on the 22 Nontaxable Returns with Adjusted Gross 

Income of $200,000 or Over in 1976 65 

28 Income, Deductions, and Credits for the 22 

Nontaxable Returns with Adjusted Gross Income 

of $200,000 or Over in 1976 67 

29 Characteristics of the 22 Nontaxable Returns 

with Adjusted Gross Income of $200,000 or Over 

in 1976 68 

-xi-
HIGH INCOME TAX RETURNS: 1975 and 1976 

A Report on High-Income Taxpayers 

Emphasizing Nontaxable and Nearly Nontaxable 

Income Tax Returns 

Chapter 1 

Introduction 

· This is the second in an annual series of reports on 

high-income tax returns prepared by the Treasury Department 

in compliance with the Tax Reform Act of 1976. Section 2123 

of the Act requires the annual publication of a report 

containing data on taxpayers with incomes of $200,000 or more 

(for income defined in four different ways}, including the 

number of such taxpayers who do not pay any taxes and the 

importance of various tax provisions in making individuals 

nontaxable. 

The Congressional mandate for a report on high-income 

taxpayers reflects interest on the part of the Congress in 

the perennial questions concerning the appropriate level of 

individual income taxes for individuals and the actual level 

of taxes that are paid. Thus, the Congressional mandate for 

information has been interpreted broadly. This report 

contains data on nontaxable income tax returns, but also it 

contains data for all high-income returns and for a group of 

taxpayers called "nearly nontaxables." The nearly 

nontaxables are those who have so-far escaped the public eye 

by paying a small amount of income tax, but the amount of tax 

that nearly nontaxables pay is so small that there can be no 

This report was prepared by Allen H. Lerman, Financial 

Economist, Office of Tax Analysis, under the general 

direction of Harvey Galper, Associate Director, Office of Tax 

Analysis. 

-1-
doubt that they are not carrying a "fair share" of the tax 

burden. Similarly, while Congress specifically requested 

information on returns with incomes of at least $200,000, 

this report has historical data on other high-income classes. 

This report contains data on individual income tax 

returns for 1975 and 1976. The data on which the report is 

based have been edited from a sample of tax returns as they 

were filed, and the sample has been weighted and tabulated so 

as to accurately represent all returns for the particular 

year. The data source is the Internal Revenue Service's 

Statistics of Income, Individual Income Tax data file. For 

the high-income returns that are the subject of this report, 

the sampling rate is very high (for some groups all returns 

filed are actually in the sample) so that the tabulations 

produced are very accurate. 

This report contains the first data reflecting the 

impact of the Tax Reform Act of 1976. Some of the reforms in 

this Act were designed specifically to eliminate high-income 

nontaxables. The effect has been dramatic. Regardless of 

the income definition used or the particular level of income 

considered, the number of nontaxable returns fell by well 

over 50 percent between 1975 and 1976. The tabulations in 

Tables 1 through 4 in Chapter 4 show that both the actual 

number of nontaxable returns and their share of all high 

income returns declined by one-half to three-fourths. The 

additional analysis in Chapter 6 undertaken to correct 

shortcomings in the data indicates an even larger decline. 

For returns with adjusted gross income (AGI) of $200,000 or 

more, there were only 22 nontaxables in 1976 as compared with 

215 in 1975, a decline of 92 percent. For expanded income, 

the decrease was from 215 nontaxables to 53, a decline of 75 

percent. 

For individual taxpayers, the most important changes 

made by the Tax Reform Act of 1976, were the strengthening of 

the minimum tax on preference income and the new limitations 

on tax shelters. Four minimum tax changes were effective in 

1976. First, the amount of preference income excluded from 

the minimum tax was reduced from $30,000 plus all of ordinary 

income tax liabilities to the larger of $10,000 or one-half 

of ordinary tax liabilities. !/ Seco~d, the minimum tax rate 

l/ The $30,000 and $10,000 exclusions are halved for 

separate tax returns of married persons. 

-2-
was increased from 10 percent of preferences in excess of the 

exclusion to 15 percent. Third, a new preference item 

specifically intended to eliminate high-income, nontaxable 

returns was created. Beginning in 1976, itemized deductions 

(other than casualty losses and medical expenses) are a 

preference item to the extent that they exceed 60 percent of 

AGI. Thus, any return on which itemized deductions (other 

than medical expenses and casualty losses) exceed 60 percent 

of AGI by at least $10,000 is subject to the minimum tax and, 

therefore, cannot be nontaxable. 2/ Fourth, intangible 

drilling costs on productive wells in excess of the amount 

deductible if the expense had been amortized became a 

preference item. 

After summarizing the major conclusions that can be 

drawn from high-income tax return data for 1975 and 1976, 

this report explores the importance of the concept used to 

measure income and examines the overall significance of 

high-income returns. Data for all high-income returns are 

presented, togethe( with separate data for nontaxable returns 

and for nearly nontaxable returns. The report examines 

whether nontaxable, high-income individuals are a unique 

phenomenon or whether they are merely extreme cases of 

high-income people who are avoiding their fair share of the 

tax burden. The report analyzes the methods by which 

high-income individuals may still severely minimize or 

completely eliminate Federal income taxes. 

This report also provides a large selection of raw data 

from high-income tax returns for use by investigators outside 

government. At the end of this report, there are three 

statistical appendices. Two of the appendices contain 

statistical tables with data for 1976 and 1975 which together 

with tables in the body of the report contain virtually all 

of the data about high-income returns that are currently 

available for 1975 and 1976 r~turns. The third appendix 

contains data for 1974 high-income tax returns that have been 

reclassified to be consistent with 1975 and 1976 data. These 

appendices should be useful in the examination of many 

additional questions about high-income taxpayers. Except for 

some of the tables in Chapter 6, all of the data in the 

tables are from the tax returns as originally filed by 

taxpayers. Any changes which have been made or are likely to 

be made as a result of Internal Revenue Service audits are 

not reflected in the tables. 

~/ $5,000 on separate tax returns of married persons. 

-3-
Chapter 2 

Highlights 

1. The Tax Reform Act of 1976 was extraordinarily 

successful in reducing the number of high-income 

nontaxable income tax returns. For tax returns 

showing adjusted gross income (AGI) of $200,000 or 

more, the number of nontaxables fell to only 22 in 

1976 from 260 in 1975, a decline of 92 percent. The 

proportion of nontaxables fell from 1 out of 130 

high-income returns in 1975 to about 1 out of every 

2,000 returns in 1976. As measured by the more 

comprehensive definition of expanded income, the 

decrease was similar, although not quite so dramatic. 

The number of nontaxable returns fell by 75 percent, 

. from 215 in 1975 to 53 in 1976. This is far fewer 

than in any year since data became available in 1966. 

2. The number of high-income nontaxable returns is not a 

good measure of the number of high-income individuals 

who avoid paying a fair share of the tax burden. For 

every nontaxable, high-income return there are a 

significant number of other returns -- called nearly 

nontaxables -- which do have some liability, but whose 

effective tax rates are lower than that of a typical 

middle- or lower-middle income family. As defined by 

either economic income or AGI, there were almost 500 

nontaxable and nearly nontaxable high-income tax 

returns in 1976. This number is about twice as large 

as the number of high-income nontaxables in the late 

1960's whose existence prompted the Congress to enact 

the minimum tax. 

3. Even the expanded income measure, which is broader 

than AGI, does not include income from some sources 

which are very important for high-income individuals. 

Expanded income understates economic income because 

taxpayers are allowed deductions for real estate and 

agriculture expenses in excess of economic costs and 

because income such as interest on tax-exempt state 

and local bonds is omitted. The understatement of 

income causes some individuals with high economic 

incomes to be omitted from this report. The number of 

-5-

271- 892 0 - 78 - 2 
such individuals, however, is not known. The 

understatement of income also makes the effective tax 

rate (taxes as a percentage of income) for all 

high-income returns appear higher than it actually is. 

4. Despite the extraordinary publicity given to 

high-income, nontaxable returns, most taxpayers with 

income of $200,000 or over (however that income is 

defined) pay substantial Federal income taxes. As 

measured by expanded income, the income measure which 

most closely approximates economic income, the average 

effective tax rate was 30 percent in 1975 and 35 

percent in 1976. Over two-thirds of high-income 

taxpayers paid Federal income taxes in excess of 30 

percent of their expanded income, and over 85 percent 

paid 20 percent or more. In contrast, 2 to 3 percent 

of all high-income returns had an effective tax rate 

of less than 10 percent. 

5. Despite important conceptual differences between the 

four income concepts (expanded income, adjusted gross 

income, adjusted gross income plus preferences, and 

adjusted gross income less investment interest), use 

of any of the concepts leads to essentially the same 

conclusions about high-income nontaxables and nearly 

nontaxables. This is so because one-half to 

two-thirds of the same individuals are in all of the 

high-income nontaxable groups. 

6. Nontaxables and nearly nontaxables as measured by AG! 

do differ in one systematic way: nontaxable returns 

have very little tax preference income. This is the 

result of the minimum tax itself. If nontaxable 

returns had larger amounts of preference income, they 

would become subject to the minimum tax, and, 

therefore, could no longer be nontaxable. 

7. By and large, returns are not made nontaxable by a 

single preference, deduction, or credit. However, 

nontaxability is often produced by one unusually large 

item in combination with a number of other substantial 

but not unusual items. Large foreign tax credits and 

large casualty losses produced most of the nontaxable 

high AG! returns in 1976. For the high expanded 

income returns, the most important causes of 

nontaxability were tax preference income excluded from 

the tax base (mainly the capital gains exclusion), 

-6-
-- - - ------- -

charitable contributions, casualty losses, 

miscellaneous deductions, investment interest ·expenses 

in excess of investment income, and the foreign tax 

credit. Even under present law, the foreign tax 

credit and the deductions for casualty loses and 

medical expenses are likely to produce a handful of 

nontaxables each year. 

8. Available data are not sufficient to determine whether 

many high-income individuals are nontaxable for only a 

single year which is preceeded and followed by years 

when substantial amounts of taxes are paid, or whether 

some taxpayers pay little, if any, tax year after 

year. 

9. The detailed analysis of high AGI nontaxables in 1976 

indicates that when there is a large foreign tax 

credit, the credit is usually for a true income-type 

tax paid to a foreign government. Furthermore, in 

terms of income as measured in the United States, 

these individuals paid taxes to foreign governments at 

very high effective tax rates, typically in excess of 

50 percent. Furthermore, in most of these instances, 

the taxpayers were in fact living abroad and deriving 

their incomes from abroad. 

10. Although the Tax Reform Act of 1976 reduced the number 

of nontaxables and nearly nontaxables and raised the 

average effective tax rate modestly for the remaining 

nearly nontaxables, it did not significantly change 

the average effective tax rate for other individuals 

with incomes of $200,000 or more. In fact, the tax 

rate on all high expanded income returns other than 

nontaxables and nearly nontaxables actually declined 

from 36 percent in 1975 to 35 percent in 1976. 

-7-
Chapter 3 

The Measurement of· Income 

This chapter first discusses an ideal broad-based 

measure of income and then outlines the adjustments necessary 

to obtain a broad income measure solely from data available 

from tax returns. 

Economic Income, the Ideal Measure 

Since this report is concerned with the impact of the 

tax system on high-income individuals, the analysis requires 

the accurate measurement of income. Economists generally 

agree that for analyzing the impact of taxes the ideal 

measure of income over a particular period of time, say a 

year, is the amount that the individual or family has 

consumed over that period plus the change in its net worth. 

For example, if a family has spent $10,000 and has saved 

$2,000 during the year, economists would say that the family 

had had an income of $12,000. Similarly, if the family has 

spent $10,000 but owned an asset that has decreased in value 

by $1,000, economists would say that the family had had an 

income of only $9,000 during the year. 

A brief examination of the differences between income as 

defined by economists, so-called economic income, and 

adjusted gross income (AGI), the concept currently used for 

income tax purposes, illustrates some of the problems of 

measuring income, especially for high-income individuals. 

Adjusted Gross Income 

Tax experts have long been aware that adjusted gross 

income is deficient as a measure of a taxpayer's economic 

income. AGI excludes some income such as interest from 

tax-exempt state and local bonds, social security benefits, 

the excluded portion of realized long-term capital gains (and 

all accrued but unrealized capital gains), and imputed rent 

on owner-occupied housing. Income from certain activities, 

while not "strictly" excluded from AGI, is deferred to a 

later year (or indefinitely) for income tax purposes. 

Depreciation deductions in excess of economic deductions 

-9-
reduce AGI early in the life of an asset, but the resulting 

lower depreciation deductions in later years raises AGI. The 

net effect of accelerating depreciation deductions is to 

postpone taxes. l/ 

Despite the fact that some types of income are excluded, 

AGI may overstate economic income because some expenses 

incurred in the production of income are not deductible in 

the computation of AGI; most of these are deductible from AGI 

in calculating taxable income, but only if the taxpayer--

itemizes his personal deductions. 2/ Two types of deductions 

which fall into this category are employee expenses and 

expenses attributable to a taxpayer's investments (as opposed 

to his active operation of a trade or business), including 

but not limited to investment interest. 3/ Although net 

l/ The Internal Revenue Cod~ defines AGI as all gross income 

that is not specifically excluded from gross income. Among 

these exclusions are (1) trade or business deductions (other 

than most such deductions by employees), (2) the deduction 

for one-half of net long-term capital gains, (3) limited 

deductions for losses from the sale or exchange of property, 

(4) deductions attributable to rents and royalties, (5) the 

moving expense adjustment, and (6) deductions for 

contributions to individual retirement accounts and H.R. 10 

plans. 

Gross income only includes income which has peen 

"realized." Thus, for tax purposes, accrued increases or 

decreases in the value of assets generally are not recognized 

until a gain or loss is realized by a sale or exchange. 

Similarly, gross income does not include the value of the 

services received from the use of durable goods, such as 

imputed net rent of owner-occupied housing. Finally, 

interest on state and local government debt and social 

security benefits are not included in AGI. 

2/ Taxes are related to but not calculated from AGI. Taxes 

are determined by taxable income which equals AGI minus 

itemized deductions (or, if the taxpayer so elects, the 

standard deduction) and the deduction for personal 

exemptions. 

3/ For the years covered by this report, alimony payments 

were also treated as an itemized deduction ven though 

alimony income was includable in the AGI of the recipient. 

Beginning in 1977, alimony is deducted from gross income in 

computing AGI. 

-10-
realized capital losses reduce economic income, only the 

first $1,000 may be deducted in the computation of AGI; any 

excess must be carried forward to future years. ii 

Redefining Income 

Ideally, the impact of all taxes should be measured 

relative to economic income. However, no accurate, detailed 

data on such a broadly defined income measure are available 

for a cross-section of American taxpayers. As a practical 

matter, any broad income measure must be determined from data 

already contained on Federal individual income tax returns. 

Thus, a more comprehensive income measure must start from AGI 

and make adjustments for omitted income and for expenses 

which ought to be deductible in calculating income. 

Omitted Income 

Tax returns contain information about only a portion of 

the income which is included in economic income but excluded 

from AGI. The omitted income which can be identified on tax 

returns consists of the dividend exclusion of up to $100 per 

taxpayer and the income from sources which were considered to 

be tax preferences for purposes of the minimum tax. It 

should be noted that unless such preferences exceeded $30,000 

for a 1975 return or $10,000 for a 1976 return, 5/ the total 

amount of such preferences was not recorded, and-the excluded 

half of net long-term capital gains is the only preference 

item available. The omission is not serious since preference 

items other than the excluded portion of net long-term 

capital gains represents less than 20 percent of all minimum 

tax preference income. 6/ 

!I The $1,000 limit for the deduction of net capital losses 

applies to years before 1977. For 1977, the limit was 

$2,000, and beginning in 1978, the limit is $3,000. In all 

years, the limit for married persons filing separately is 

half of the amounts indicated. 

~/ Half these amounts on returns of married persons filing 

separately. 

~/ The 1976 m1n1mum tax preference item of itemized 

deductions (other than medical expenses and casualty) in 

excess of 60 percent of AGI does not represent omitted 

income; hence, it has not been used to adjust AGie 

-11-
Despite the inclusion of preference income which is not 

in AG! but which is identifiable on tax returns, several 

major sources of income for high-income taxpayers are still 

omitted: l/ 

interest on tax-exempt state and local bonds; 

certain agricultural expenses which are deducted 

when paid even though related income items are not 

includable in income for taxpayers until a later 

year; and 

straight-line depreciation deductions on real estate 

to the extent that they exceed economic 

depreciation. 

For real estate, the combination of a shorter life for 

tax purposes than the true economic life of the property and 

the straight-line depreciation method produce tax 

depreciation deductions which exceed economic depreciation in 

the early years of ownership. At some future time, income 

may be correspondingly higher, but in the meantime the 

taxpayer has had the interest-free use of the deferred taxes. 

Also, in the later year, the income may be converted into a 

long-term capital gain which is taxed at a lower rate. 

Because sources of income that are not identifiable from 

tax return data are excluded, all income measures used in 

this report understate economic income. As a consequence, 

some individuals with high economic income will be omitted 

completely from the high-income group in this report. 

Moreover, even for the individuals included, income will be 

understated and taxes as a percentage of income (that is, the 

effective tax rate) will be overstated. 

Investment Expenses 

In determining economic income, it would be appropriate 

to deduct all expenses incurred in the production of income, 

including those related to any income-producing investments. 

Since economic income would include investment income 

21 Social security benefits and unemployment compensation 

are also excluded. In the aggregate, this is a major 

omission, but it is relatively unimportant for high-income 

taxpayers. 

-12-
currently and completely, it would be proper to deduct all 

investment expenses without limit. Investment expenses in 

excess of income would then represent a net economic loss, 

roughly akin to a net operating loss from a trade or 

business. However, such a liberal deduction for investmentrelated expenses is not necessarily correct when a less 

comprehensive income definition is used. In such a case, a 

full deduction for investment expenses might well represent a 

mismatching of receipts and expenses with the result that net 

income would be understated. For example, if a taxpayer 

borrowed funds to purchase securities, his net income would 

be understated if he deducted all of the interest paid on the 

loan but he did not include as income any accrued gains on 

the securities. In this instance, it might be appropriate to 

postpone the deduction of the interest expense until the time 

when the capital gains were realized. A similar mismatching 

could occur if other investment expenses that should properly 

be capitalized are deducted when they are paid • . 

The fungibility of money creates additional problems. 

If a person with a loan has both income-producing assets, 

such as securities, and non-income producing assets, such as 

a vacation home or yacht, it is not possible to determine 

what portion, if any, of the interest expense is attributable 

to the income-producing assets and, therefore, ought to be 

deducted in measuring income. 

As a result of these problems as well as the limited 

data which are available on Federal income tax returns, it 

has been necessary to define arbitrary limits for the amount 

of investment expenses which may be deducted in calculating a 

broader measure of income. 

Investment expenses appear on a Federal income tax 

return in two places. Investment interest appears as part of 

the itemized deduction for interest; other investment 

expenses such as payments for investment advice are included 

in the miscellaneous category of itemized deductions. For 

this report, investment interest is defined as the entire 

interest deduction other than interest paid on a home 

mortgage. Since other investment expenses could not be 

separated from the remainder of miscellaneous deductions, 

this report defines non-mortgage interest as the only 

investment expense. This procedure tends to overstate 

income. 

-13-
To the extent that interest expenses do not exceed 

investment income, they are considered to be a-legitimate 

deduction in the computation of broadly measured income. One 

consequence of this definition is that investment expenses 

can never turn a profitable investment into a losing 

investment. It is logical to limit the investment expense 

deduction in this way. A person would not normally make an 

investment where the expenses are expected to approach or 

exceed investment income. Thus, allowing investment expenses 

to offset all of investment income is overly generous and 

tends to understate broadly measured income. On the other 

hand, there may be cases of genuine investment losses, akin 

to trade or business losses, which are not allowed, thereby 

causing overstatements of income. 

The - amount of investment income against which investment 

interest can be offset depends on the amount of investment 

income included in the income measure under consideration. 

Investment income consists of interest, dividends, and net 

capital gains (or losses). However, if only a portion of 

capital gains are included in the income concept, as is the 

case with AGI, then only that portion is considered to be 

investment income. 

Expanded Income 

The Congress has asked for high-income data to be 

tabulated on the basis of a measure closely approximating 

economic income but using only data available on tax returns. 

This measure is called "expanded income." 

Expanded income is defined as adjusted gross income plus 

items of tax preference less investment expenses to the 

extent that they do not exceed investment income. 8/ Tax 

preferences that are included are the $100 per taxpayer 

exclusion for dividends of domestic corporations, the 

excluded half of net long-term capital gains, and, where the 

~/ For the sake of brevity, "investment interest to the 

extent that it does not exceed investment" income is called 

"investment interest." "Investment interest in excess of 

investment income" is cal led "excess investment interest." 

-14-
taxpayer has filed a m1n1mum tax form with his tax return, 

all other preferences subject to the minimum tax except 

excess itemized deductions·. For individuals, the only 

minimum tax items of significance other than excluded capital 

gains are the excess of accelerated depreciation over 

straight-line depreciation on real property and on personal 

property subject to a net lease, the excess of percentage 

depletion over the cost of the property, and deductions for 

intangible drilling costs in excess of the amount deductible 

if these costs had been amortized. Because expanded income 

is based on tax return data, it excludes items such as 

interest on tax-exempt state and local bonds, accrued but 

unrealized capital gains, and straight-line depreciation on 

real estate in excess of economic depreciation. 

Four Income Measures 

The Congress has mandated that high-income tax return 

data be selected and classified by four income measures. 

Expanded income and AG! have already been discussed. Each of 

the additional measures embodies only one of the two major 

conceptual differences between expanded income and AGI. 

"Adjusted gross income plus preferences" is calculated by 

increasing AG! by the amount of tax preference income. 

"Adjusted gross income less investment interest" is 

calculated by reducing AG! by the amount of investment 

interest to the extent that it does not exceed investment 

income. 

When ranked according to size of income, AG! plus 

Preferences is largest, AG! less investment interest is 

smallest, and AG! and expanded income fall in between. 

For any individual taxpayer, AG! can be larger or smaller 

than expanded income depending on whether preferences are 

larger or smaller than investment interest. 

-15-
The four income concepts are related in the following 

manner 9/ : 

Expanded Income 

= Adjusted Gross Income + Preferences - Investment 

Interest 

Adjusted Gross Income 

= Expanded Income - Preferences + Investment 

Interest 

Adjusted Gross Income plus Preferences 

= Adjusted Gross Income + Preferences 

or = Expanded Income + Investment Interest 

Adjusted Gross Income minus Investment Interest 

= Adjusted Gross Income - Investment Interest 

or = Expanded Income - Preferences 

Expanded income most closely approximates a measure of 

economic income. To the extent that the availablity of data 

permit, the analyses in this report are based on expanded 

income. 

9/ Note that the investment income limitation for defining 

excess and non-excess investment interest is dependent upon 

the income concept. Hence, the amount of the investment 

interest adjustment differs depending on which definition is 

used. 

-16-
Chapter 4 

High-Income Tax Returns 

Compared to the total number of Federal individual 

income tax returns filed each year, the number of high-income 

tax returns is rather small. There were only 41,761 income 

tax returns with adjusted gross income (AG!) of $200,000 or 

over in 1976; these returns represented only one-twentieth of 

one percent (0.05 percent) of the total of 84,700,000 income 

tax returns filed. Similarly, the number of tax returns with 

expanded income of $200,000 or over was 53,587, or 0.06 

percent of all returns filed. In recent years due to both 

inflation and to rising levels of real income, the number of 

high-income tax returns has increased dramatically in both 

absolute numbers and as a percentage of all tax returns 

filed. For example, in 1970 there were 15,223 income tax 

returns with AG! of $200,000 or over, representing 0.02 

percent of all tax returns filed in that year. In 1960, 

there were only 5,889 such returns, less than 0.01 percent of 

all returns. Thus, in 16 years, the number of high AG! 

returns increased seven-fold, and their share of all returns 

increased more than five-fold. l/ 

Although high expanded income returns are only 0.06 

percent of all returns filed, they contain 2.1 percent of all 

expanded income and pay 5.5 percent of all individual income 

tax liabilities. Similarly, although taxpayers with adjusted 

gross income of $200,000 or more represent only 0.05 percent 

of all returns, they have 1.5 percent of AG! and pay 4.9 

percent of taxes. 

Out of this relatively small percentage of all returns 

filed in a given year, the number of these returns that are 

nontaxable is far smaller. For each year between 1966 and 

1976, Table 1 shows the number of nontaxable returns wit~ 

adjusted gross income of $200,000 or more; it also shows the 

ll Internal Revenue Service, Statistics of Income, 

Individual Income Tax Returns, 1960 and 1970. 

-17-
I 

1--' 

CX> 

I 

Table 1 

Number and Percentage of Nontaxable Income Tax Returns 

With Income of $200,000 or Over Under Alternative Concepts 

Returns Selected By .. Adjusted Gross .. Adjusted 

Expanded Income 

: Percent of 

Year Number :all Returns 

of In Income 

Returns Class 

1966 

1967 

1968 

1969 

1970 

1971 

1972 

1973 1/ 91 0.26 % 

1974 2; 167 0.39 

1975 3/ 215 0.53 

1976 ~/ 89 0.17 

197.6 retabulated 21 53 0.10 

.. 

. . 

.. 

.. 

.. 

Number 

of 

Returns 

154 

167 

222 

300 

111 

82 

108 

164 

244 

260 

68 

22 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

Income . . plus 

: Percent of .. 

: all Returns .. 

In Income 

Class 

1.26 % 

1. 07 

1.15 

1. 62 

0.73 

0.45 

0.47 

0.64 

0.78 

o. 77 

0.16 

0.05 

Number 

of 

Returns 

355 

362 

114 

41 

Source: Statistics of Income, except as noted. 

Gross Income 

Preferences 

: Percent of 

:all Returns 

In Income 

Class 

0.78 % 

0.84 

0.20 

0.07 

. . 

. . 

.. .. 

. . 

. . 

. . 

Adjusted Gross Income 

less Investment Interest 

: Percent of 

Number :all Returns 

of 

Returns 

89 

126 

42 

21 

July 24, 1978 

In Income 

Class 

0.27 % 

0.40 

0.11 

0.05 

1/ 

2/ 

1/ 

Expanded income number and percentage are from the 1973 Treasury tax model. Fo~ income concepts other than AGI, data are from the 1974 Internal Revenue Service tax model. 

Numbers of nontaxable returns for 1975 are from the 1975 Statistics of Income. Some numbers differ slightly 

from the 1975 data in the remainder of this report which are derived from the 1975 Internal Revenue Service 

tax model which is a subsample of the 1975 Statistics of Income data file. 

From the 1976 Statistics of Income. These data are derived from the final Statistics of Incom~ data file and 

differ both a~om the information contained in the previously released 1976 preliminary Statistics of Income 

and from the retabulated numbers of nontaxable returns in Chapter 6. 

See Chapter 6 for an explanation of reason for ~etabulation. 
0 

H 

u 

~ 

5 

~ 

u 

c 

D 

b 

0 

~ 

~ 

;-, 

Chart 1 

NUMBER AND PERCENTAGE OF NONTAXABLE 

HIGH ADJUSTED GROSS INCOME RETURNS 

1966-·1976 

(Adjusted Gross Incomes of $200,000 and over) 

Number of 

Returns 

}~{{{ Number of Returns 

- Percent of All High AGI Returns 

300-

250-

200-

150 

l00- 11111111 

50

-:llilllll 

1966 1967 1968 1969 

Minimum 

Tax 

Imposed 

I 

1970 1971 1972 1973 1974 1975 

Percent of 

All High 

AGI Returns 

-1.6 

-1.4 

-1.2 

-1.0 

-0.8 

-0.6 

Minimum 

Tax 

Increased 

-0.4 

-0.2 

0 

1976 
number of nontaxable returns as a percentpge of all returns 

in the income class. Similar data for years prior to 1966 

are not available. For the years 1973 through 1976, Table 1 

also presents the number of nontaxable returns as defined by 

expanded income, by adjusted gross income plus preferences, 

and by adjusted gross income less investment interest. Prior 

to 1973 these data were not available regularly and 

consistently. ~/ 

Chart 1 displays for each year between 1966 and 1976 the 

number of nontaxable high AGI returns and the percentage of 

all high AGI returns that are nontaxable. The percentage of 

high-income, nontaxable returns has increased over time 

except when the tax law has been tightened. The reason for 

this upward trend is not clear; however, it is possible that 

it represents a learning curve. That is, over time, 

taxpayers learn how to arrange their tax affairs so that 

within the constraints imposed by the Internal Revenue Code 

they minimize (or eliminate) their income taxes. Chart 1 

also illustrates the sharp declines in nontaxables in 1970 as 

a result of the imposition of the minimum tax and again in 

1976 as a result of the substantial strengthening of the 

minimum tax. l/ 

Because of both inflation and rising real incomes, 

notions of what represents a truly high level of income have 

changed over the years. For this reason, as well as to give 

some idea of the differences which the income cutoff point 

makes, Tables 2, 3, and 4 show data similar to . that contained 

2/ The data for 1974, 1975 and 1976 are from the Internal 

Revenue Service, either from the complete Statistics of 

Income individual file of income tax returns or from a 

subsample of that file called the Internal Revenue Service 

tax model. The data for 1973 were developed by the Office of 

Tax Analysis from the 1973 Treasury tax model. 

3/ The data show a sharp decline in 1970 in nontaxables, 

both absolutely and as a fraction of all high AGI taxpayers 

and then a further decline in 1971. It is likely that the 

full decline actually took place in 1970 but because of poor 

compliance with the minimum tax in its first year, the 

decline was not fully reflected in data from unaudited tax 

returns. 

-20-
0 

I 

tv 

1--' 

I 

Year 

1964 

1965 

1966 

1967 

1968 

1969 

1970 

1971 

1972 

1973 1/ 

1974 2./ 

1975 3! 

1976 I1 

Office of 

Office 

Source: 

Table 2 

Number and Percentage of Nontaxable Income Tax Returns 

With Income of $100,000 or Over Under Alternative Concepts 

Returns Selected By .. Adjusted Gross . . Adjusted Gross Income 

ExEanded Income .. Income . . Elus Preferences 

: Percent of .. : Percent of .. : Percent of 

Number :all Returns . . Number :all Returns . . Number :all Returns 

of In Income .. of In Income . . of In Income 

Returns Class . . Returns Class .. Returns Class 

355 0.97 % 

285 0.62 

367 0.69 

399 0.60 

538 0.65 

745 0.91 

400 0.51 

300 0.33 

425 0.37 

739 0.46 % 622 0.46 

1,143 0.59 966 0.58 1,867 0.90 % 

901 0.44 994 0.53 1,785 0.82 

622 0.24 560 0.25 814 0.30 

the Secretary of the Treasury 

of Tax Analysis 

Statistics of Income, except as noted. 

Expanded income number and percentage are from the 1973 Treasury tax model. 

. . Adjusted Gross Income 

. . less Investment Interest .. . . : Percent of .. Number :all Returns 

. . of In Income 

. . Returns Class 

480 0.29 % 

533 0.30 

477 0.22 

July 24, 1978 

1/ 

2/ 

]_I 

For income concepts other than AGI, data are from the 1974 Internal Revenue Service tax model. 

Numbers of nontaxable returns for 1975 are from the 1975 Statistics of Income. Some numbers differ slightly 

from the 1975 data in the remainder of this report which are derived from the 1975 Internal Revenue Service 

tax model which is a subsample of the 1975 Statistics of Income data file. 

From 'the 1976 Statistics of Income. These data are derived from the final Statistics of Income data file and 

differ from the information contained in the previously released 1976 Statistics of Income. 
I 

tv 

tv 

I 

Table 3 

Number and Percentage of Nontaxable Income Tax Returns 

With Income of $500,000 or Over Under Alternative Concepts 

Returns Selected By .. Adjusted Gross . . Adjusted Gross Income . . Adjusted Gross Income . . Income .. plus Preferences . . less Investment Interest Expanded Income 

: Percent of . . : Percent of . . : Percent of .. . . : Percent of .. Number :all Returns . . Number :all Returns . . Number :all Returns Year Number :all Returns 

of In Income . . of 

Returns Class . . Returns 

1964 

1965 

1966 

1967 

1968 

1969 

1970 

1971 

1972 

1973 

1974 1/ 30 0.47 % 

1975 21 39 0.61 

1976 11 16 0.19 

1976 retabulated !±./ 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

35 

35 

51 

63 

82 

112 

21 

15 

20 

22 

48 

56 

8 

3 

Source: Statistics of Income, except as noted. 

In Income .. of In Income . . of In Income 

Class .. Returns Class . . Returns Class 

2.25 % 

1. 71 

2.30 

2.15 

2.18 

3.01 

0.88 

0.49 

0.54 

0.62 

1.12 68 1. 00 % 16 0.41 % 

1. 27 71 1. 04 27 0.67 

0.15 20 0.22 5 0.10 

0.06 

July 24, 1978 

1/ For income concepts other than AGI, data are from the 1974 Internal Revenue Service tax model. J./ Numbers of nontaxable returns for 1975 are from the 1975 Statistics of Income. Some numbers differ slightly 

from the 1975 data in the remainder of this report which are derived from the 1975 Internal Revenue Service 

tax model which is a subsample of the 1975 Statistics of Income data file. 

]_/ From the 1976 Statistics of Income. These data are derived from the final Statistics of Income data file and 

differ both from the information contained in the previously released 1976 preliminary Statistics of Income and 

from the retabulated numbers of nontaxable returns in Chapter 6. 

!±_/ See Chapter 6 for an explanation of reason for retabulation. 
I 

N 

-w 

I 

Table 4 

Number and Percentage of Nontaxable Income Tax Returns 

With Income of $1,000,000 or Over Under Alternative Concepts 

Returns Selected By . . Adjusted Gross 

E~anded Income 

Year Number 

of 

Returns 

1964 

1965 

1966 

1967 

1968 

1969 

1970 

1971 

1972 

1973 

1974 1/ 

1975 21 

1976 11 

1976 Retabulated if 

3 

8 

2 

: Percent of 

:all Returns 

In Income 

Class 

0.17 % 

0.44 

0.08 

. . 

. . 

. . Number 

. . of 

. . Returns 

19 

22 

18 

23 

31 

52 

3 

3 

6 

7 

12 

12 

2 

1 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

Income 

: Percent of 

:all Returns 

In Income 

Class 

3.94 % 

3.40 

2.80 

2.75 

2.76 

4.29 

0.47 

0.34 

0.58 

0.78 

1.09 

1. 07 

0.15 

0.07 

Source: Statistics of Income, except as noted. 

. . Adjusted Gross Income 

.. Elus Preferences 

. . : Percent of 

. . Number :all Returns 

.. of In Income 

.. Returns Class 

13 o. 70 % 

17 0.88 

4 0.15 

.. Adjusted Gross Income 

. . less Investment Interest .. . . : Percent of .. Number :all Returns 

. . of In Income 

. . Returns Class 

2 0.20 % 

3 0.29 

1 0.08 

July 24, 1978 

1/ For income concepts other than AGI, data are from the 1974 Internal Revenue Service tax model. I./ Numbers of nontaxable returns for 1975 are from teh 1975 Statistics of Income. Some numbers differ slightly from 

the 1975 data in the remainder of this report which are derived from the 1975 Internal Revenue Service tax 

model which is a subsample of the 1975 Statistics of Income data file. 

]_/ From the 1976 Statistics of Income. These data are derived from the final Statistics of Income data file and 

differ both from the information contained in the previously released 1976 preliminary Statistics of Income and 

from the retabulated numbers of nontaxable returns in Chapter 6. 

!_/ See Chapter 6 for an explanation of reason for retabulation. 
in Table 1 for tax returns with income of $100,000 or over, 

of $500,000 or over, and $1,000,000 or over, respectively. 

The columns showing nontaxable returns as a percentage of all 

returns in their income classes indicate that once the 

$100,000 level of income is reached, there is no trend, 

either increasing or decreasing, in this pe~centage. One 

might well expect to find a lower proportion of nontaxable 

returns with income of $500,000 to a $1,000,000 than in the 

$100,000 to $200,000 class, but no such pattern is 

discernible. 

Distribution of Effective Tax Rates: Nearly Nontaxables 

The preceeding section outlining how a small number of 

high-income taxpayers are able to entirely escape taxes may 

give the picture of two very different and clearly 

distinguishable types of high-income returns: taxables and 

nontaxables. Such a picture would be misleading. 

Examination of the distribution of high-income taxpayers by 

either effective tax rate or by the ratio of their taxable 

incomes to their total incomes shows a continuum from 

nontaxable returns to returns with high effective tax rates. 

Tables 5 through 8 for 1975 and 1976 show the 

distributions of taxes paid by high-income taxpayers. Tables 

5 and 6 show the distribution of tax returns by effective 

income tax rates, i.e., tax as a percentage of the relevant 

measure of income. Tables 7 and 8 show the distributions of 

actual tax liabilities. On all four tables, the 

distributions are given for all tax returns, for various 

.income classes, and under all four definitions of income. 

The tables also show the distributions in terms of the actual 

numbers of tax returns as well as percentages of all returns 

in the income class. Examination of Tables 5 and 6 for 

returns with income of $200,000 or over indicates that 

regardless of the income concept used the majority of 

high-income taxpayers are concentrated in the 30 to 50 

percent effective tax rate brackets. If one were to graph 

the percentage of taxpayers as a function of the effective 

tax rate, one would find a typical, bell-shaped curve 

familiar to statisticians and economists. This curve would 

peak in the 30 to 50 percent effective tax rate range and 

would fall off sharply with a small tail running down to zero 

percent for the nontaxables, and another small tail going out 

toward the maximum possible tax rate. The percentage of 

returns with low effective tax rates or very low actual 

-24-
Table 5 

Distribution of Tax Returns by Income Class and Effective Tax Rate -- 1976 

N:um:bex: ang P~r~!i:nt Qf Income Concept and Total Number and All Betn:rns h Size cf Ef fectilZe Tax Bate 1 I 

Income Class Number of Perc entrwith Returns Under 5% to 10% to 15% to 20% to 25% to 30% to 40% to :50% and Returns No Tex With Tax 5% 10% 15% 20% 25% 30% 40% 50% over 

All Returns 

Ex2anded Income 

$ 50,000 to $100,000 1,003,851 4,104 999,747 9,869 24,078 69,628 141,452 270,145 287,498 191,706 5,259 112 

(100.0%) (0.4%) (99.6%) (1. 0%) (2. 4%) (6. 9%) (14.1%) (26.9%) (28.6%) (19.1%) ( 0.5%) C*) 

$ 100,000 to $200,000 204,278 533 203,745 923 3,899 7 ,118 12,313 17,892 31,384 99,282 29,708 1,226 

(100.0%) (0. 3%) (99.7%) (0. 4%) (1. 9%) (3.5%) ( 6.0%) ( 8.8%) (15.4%) (48.6%) (14.5%) (0.6%) 

$ 200,000 and over 53,587 89 53,498 204 731 2,486 2,650 4,261 6,618 17,598 14,283 4,667 

(100.0%) (0.2%) (99.8%) (0.4%) (1. 4%) ( 4 .. 6%) ( 5.0%) ( 8.0%) (12.4%) (32.8%) (26. 6%) (8. 7 % ) 

Adjusted Gross Income 

$ 50,000 to $100,000 948,034 3,180 944,854 9,017 15,081 33,216 106,911 255,049 291,562 224,203 9,080 735 

(100.0%) (0.3%) (99.7%) (1. 0%) (1.6%) (3.5%) (11. 3%) (26.9%) (30.8%) (23.6%) ( 1. 0%) (0. H!) 

$ 100,000 to $200,000 185,142 492 184,650 1,047 2,131 2,460 5,124 8,588 19,257 102,433 39,854 3,756 

(100.0%) (O. 3%) (99.7%) (0.6%) (1.2%) (1. 3%) ( 2.8%) ( 4.6%) (10.4%) (55.3%) (21. 5%) (2. 0.%) 

$ 200,000 and over 41,761 68 41,693 186 365 627 878 1,330 1,909 10,081 16,056 10,261 

(100.0%) (0. 2%) (99.8%) (0.4%) (0.9%) (1.5%) ( 2.1%) ( 3. 2%) ( 4.6%) (24.1%) (38. 4%) (24. 6%) I 

N 

(Jl 

I Adjusted Gross Income 12lus / 

Preferences 

$ 50,000 to $100,000 1,021,791 4,480 1, 017, 311 11; 722 27,762 77, 700 152,908 283,691 279,117 179,180 5,121 110 (100.0%) (0.4%) (99:6%) (1. 2%) (2.7%) (7.6%) (15.0%) (27.8%) (27.3%) (17.5%) (O.H) ( *) $ 100,000 to $200,000 212,461 700 211,761 1,708 5,333 8,007 14,113 20,492 34,615 99,135 27,210 1,148 (100.0%) (0.3%) (99. 7%) (O. 8%) (2. 5%) (3.8%) ( 6.6%) ( 9.7%) (16.3%) (46.7%) (12.8%) (O. 5%) $ 200,000 and over 56,512 114 56,398 313 1,345 3,082 3,059 4,890 7,182 18,279 13,928 4,32{) (100.0% (0.2%) (99.8%) (0.6%) (2.4%) (5 .!+%) ( 5.4%) ( 8.7%) (12.7%) (32.4%) (24.6%) (7. 6%) 

Adjusted Gross Income less 

Investment Interest 

$ 50,000 to $100,000 925,833 2,721 923,112 7,400 12,126 26,410 91,419 237,400 295, 971 241,376 10,096 914 

(100.0%) (0.3%) (99.7%) (0.8%) (1. 3%) (2.8%) (9.9%) (25. 6%) (32.0%) (26.1%) ( 1.1%) (O .1%) $ 100,000 to $200,000 176,934 435 176,499 667 1,452 1,827 3,878 6,618 15,627 9,811 44,127 4,192 (100.0%) (0. 2%) (99.8%) (0. 4%) (0.8%) (1. 0%) (2. 2%) ( 3.7%) ( 8.8%) (55.5%) (24. 9%) ( 2. 4%) $ 200,000 and over 39,346 42 39,304 101 154 339 612 985 1,603 8,442 16,015 11,053 (100.0%) (0.1%) (99. 9%) (0.3%) (0. 4%) (0.9%) (1. 6%) ( 2.5%) ( 4.1%) (21. 5%) (40. 7%) (28.1%) 

Off ice of the Secretary of the Treasury July 24, 1978 

Off ice of Tax Analysis 

Source: 1976 Statistics of Income. 

* Less than 0.05 percent. 

1./ Income tax after credits including the minimum tax as a percentage of income. 

I 

t\.) 

-...J 

I 

Table 7 

Distribution of Tax Returns by Income Class and Total Income Tax -- 1976 

Income Concept and 

Income Class 

Total 

Number of 

Returns 

Number and 

Percent with: All Returns 

No Tax With Tax 

Number and Percent of Returns by Size of Total Income Tax 1/ 

$1 $1,000 $3,000 $4,000 $ 5,000 $10,000 $25,000 

under 

$1,000 

under 

$3,000 

under 

$4,000 

under 

$5,000 

under 

$10,000 

under 

$25,000 

under 

$50,000 

All Returns 84,670,389 20,249,022 64,421,367 26,964,491 25,732,027 4,706,219 2,385,683 3,251,747 1,032,333 246,323 

Expanded Income 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income plus 

Preferences 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income less 

Investment Interest 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

1,003,851 

(100.0%) 

.204,278 

(100.0%) 

53,587 

(100.0%) 

948,034 

(100.0%) 

185,142 

(100.0%) 

41,761 

(100.0%) 

1,021,791 

(100.0%) 

212,461 

(100.0%) 

56,512 

(100.0%) 

925,833 

(100.0%) 

176,934 

(100.0%) 

39,346 

(100.0%) 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

Source: 1976 Statistics of Income. 

* Less than 0.05 percent. 

4,104 

(O. 4%) 

533 

(0.3%) 

89 

(0.2%) 

3,180 

(0.3%) 

492 

(O. 3%) 

68 

(O. 2%) 

4,480 

(0.4%) 

700 

(0.3%) 

114 

(0.2%) 

2, 721 

(O. 3%) 

435 

(O. 2%) 

42 

(0.1%) 

999,747 

(99.6%) 

203,745 

(99. 7%) 

53,498 

(99.8%) 

944,854 

(99.7%) 

184,650 

(99.7%) 

41,693 

(99.8%) 

/ 

1,017,311 

(99.6%) 

211,761 

(99.7%) 

56,398 

(99.8%) 

923, 112 

(99.7%) 

176, 499 

(99.8%) 

39,304 

(99.9%) 

2,087 

(0.2%) 

147 

(0.1%) 

13 

* 

2,051 

(0. 2%) 

129 

(0.1%) 

12 

* 

2,622 

(0.3%) 

150 

(0.1%) 

13 

* 

1, 722 

(0. 2%) 

109 

(0.1%) 

11 

* 

6,555 

(0.7%) 

164 

(O .1%) 

19 

* 

5, 727 

(0.6%) 

210 

(0.1%) 

15 

* 

7, 778 

(O. 8%) 

230 

(0.1%) 

21 

* 

4,913 

(0.5%) 

135 

(0.1%) 

14 

* 

7,245 

(O. 7%) 

168 

(0.1%) 

1 

* 

4,743 

(0.5%) 

91 

(0.1%) 

1 

* 

8,249 

(0.8%) 

366 

(0.2%) 

12 

* 

4,124 

(0.4%) 

47 

* 1 

* 

6,402 

(O. 6%) 

139 

(0.1%) 

34 

(0.1%) 

4,175 

(0.4%) 

238 

(0.1%) 

16 

* 

6,940 

(0. 7%) 

413 

(0.2%) 

39 

(0.1%) 

3,254 

(0.4%) 

143 

(0.1%) 

11 

* 

124,343 

(12.4%) 

2,054 

( 1. 0%) 

81 

( 0.2%) 

79,505 

( 8.4%) 

1,466 

0.8%) 

58 

( 0.1%) 

136,202 

(13.3%) 

2,893 

( 1. 4%) 

105 

( 0.2%) 

66,251 

( 7.2%) 

966 

( 0.6%) 

28 

( 0.1%) 

735,558 

(73.3%) 

22,538 

(11.0%) 

632 

( 1. 2%) 

714,412 

(75.4%) 

9,856 

( 5. 3%) 

331 

( 0.8%) 

742,953 

(72.7%) 

26,593 

(12.5%) 

1,079 

( 1. 9%) 

701,494 

(75.8%) 

7,505 

( 4.2%) 

163 

( 0.4%) 

July 24, 1978 

117,446 

(11. 7%) 

125,020 

(61. 2%) 

3,813 

( 7.1%) 

133,922 

(14.1%) 

110,605 

(59. 7%) 

1,278 

( 3.1%) 

112,457 

(11.0%) 

129,054 

(60.7%) 

4, 770 

( 8. 4%) 

140,970 

(15. 2%) 

103,953 

(58.8%) 

795 

( 2.0%) 

];/ Total income tax is income tax after credits incluuing the minimum tax. It is impossible for tax after credits including the minimum tax 

to exceed income. 

$50,000 or 

more . 

102,544 

111 

* 53,515 

(26.2%) 

48,905 

(91. 3%) 

319 

* 62,055 

(33.5%) 

39,982 

(95.7%) 

110 

* 52,062 

(24.5%) 

50,359 

(89.1%) 

384 

* 63,641 

(36. 0%) 

38,281 

(97.3%) 
Table 8 

Distribution of Tax Returns by Income Class and Total Income Tax -- 1975 

Number and Perc~nt Qf Bet11i:Ds b;iz: Size of · Total ...Income _tax 1 I Income Concept and Total Number and $1 : $1,000 : $3,000 : $4,000 : $ 5,000 : $10,000 : $25,000 $50,000 Income Class Number of Percent with All Returns under under under under under under under or Returns No Tax With Tax $1,000 $3,000 $4,000 $5,000 $10,000 $25,000 $50,000 more 

All Returns 82,229,182 20,822,251 261,406,931 6,357,938 25,353,480 4,026,297 1,982,979 2,597,263 803,402 204,794 80, 778 

Ex2anded Income 

$ 50,000 to $100,000 807,399 4,654 802,745 5,516 6,120 6,300 7,553 87,691 585,273 104,292 0 

(100.0%) (0.6%) (99.4%) (O. 7%) (0.8%) (0.8%) (0.9%) (10.9%) (72. 5%) (12.9%) 0 

$100,000 to $200,000 165,269 686 164,583 350 381 256 288 2,9-28 18,310 97,321 44,749 

(100.0%) (0.4%) (99. 6%) (0.2%) (0.2%) (0.2%) (0.2%) ( 1. 8%) (11.1%) (58. 9%) (27.1%) 

$200,000 and over 40,884 215 40,669 55 49 18 14 217 1,118 3,174 36,024 

(100.0%) (0. 5%) (99.5%) (0.1%) (0.1%) * * ( 0.5%) ( 2.7%) ( 7.8%) (88.1%) 

Adjusted Gross Income 

$ 50,000 to $100,000 780,470 4,749 775,721 2,812 4,519 3,370 4,227 61,347 586,923 112,502 21 

(100.0%) (0.6%) (99.4%) (0.4%) (0.6%) (0.4%) (0.5%) 7.9%) (75.2%) (14.4%) * $100,000 to $200,000 152,432 709 151,723 250 349 265 266 1,472 8,808 91,033 49,280 

(100.0%) (O. 5%) (99. 5%) (0.2%) (0.2%) (0.2%) (0.2%) ( 1. 0%) ( 5.8%) (59. 7%) (32.3%) $200,000 and over 33,606 260 33,346 55 77 28 18 149 475 1,131 31,413 I (100.0%) (0. 8%) (99.2%) (0.2%) (O. 2%) (0.1%) (0.0%) ( 0.4%) ( 1. 4%) ( 3.4%) (93.5%) N 

co 

I Adjusted Gross Income El us Preferences 

$ 50,000 to $100,000 821,253 6,607 814,646 5,855 7,801 6,465 8,646 95,306 590,800 99, 773 0 

(100.0%) (0. 8%) (99.2%) (0.7%) (1. 0%) (0.8%) (1. 0%) (11.6%) (71. 9%) (12.2%) 0 

$100,000 to $200,000 173,888 1,423 172,465 773 915 607 340 3,583 21,203 101,378 43,666 

(100.0%) (0.8%) (99.2%) (0.4%) (0.5%) (0.4%) (0.2%) ( 2.1%) (12.2%) (58.3%) (25.1%) 

$200,000 and over 43,344 362 42,982 93 102 73 38 428 1,505 3,636 37,107 

(100.0%) (0.8%) (99.2%) (O. 2%) (O. 2%) (0.2,~) (0.1%) (1.0%) ( 3. 5%) ( 8.4%) (85-. 6%) 

Adjusted Gross Inco111e less 

Investment Interest 

$ 50,000 to $100,000 762,709 3,879 758,830 2,028 3,355 2,647 3,508 53,446 576, 077 117,736 33 

(100.0%) (0.5%) (99.5%) (0.3%) (O. 4%) (0.4%) (0.5%) (7. 0%) (75.5%) (15.4%) * $100,000 to $200,000 145,330 407 144,923 172 228 159 194 930 6,527 86,161 50,552 

$200,000 and over (100.0%) (O. 3%) (99.7%) (0.1%) (O. 2%) (0.1%) (0.1%) (0.6%) ( 4.5%) (59. 3%) (34.8%) 

31,391 126 31,265 27 22 11 6 81 257 749 30,112 

(100.0%) (0. 4%) (99.6%) (0.1%) (O .1%) * * (0.3%) (0. 8%) ( 2.4%) (95. 9%) 

Office of the Secretary of the Treasury July 24, 1978 

Office of Tax Analysis 

Source: 1975 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

]) Total income tax is income tax after credits including the minimum tax. It is possible for tax after credits including the minimum tax to exceed 

income. 
liabilities is very small. In 1976, as Table 7 shows, only 

1.6 percent of all high expanded income taxpayers paid less 

than $25,000 of tax, and over 90 percent paid more than 

$50,000. 

Tables 9 and 10 classify data by the ratio of taxable 

income to each of the four definitions of income for 

high-income returns. Table 9 is for 1976; Table 10 is for 

1975. For various classes of ratios of taxable income to 

total income, the tables show the number of returns in the 

class; the percentage of the total number of returns which 

are in that class; and the cumulative percentage of the total 

in that class. For example, Table 9 shows that 0.90 percent 

of all returns with expanded income of $200,000 or over had a 

ratio of taxable income to expanded income of less than 20 

percent. 

Table 11 presents in one place the cumulative 

percentages for 1974, 1975, and 1976. Chart 2 displays the 

comparison between the cumulative percentages of high 

expanded income returns for 1975 and 1976 with ratios of 

taxable income to expanded income of less than a given 

percentage. Tables 5, 6, 9, 10, and 11 and Chart 2 show very 

clearly that there is a whole continuum of returns when 

returns are classified either by effective tax rate or by the 

ratio of taxable income to total income. It is an oversimplification to try to group returns into just the two 

categories of taxable or nontaxable. 

The data just presented have been used to help define a 

class of taxpayers who pay some taxes -- and, hence, have not 

been brought to the public's eye because of their nontaxable 

status -- but who clearly are not paying their "fair share" 

of taxes. This group, which may be called the "nearly 

nontaxables," consists of the small tail of tax returns at 

the low end of the cumulative distribution of tax returns 

arrayed by the ratio of taxable income to total income. 

Chart 2 shows that based on 1976 data, there clearly is a 

break in the continuum of tax returns when the ratio of 

taxable income to total income rises above 20 percent. Thus, 

nearly nontaxable returns are defined as taxable returns 

having taxable income of less than 20 percent of the relevant 

income measure. All high-income tax returns fall into one of 

three categories: nontaxables; nearly nontaxables; or all 

other taxables. 

A substantial portion of the analysis throughout the 

rest of this report will focus on the differences and 

similarities between nontaxables and nearly nontaxables. Are 

-29- I 
Table 9 

Number and Distribution of Tax Returns with Income of $200,000 or Over 

Under Alternative Concepts, Classified by Taxpaying Status I976 

:Percentage: Cumulative:: :Percentage:Cumulative 

.• Number of of :Percentage:: Number of: of :Percentage 

Returns Total : of Total:: Returns: Total : of Total 

------------Expanded Income-------- ------Adjusted Gross Income------

All Returns 

~ontaxable Returns 

Taxable Returns with Ratios of 

Taxable Income to Income: 1/ 

Under 10% .......................... 10% to 15% ······················· 15% to 20% ....................... 20% to 25% ....................... 25% to 30% ....................... 30% to 40% 

······················· 40% to 50% ....................... 50% and over ······················· 

53,587 

89 

85 

136 

172 

979 

1,523 

3,462 

5,914 

41,227 

100 % 41,761 100 % 

0.17 0 .. 17 68 0.16 0.16 

0.16 0.32 87 0.21 0.37 

0.25 0.58 105 0.25 0.62 

0.32 0.90 219 0.52 1.15 

1. 83 2.73 229 0.55 1. 70 

2.84 5.57 358 0.86 2.55 

6.46 12.03 1,095 2.62 5.17 

11. 04 23. 07 1,760 4.21 9. 39 

76.93 100 37,840 90.61 100 

----Adjusted Gross Income plus----- ----Adjusted Gross Income less----

All Returns 

Nontaxable Returns 

Taxable Returns with Ratios of 

Taxable Income to Income: 1/ 

Under 10% .............•............ 

10% to 15% ...................... . 

15% to 20% .....................•. 

20% to 25% ...................... . 

25% to 30% ...................... . 

30% to 40% ...................... . 

40% to 50% ...................... . 

50% and over .....•..•..•....••..... 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

Source: 1976 Statistics of Income. 

56,512 

114 

121 

255 

543 

1,299 

1, 780 

4,029 

6,591 

41,780 

Preference Investment Interest 

100 % 39,346 100 % 

0.20 0.20 42 0.11 0.11 

0.21 0.42 61 0.16 0. 26 

0.45 0.87 41 0.10 0.37 

0.96 1. 83 76 0.19 0.56 

2.30 4.13 130 0.33 0.89 

3.15 7.28 212 0.54 1. 43 

7.13 14.41 738 1. 88 3. 30 

11. 66 26.07 1, 321 3.36 6. fi6 

73.93 100 36, 723 93.34 100 

July 24, 1978 

1/ Taxable income is defined as the amount of income which under the appropriate ordinary tax rate 

schedules would yield tax after credits plus the minimum tax. 

-30-
ve 

ge 

_l_ 

6 

7 

2 

5 

0 

5 

7 

9 

s----

1 

6 

7 

6 

9 

3 

0 

6 

Table 10 

Number and Distribution of Tax Returns with Income of $200,000 or Over 

Under Alternative Concepts, Classified by Taxpaying Status 1975 

:Percentage: Cumulative:: :Percentage:Cumulative 

.. Number of of : Percentage: : Number of of :Percentage 

Returns Total : of Total:: Returns Total : of Total 

------------Expanded Income------- -----Adjusted Gross Income--------

All Returns 

Nontaxable Returns 

Taxable Returns with Ratios of 

Taxable Income to Income: 1/ 

Under 10% .•••..•.•••••••••.•.....•. 

10% to 15% •••••.••...••••••••.••• 

15% to 20% .••••••.•..••.•••...•.. 

20% to 25% ••••••••••.••.•••.••••• 

25% to 30% ...••.•••.•••..••.•.•.. 

30% to 40% •.••••.•••.••.••••..•.• 

40% to 50% •.••.•••••••••.•••••••. 

50% and over •••.••••..•.•.••.•..... 

All Returns 

Nontaxable Returns 

Taxable Returns with Ratios of 

Taxable Income to Income: 1/ 

Under 10% .......................... 10% to 15% ....................... 15% to 20% ....................... 20% to 25% ....................... 25'7- to 10". ....................... ~~ to 40% ....................... 40? to 507, ....................... 507 and over ....................... 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

40,884 

215 

286 

336 

787 

946 

876 

2,643 

5,026 

29,769 

----Adjusted 

43,344 

362 

615 

735 

907 

1 , 029 

1 ,072 

3,019 

5,356 

30,241 

Source: 1975 Internal Revenue Service tax model. 

100 % 33,606 100 % 

0.53 0.53% 260 o. 77 o. 77% 

o. 70 1. 23 332 0.99 1. 76 

0.82 2.05 185 0.55 2.31 

1. 92 3. 97 215 0.64 2.95 

2. 31 6.29 285 0.85 3.80 

2.14 8.43 352 1. 05 4.85 

6.46 14.89 670 2.59 7.44 

12.29 27.19 1,347 4.01 11.44 

72.81 100 29, 760 88.56 100 

Gross Income plus---- ----Adjusted Gross Income less----

Preferences Investment Interest 

100 % 31,391 100 % 

0.84 0.84% 126 0.40 0.40% 

1.42 2.25 150 0.48 0.88 

1. 70 3.95 82 0.26 1.14 

2.09 6.04 113 0.36 1.50 

2. 17 8.42 149 0.47 1. 98 ? • [. 7 Hl.RQ ;Ml n.F>a 2.62 

6. ')7 17.85 G53 2.08 4.70 

14.36 30.21 1, Ot11 3.32 8.01 

69.79 100 28,876 91. 99 100 

July 24, 1978 

l/ Taxable income is defined as the amount of income which under the appropriate ordinary tax rate 

schedules would yield tax after credits plus the minimum tax. 

-31-
Table 11 

Comparison Between Cumulative Percentages of Tax Returns Classified by Tax-Paying Status 

With Income of $200,000 and Over Under Alternative Concepts -- 1974-1976 

1974 1975 1976 1974 1975 1976 

---------Expanded Income--------- -----Adjusted Gross Income-~----

Returns with ratios of Taxable Income 

to Income: 1./ 

Zero (Nontaxable returns) .•.•...... 

Less than 10% •.....•.•.....•..•...• 

Less than 15% •..•..••.•..••..•....• 

Less than 20% ..................... . 

Less than 25% .......•...•......•... 

Less than 30% ..................... . 

Less than 40% •••.........•......... 

Less than 50% .........•.....•...... 

All Returns ....•.................• 

Returns with ratios of Taxable Income 

to Income: J:J 

Zero (Nontaxable returns) ......... Less than 10% ..................... Less than 15% ····················· Less than 20% ..................... Less than 25% ..................... Less than 30% ..................... Less than 40% ..................... Less than 50% ····················· All Returns ....................... 

Office of the Secretary of the Treasury 

Off ice of Tax Analysis 

0.39 % 

1.16 

1. 73 

3.38 

5.54 

7.75 

14.94 

27.79 

100 

----Adjusted 

0.78 

2.55 

3.69 

5.78 

8.27 

10.40 

18.60 

31.53 

100 

0.53 % 0.17 % 0.68 % 0. 77 % 0.16 % 

1.23 0.32 1. 95 1. 76 0.37 

2.05 0.58 2.52 2.31 0.62 

3.97 0.90 3.17 2.95 1.15 

6.29 2.73 3.86 3.80 1. 70 

8.43 5.57 4.85 4.85 2.55 

14.89 12.03 7.70 7.44 5.17 

27.19 23.07 11. 78 11.44 9.39 

100 100 100 100 100 

Gross Income plus--- ----Adjusted Gross Income less---

Preference Investment Interest 

0.84 0.20 0.27 0.40 0.11 

2.25 0.42 0.80 0.88 0.26 

3.95 0.87 1.00 1.14 0.37 

6.04 1.83 1.37 1.50 0.56 

8.42 4.13 1.68 1.98 0.89 

10.89 7.28 2.21 2.62 1.43 

17.85 14.41 4.29 4.70 3.30 

30.21 26.07 7.52 8.01 6.66 

100 100 100 100 100 

July 24, 1978 

Source: 1976 Statistics of Income, 1975 Internal Revenue Service tax model, and 1974 Internal Revenue 

Service tax model. 

];./ Taxable income is defined as the amount of income which under the appropriate ordinary tax rate 

schedules would yield tax after credits plus the minimum tax. 

-32-
Chart 2 

PERCENTAGES OF TAX RETURNS BY RATIO 

OF TAXABLE INCOME TO EXPANDED INCOME 

1975 and 1976 

(Expanded Incomes of $200,000 and over) 

Percentage of 

Returns 

• • • • • • • • 

20 

10 

••• 

• ••• 

• • • • • • • • • • • • • • • • • • • ,_ • 

1975 •• • 

•• •• •• 

•• •• 

•••• •• 

•• •• •• •• •• •• •• 

... 

•• •• 

..... 11·~·-·1·1·;·~·!!~~~~!~:::1 ____ .J. ____ _j ______ L_ ____ .L. ____ J_ ____ J ol 

5 10 15 20 25 30 35 40 45 50 

Ratio of Taxable Income to Expanded Income 
nearly nontaxables similar to nontaxables, similar to all 

other taxables, or a breed unto themselves? 

A Note on Taxable Income 

It should be pointed out that in Tables 10 and 11 as 

well as in all other tables in this report in which the ratio 

of taxable income to total income is used, taxable income has 

been modified to take into account the value of tax credits, 

the minimum tax, and special tax computations such as income 

averaging, the alternative tax on long term capital gains, 

and the maximum tax on earned income. If taxable income as 

ordinarily defined had been used, a taxpayer who had a 

substantial taxable income but paid very little tax would not 

have been included among the nearly nontaxables. Thus, 

taxable income has been redefined as that amount of income 

which, taxed at ordinary rates, would yield the amount of tax 

actually shown for the particular return after credits and 

after imposition of the minimum tax. 

An Overview of High Income Tax Returns 

For each of the four income concepts (expanded income, 

AGI, AG! plus preferences, and AG! less investment interest), 

Tables 12 and 13 show the relative sizes of income as 

measured by the four income concepts on the basis of expanded 

income being 100 percent. Table 12 is for 1976; Table 13 is 

for 1975. A examination of these tables indicates some 

significant differences between nontaxable and other returns 

when measured by expanded income. Both investment interest 

and preferences are relatively more important on nontaxable 

and nearly nontaxable returns than on other taxable returns. 

Of course, these are two of the most important items in 

reducing taxable income under present law, thereby making the 

returns nontaxable or nearly nontaxable. 

The first 8 tables in each of Appendices A, B, and C 

contain data on preferences, deductions, credits, and taxes. 

Appendix A is for 1976; Appendix B is for 1975; and Appendix 

C is for 1974. In each appendix, there are two tables for 

each income definition. One table contains aggregate data; 

the other shows each item as a percentage of the income 

concept used to select the returns shown in the table. Each 

table contains four separate columns of data: all returns; 

nontaxable returns; nearly nontaxable returns; and all other 

taxable returns. These 24 tables include much of the data on 

which this report is based. Appendices A and B each contain 

two additional tables that cross-classify the numbers of tax 

-34-
Table 12 

Relationships Between Four Income Concepts for Tax ·Returns with Income 

of $200,000 or Over Under Alternative Income Concepts -- 1976 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

,ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCE'$ 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

Source: 1976 Statistics of Income 

.. Returns Selected by ~~~~~~~~~~~~~~~~~A~dTJrU-s-t~e-=-d-=G-r_o_s_s~~--,A~drJrU-s-t~e-d-.-~G-r-o-s-s~~~ 

Expanded 

Income 

Adjusted Gross Income plus Income less 

Income Preferences Investment Interest 

--------------------------All Returns--------------------------------

100 % 100 % 100 % 100 % 

2.3 2.8 2.9 2.1 

24.0 19.6 24.0 19.5 

78.4 83.2 79.0 82.6 

102.3 102.8 102.9 102.l 

76.0 80.4 76.l 80.6 

------------------------Nontaxable Returns---------------------------

100 100 100 100 

10.7 51.1 28.2 14.0 

53.6 12.3 52.4 6.0 

67.2 141.1 85.3 109.l 

ll0.7 153.4 128.2 l15.l 

47.2 90.0 48.8 95.1 

---------------------Nearly Nontaxable Returns-----------------------

luO 100 100 100 

7.5 43.0 31. 0 6.8 

38.7 10.0 41. 7 4.6 

71. 5 134.4 90.9 132.6 

107.5 144.3 131. 0 107.2 

61. 4 91. 4 59.3 95.8 

--------------------All Other Taxable Returns------------------------

100 100 100 100 

2.2 2.4 2.3 2.0 

23.8 19.7 23.6 19.6 

78.5 82.7 78.8 82.5 

102.2 102.4 102.3 102.1 

76.2 80.3 76.4 80.5 

July 24, 1978 
I 

w 

O'I 

I 

Table 13 

Relationships Between Four Income Concepts for Tax Returns with Income 

of $200,000 or Over Under Alternative Income Concepts -- 1975 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

EXPANDED INCOME 

Investment interest not in excess of 

investment income 

Preferences 

ADJUSTED GROSS INCOME 

ADJUSTED GROSS INCOME PLUS PREFERENCES 

ADJUSTED GROSS INCOME LESS INVESTMENT INTEREST 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

Source: 1975 Internal Revenue Service tax model. 

. ·----~~~~--~~~-R~e~t~u~r~n~s~--=S~e~l~e_c_t~e_d...-=-_b~y~~~""=""'......---~...-=---~~~ AdJusted Gross AdJusted Gross 

.. Expanded 

Income 

Adjusted Gross 

Income 

Income plus Income less 

Preferences Investment Interest 

--------------------------All Returns-------------------------------

100 % 100 % 100 % 100 % 

2.8 3.6 3.7 2.4 

22.0 17.9 21. 9 17.5 

81. 0 85.8 81. 9 84.9 

102.8 103.7 103.7 102.4 

78.1 82.2 78.2 82.5 

-----------------------Nontaxable Returns-----------------------------

100 100 100 100 

20.7 86.7 65.1 27.0 

46.0 10.9 43.8 8.5 

83.5 177.9 128.7 119.3 

120.7 188.8 165.1 127.8 

54.6 91. 2 57.7 92.4 

---------------------Nearly Nontaxable Returns-------------------------

100 100 100 100 

15.1 43.6 23.3 18.6 

57.5 26.5 56.1 19.1 

58.5 119.4 67.9 101.7 

115.1 146.0 123.3 120.7 

43.2 75.8 44.7 83.0 

---------------------All Other Nontaxable Returns----------------------

100 100 100 100 

2.0 2.3 2.1 2.0 

20.0 17.7 19.7 17.5 

82.1 84.6 82.5 84.5 

102.0 102.4 102.1 102.1 

80.0 82.3 80.4 82.5 

July 24, 1978 
returns by income classes under each combination of the four 

income definitions. One table is for all returns; the other 

is for nontaxable returns. Using these tables, one can 

determine, for example, how many of the high expanded income 

nontaxables are also high AGI nontaxables. 

Analysis of Tables 76-2, 76-4, 75-2, and 75-4 in the 

appendices shows the basic similarily between nontaxables and 

nearly nontaxables and their differences from all other 

taxables in 1975 and 1976. These similarities and 

differences will be discussed in detail in Chapter 5. In 

most cases where there is a substantial difference between 

nontaxables and all other taxables, the nontaxables show 

essentially the same characteristics as the nearly 

nontaxables. When defined by expanded income, nontaxables 

and nearly nontaxables have large shares of their income in 

the form of preferences, but when defined by AGI, they both 

have smaller shares. To some degree, this is expected since 

Preferences are fully included in expanded income whereas 

they are excluded from AGI. Thus, it is more difficult to 

become a high AGI return on the basis of preference items 

alone. 

It should be pointed out that if a return did have large 

amounts of preference income and no ordinary tax liability, 

it would be subject to the minimum tax and, therefore, would 

no longer be nontaxable. As already noted, in both 1975 and 

1976, high expanded income nontaxables had a large share of 

their income in the form of tax preferences. With such large 

tax preferences, and no ordinary tax liability, how did these 

returns escape the minimum tax? It is probable that the 

minimum tax was avoided as a result of the "no tax benefit 

rule" which provides that if the prefererice income does not 

reduce ordinary taxes then it is not subject to the minimum 

tax. Table 76-2 in Appendix A and Table 75-2 in Appendix B 

show that, especially in 1976, these returns had more 

itemized deductions than they needed to reduce AGI to zero. 

Thus, in many cases including additional preference income in 

AGI would not have increased tax liabilities. Also, as 

explained in detail in Chapter 6, it is likely that in 1976 

many of these returns were subject to the minimum tax but 

failed to report their liabilities on their tax returns. 

Despite the publicity given to high-income, nontaxable 

returns, most taxpayers with income of $200,000 or more 

~however that income is measured) pay substantial Federal 

income taxes. It has already been mentioned that in 1976 

over 90 percent of all high expanded income taxpayers had 

-37-

271- 892 0 - 78 - 4 
liabilities of at least $50,000. Tables 14 and 15 summarize 

the tax status of high-income taxpayers in 1975 and 1976. 

For the four income measures, the tables show the average 

income, tax, and effective tax rate for all returns, 

nontaxables, nearly nontaxables, and all other taxables. In 

1976, the average tax for all high expanded income returns 

was $145,000 or 35 percent of expanded income. This 

represented an increase over 1975 of $20,000 per return, or 5 

percentage points in the effective tax rate. The average tax 

rate for the nearly nontaxables is only about one fifth of 

the rate for the all other taxables; their effective tax rate 

is much closer to that of the nontaxables than to that of the 

all other taxables. 

Average income for the nontaxables was about 10 percent 

lower than for the group as a whole. Average income for the 

nearly nontaxables was about one and one-half times that of 

the whole group. There does not appear to be a simple 

explanation for the higher average income of the nearly 

nontaxable group. 

Summary 

Although there are some differences between nontaxables 

and nearly nontaxable, these differences are relatively small 

compared with the major difference between these two groups 

on the one hand and all other taxables on the other hand. 

The similarities between the two groups and their differences 

from other taxables can best be seen by examining the 

importance . of several items shown in the appendix tables: 

tax preferences; investment intetest; charitable 

contributions; miscellaneous deductions; casualty losses; and 

the foreign tax credit. 

The similarity of nearly nontaxable high-income returns 

to nontaxable high-income returns indicates that the 

characteristics of nontaxable returns are not unique. They 

only represent extreme cases of returns with low ratios of 

taxable income (as adjusted) to expanded income. The 

importance of this observation is that tax policies which are 

designed to eliminate high-income nontaxable returns may 

address only part of the problem of high-income individuals 

not paying a fair share of taxes. 

-38-
I 

w 

\0 

I 

Table 14 

Average Income, Average Income Tax, and Average Tax Rate for Tax Returns 

with Income of $200,000 and Over Under Alternative Concepts -- 1976 

Average Effective Tax Rate 

Taxpaying Class and Income Concept 

Used to Classify Returns 

Expanded Income 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Adjusted Gross Income 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Adjusted Gross Income plus 

Pref er enc es 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Adjusted Gross Income less 

Investment Interest 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

Source: 1976 Statistics of Income. 

Number of Income Average Average 

Returns : (per Income: Expanded Total 

: Concep.t) Income Tax 

53,587 $413,617 $413, 617 $144,942 

89 350,427 350,426 0 

393 613,842 613, 842 43,583 

53,105 412,241 412,241 145,936 

41,761 376,712 452,650 167,656 

68 342,456 242,765 0 

411 530,297 395,679 30,757 

41,282 375,239 453,573 169,296 

/ 

56,512 412,873 401,388 139,993 

114 370,158 288,790 0 

919 605,672 462,172 44,498 

55,479 409,767 400,613 141,863 

39,346 375,988 466,644 17 4, 066 

42 321,595 338,190 0 

178 483,478 504,798 21,916 

39,126 375,558 466,608 174,945 

per 

Income 

Concept 

35.0% 

0 

7.1 

35.4 

44.5 

0 

5.8 

45.1 

33.9 

0 

7.4 

34.6 

46.3 

0 

4.5 

46.6 

July 24, 

per 

Expanded 

Income 

35.0% 

0 

7.1 

35.4 

37.0 

0 

7.8 

37.3 

34.9 

0 

9.6 

35.4 

37.3 

0 

4.3 

37.5 

1978 
Table 15 

Average Income, Average Income Tax, and Average Tax Rate for Tax Returns 

with Income of $200,000 and Over Under Alternative Concepts -- 1975 

Average 

Taxpaying Class and Income Concept 

Used to Classify Returns 

Number of Income Average 

Expanded Income 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Adjusted Gross Income 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Adjusted Gross Income plus 

Pref er enc es 

All l:leturns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Adjusted Gross Income less 

Investment Interest 

All Returns 

Nontaxable Returns 

Nearly Nontaxable Returns 

All Other Taxable Returns 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

Returns :(per Income: Expanded 

Concept) : Income 

40,884 

215 

1,409 

39,260 

33,606 

260 

732 

32,614 

43,344 

362 

2,257 

40, 725 

31,391 

126 

345 

30,900 

$412,202 

377, 260 

585,061 

406,190 

377' 395 

450,385 

522, 967 

373,546 

413,254 

436,122 

551,326 

405,399 

375,534 

376,738 

493, 962 

374,450 

$412,202 

377, 260 

585,061 

406,190 

439,787 

253,112 

437,803 

441,320 

398,425 

264,174 

447,293 

396, 910 

454,984 

407,952 

595,093 

453,906 

Source! 1975 ~nternal Revenue Service tax model. 

Average 

Total 

Tax 

$124,412 

0 

38,505 

146,516 

160,356 

0 

15,251 

164,738 

136,322 

0 

30,793 

143,382 

167,922 

0 

22,368 

170,340 

Effective Tax Rate 

per 

Income 

Concept 

30.2% 

0 

6.6 

36.1 

42.5 

0 

2.9 

44.1 

33.0 

0 

5.6 

35.4 

44.7 

0 

4.5 

45.5 

per 

Expanded 

Income 

30.2% 

0 

6.6 

36.1 

36.5 

0 

3.5 

37.3 

34.2 

0 

6.9 

36.1 

36.9 

0 

3.8 

37.5 

July 24. 1978 
.. 

Q) 

C) 

~ 0 

r/) 

Chapter 5 

Avoiding Taxes: Exclusions, Deductions, 

Credits, and Other Devices 

How did people with expanded income or AGI of $200,000 

or more avoid paying any Federal individual income tax? 

Since the data indicate basic similarities between nontaxable 

and nearly nontaxable returns, an analysis of the reasons why 

nontaxable returns are nontaxable should also illuminate the 

methods used to reduce taxes on nearly nontaxable returns. 

Basically, there are four means by which high-income 

persons may substantially reduce or eliminate their income 

taxes: (1) tax preference income which is omitted from the 

tax base; (2) deductions in calculating taxable income; (3) 

special tax computations; and (4) credits against tax. Since 

tax preference income is already omitted from AGI, 

traditional methods for analyzing reasons for nontaxability 

of high AGI returns have tended to understate the importance 

of tax preference income. 

~ttributing Nontaxability: Methodology 

There are three approaches to analyzing the reasons for 

nontaxability (and near nontaxability). The first shows the 

largest single item of deduction or credit on each return. 

The second approach again treats each deduction or credit 

separately and gives its size relative to income. The third 

approach aggregates data for all returns in the group and 

shows the total value for each deduction or credit. 

In many of the reviews of high-income nontaxable returns 

Undertaken since the late 1960's, the largest single 

deduction or credit item on the return has been given as the 

reason for the return's nontaxability. However, it is not 

typical for any one deduction or credit to be large enough by 

itself to eliminate entirely a person's income tax. 

?rdinarily, nontaxability is produced by a combination of 

items, none of which taken alone may be extraordinarily 

large. Moreover, attributing nontaxability to the single 

largest item disregards the size of the largest item both in 

absolute terms and in relation to the total income on a 

return. If a return has many different deductions and 

credits, even the largest one may be relatively small. On 

-41-
the other hand, if only a few provisions are used and the 

return is nontaxable, even the second or third largest item 

may be very significant. The largest item method would count 

the largest, but still small item on the first return but 

ignore the second largest, but still very large item on the 

second return. There are, therefore, deficiencies in this 

approach. 

For comparability with earlier analyses, Tables 16 and 

17 show the number of and percentages of the total number of 

returns on which particular a deduction or credit item was 

the largest item. Table 16 is for 1976; Table 17 is for 

1975. These tables contain significantly more data than 

those available or prior years. In addition to showing the 

information for nontaxable returns, similar data is also 

shown for taxable returns. 1/ The comparable data for 

taxable returns permits the importance of various deductions 

to be put in perspective. Whether an item is more or less 

important on nontaxable than on taxable returns may be of 

more significance than its absolute importance. These two 

tables also contain data for the high income returns under 

all four definitions of income. This is the first time such 

information has been presented for other than high AGI 

returns. 

Another means of determining the importance of various 

deductions or credits is to show the value of each deduction 

and credit as a percentage of income. If the percentages of 

income are made into a few categories, e.g., less than 10 

percent of income, 10 percent to 20 percent of income, etc., 

the number and/or the share of deductions falling into these 

categories can be determined for a group of returns. This 

method has the advantage of providing two pieces of data for 

each deduction or credit used: whether or not the provision 

was used; and, if used, its importance relative to income. 

For nontaxable returns, this method shows the frequency with 

which a particular credit or deduction is large enough so 

that nontaxability can reasonably be attributed to it alone. 

However, this method only illuminates the importance of each 

deduction or credit separately; it does not provide 

information on how frequently particular combinations of 

deductions and/or credits appear on a single tax return. 

1/ To avoid unnecessary complexity in the tables, only the 

percentage distribution and not the actual count is shown for 

taxable returns. 

-42-
J 

~ 

w 

I 

Table 16 

Largest Deduction or Credit on Tax Returns with Income of $200,000 or Over, 

Under Alternative Income Concepts -- 1976 

.. Nontaxable Returns . . Taxable Returns . . Nontaxable Returns . . Largest Item 1/ .. Number : Percentage . . Percentage .. Number : Percentage . . 

-------------Expanded Income--------------- ----------Adjusted Gross 

Interest Paid Deduction J:j 18 20.2 % 4.2 % 31 45.6 % 

Taxes Paid Deduction 2 2.2 55.2 1 1.5 

Contributions Deduction 19 21.3 23.8 5 7.4 

Medical Expense Deduction 1.0 

Casualty Loss Deduction 22 24.7 0.3 6 8.8 

Miscellaneous Deduction 14 15.7 6.5 11 16.2 

Foreign Tax Credit 14 15.7 1. 3 14 20.6 

Investment Credit 6.4 

All Other Preference Credits]/ 1. 2 

TOTAL 89 100 % 100 % 68 100 % 

----------AGI plus Preferences------------- ------AG! less Investment 

Interest Paid Deduction J:../ 45 39.5 % 16.4 % 7 16.7 % 

Taxes Paid Deduction 1 0.9 47.9 1 2.4 

Contributions Deduction 21 18.4 21. 5 3 7.1 

Medical Expense Deduction / 0.9 

Casualty Loss Deduction 22 19.3 0.3 6 14.3 

Miscellaneous Deduction 11 9.6 5.3 11 26.2 

Foreign Tax Credit 14 12.3 1. 2 14 33.3 

Investment Credit 5.5 

All Other Preference Credits 1/ 1.1 

TOTAL 114 100 % 100 % 42 100 % 

Taxable Returns 

Percentage 

Income----------

14.6 % 

50.4 

22.6 

0.8 

0.3 

5.1 

1.0 

4.6 

0.6 

100 % 

Interest--------

3.9 % 

57.0 

24.7 

0.9 

0.4 

6.1 

1.0 

5.4 

0.7 

100 % 

Off ice of the Secretary of the Treasury July 24P 1978 

Off ice of Tax Analysis 

Source: 1976 Statistics of Income. 

]:_/ On returns with both large itemized deductions and large credits, the largest deduction or credit was 

determined by omitting the largest deduction, recomputing the tax, and comparing the resulting tax to 

the largest credit. 

2/ Adjusted for any interest which may already have been deducted in the calculation of income. J/ Includes credit for the elderly, child care credit, investment credit, work incent1ve (WIN) credit, foreign 

tax credit, credit for contributions to candidates for public office, new residence credit, and earned income 

credit. 
I 

~ 

~ 

I 

Largest Item 

Table 17 

Largest Deduction or Credit on Tax Returns with Income of $200,000 or Over 

Under Alternative Income Concepts -- 1975 

.. Nontaxable Returns . . Taxable Returns . . Nontaxable Returns 

1/ .. Number : Percentage . . Percentage . . Number : Percentage 

. . Taxable Returns 

.. Percentage 

-----------Expanded Income--------------- ---------Adjusted Gross Income-~--------

Interest Paid Deduction ]j 80 37.2 % 3.9 % 163 62.7 % 15.3 % 

Taxes Paid Deduction 28 13.0 54.7 17 6.5 48.7 

Contributions Deduction 34 15.8 24.2 24 9.2 22.8 

Medical Expense Deduction 1.1 0.7 

Casualty Loss Deduction 13 6.1 0.3 8 3.1 0.3 

Miscellaneous Deduction 43 20.0 6.7 35 13.5 5.1 

Foreign Tax Credit 13 6.1 0.9 13 5.0 0.9 

Investment Credit 4 1. 9 6.8 5.5 

All Other Preference Credits ]_/ 1. 4 0.8 

TOTAL 215 100 % 100 % 260 100 % 100 % 

----------AGI plus Preferences------------ ------AGI less Investment Interest-------

Interest Paid Deduction ]j 232 64.1 % 17.1 % 41 32.5 % 3.7 % 

Taxes Paid Deduction 22 6.1 47.0 14 11.1 55.6 

Contributions Deduction 29 8.0 21. 6 24 19.1 25.2 

Medical Expense Deduction 0.9 0.8 

Casualty Loss Deduction 15 4.1 0.3 6 4.8 0.3 

Miscellaneous Deduction 47 13.0 5.2 28 22.2 6.3 

F-0reign Tax Credit 13 3.6 0.9 13 10.3 1.0 

Investment Credit 4 1.1 5.7 6.3 

All Other Preference Credits 3/ 1. 3 0.9 

TOTAL 362 100 % 100 % 126 100 % 100 % 

Office of the Secretary of the· Treasury .ruly 24, 1978 

Off ice of Tax Analysis 

Source: 1975 Internal Revenue Servie Tax Model. 

]:_/ On returns with both large itemized deductions and large credits, the largest deduction or credit was 

determined by omitting the largest deduction, recomputing the tax, and comparing the resulting tax to 

the largest credit. 

2/ Adjusted for any interest which may already have been deducted in the calculation of income. 

}_J Includes retirement income credit, investment credit, work incentive (WIN) credit, foreign tax credit, credit for 

contributions to candidates for ~ubiic office, new residence credit, and earned income credit. 
Tables 18 through 25 present itemized deductions as a 

Whole and each itemized deduction and major tax credit 

separately as a percentage of income. Each line of these 

tables shows the total number of returns which used the 

Particular deduction or credit at all and the relative 

importance of each deduction as a percentage of income. 

These tables also provide separate distributions for 

investment interest not in excess of investment income and 

for investment interest in excess of investment income. 

Tables 18 through 21 are for 1976; Tables 22 through 25 are 

for 1975. For each year, there is a separate table for 

high-income nontaxab~e returns selected by each of the four 

definitions of income. 

A third method of examining how returns are made nearly 

or completely nontaxable is to calculate the average impact 

of a particular provision in reducing income or taxes for a 

9roup of taxpayers. This method is simple and straightforward. It can also be used to show the effect of 

Particular provisions on average or aggregate tax 

liabilities. However, it does have the disadvantage of 

averaging data that may be widely disparate so that 

differences among returns are obscured. If 50 returns were 

to make extensive use of a provision and 50 others did not 

Use that provision at all, average or aggregate data would 

indicate moderate use even though not a single return in the 

9roup used the provision moderately. 

Aggregate income, preferences, deductions, credits, and 

taxes for 1976 returns with incomes of $200,000 or more are 

Shown in the first eight tables in Appendix A. There are two 

tables for each of the four income definitions. The first 

table contains aggregate data; on the second table, all items 

are shown as percentages of income. Each table has data for 

a11 returns, nontaxable returns, nearly nontaxable returns, 

and all other taxable returns. The percentage tables 

facilitate comparisons among the nontaxable, nearly 

nontaxable, and all other taxable columns. Data for 1975 and 

for 1974 are contained in analogous tables in Appendices B 

and c, respectively. 

~ to Make a Return Nontaxable 

All three of the approaches described in the preceeding 

Section may be used together to analyze the reasons for 

nontaxability. However, because of serious data problems, 0 nly qualified conclusions can be drawn from analysis of the 

1976 data. Apparently, at least half of the 1976 high-income 

-45-
Table 18 

Itemized Deductions and Credits as Percentages of Expanded Income for 

Nontaxable Returns with Expanded Income of $200,000 or Over -- 1976 

Number of Returns with Deduction or Credit 

Total : Deduction or Credit as Percentage of EXPanded Income 

Deduction or Credit of 10% 20% 30% 40% 50% 60% 

Number: Under under under under under under under 

:Returns: 10% 20% 30% 40% 50% 60% 70% 

All Returns 89 

Itemized deductions, total,, .•. 79 14 3 3 

Medical deduction . ·········· 52 51 1 

Taxes paid deduction ........ 71 60 6 2 2 

Contributions deduction .••.. 64 43 1 3 

Interest deduction .......... 17 9 1 1 

Casualty loss deduction 23 1 1 

Miscellaneous deduction 54 33 4 5 1 1 

Deduction Equivalent of: 

Foreign tax credit .......... 14 1 

Investment credit ........... 3 2 1 

All other preference credits. 1 1 

Memo: Investment interest in 

excess of investment income ]._/ 10 4 1 

Off ice of the Secretary of the Treasury July 24, 1978 

Off ice of Tax Analysis 

Source: 1976 Statistics of Income. 

Includes returns with total reported deductions equal to or exceeding expanded income. 

70% lOOt 

under or 

100% :more _ _} 

22 37 

1 

2 15 

4 2 

18 3 

2 8 

13 

3 2 

1) 

]._/ For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-46-

-

-

ltJ 

De 

F 

~ 

A 

~elllo• 

~o 

In 

0ffi 

Of 

a, 

( 

r 
15 

2 

3 

8 

2 

Table 19 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income for 

Nontaxable Returns with Adjusted Gross Income of $200,000 or Over -- 1976 

Number of Returns with Deduction or Credit 

Total : Dedm:.ticll 

Deduction or Credit of 10% 

ct Cted;it as EetceDtalf of Adju§~~d ~r~~~ lll~Qm~ 

: 20% : 30% : 40 : 50% : 60% : 70% : 100% 

Number: 

- :Returns: 

All Returns 68 

Itemized deductions, total 68 

Medical deduction •.. ........ 29 

Taxes paid deduction ........ 60 

Contributions deduction ..... 53 

Interest deduction .......... 54 

Casualty loss deduction 10 

Miscellaneous deduction 56 

Deduction Equivalent of: 

Foreign tax credit 15 

Investment credit .......... . 8 

All other preference credits. 2 

~emo: Investment Interest! '!:_/ 

~ot in excess of investment 

income ..•..........•.. · •.• 49 

In excess of investment 

income ................... . 28 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

Under under 

10% 20% 

11 2 

27 

48 8 

42 2 

13 6 

4 

33 9 

1 

5 1 

2 

14 5 

6 4 

under under under under under under or 

30% 40% 50% 60% 70% 100% :more 

1 1 11 42 

1 1 

3 1 

1 5 2 1 

3 1 1 12 18 

1 2 3 

3 1 2 8 

1 13 

2 

3 1 3 6 3 8 6 

2 4 3 1 6 2 

July 24, 1978 

e; 

est 

i 80urce: 1976 Statistics of Income. 

!I Includes returns with total reported deductions equal to or exceeding adjusted gross income. 11 

For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-47-

1/ 
Table 20 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income plus Preferences for 

Nontaxable Returns with Adjusted Gross Income plus Preferences of $200,000 or Over -- 1976 

Number of Returns with Deduction or Credit 

Deduction or Credit 

Total :_,...!:D~e~d~u~c~t2i~o~n~o~r~C~r~e~d~i~t~a~s~P~e~r~c:e~n~t~a~g~e7-;:~o~f-A~G~I~P~l~u~s~P~r~e~f~efr~e~n~c~e~s~;--:-'"iircli of 10% 20% 30% 40% 50% 60% 70% : 100% 

Number: Under 

:Returns: 10% 

All Returns 114 

Itemized deductions, total 104 

Medical deduction .........•. 64 

Taxes paid deduction •••••••• 96 

Contributions deduction .•••• 88 

Interest deduction ••••••••.• 75 

Casualty loss deduction 26 

Miscellaneous deduction 76 

Deduction Equivalent of: 

Foreign tax credit •••••••••• 15 

Investment credit ••••••••••• 8 

All other preference credits. 2 

Memo: Investment interest in 

excess of investment income ];_/ 26 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

Source: 1976 Statistics of Income. 

13 

62 

81 

62 

31 

4 

50 

1 

5 

2 

6 

under 

20% 

2 

11 

2 

6 

9 

1 

4 

under 

30% 

1 

3 

2 

6 

6 

2 

2 

under 

40% 

1 

4 

1 

3 

under 

50% 

1 

2 

3 

under 

60% 

1 

2 

1 

under 

70% 

6 

1 

1 

1 

July 24, 1978 

under : or 

100% :more J} 

26 55 

1 

1 15 

12 16 

18 3 

2 8 

13 

6 2 

1./ Includes returns with total reported deductions equal to or exceeding adjusted gross income plus preferences. 

'l:_/ For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-48-

I 

D 

Of 

So 
----- -- -

Table 21 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income less Investment Interest for 

Nontaxable Returns with Adjusted Gross Income less InvestmP.nt Interest of $200,000 or Over -- 1976 

Number of Returns with Deduction or Credit 

Deduction or Credit 

Total :__,,n~e~duu~c~t~1~·o~n.1....1o~rL.lC~r~e~d~1~·ri......a~s-P.r.;.s;.e~r~c~e~n-t~a•e~e-..lolg~f~A~G~T~l~e~s~s~I•nuv~e~s~t~m~e-nMt-:::I~p~t~e·r~e~s~t"'=-::~ of 10% : 20% : 30% : 40% : 50% 60% 70% : 100% 

Number: Under 

:Returns: 10% 

All Returns 

Itemized deductions, total 

Medical deduction ..•.....•• • 

Taxes paid deduction .•••.••• 

Contributions deduction •••.• 

Interest deduction ••.•••..•. 

Casualty loss deduction 

Miscellaneous deduction 

Deduction Equivalent of: 

Foreign tax credit .......... 

Investment credit ........... 

All other preference credits. 

~emo: Investment interest in 

excess of investment income ];_/ 

42 

' 42 

17 

34 

28 

16 

7 

34 

14 

3 

1 

10 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

80urce: 1976 Statistics of Income. 

11 

16 

26 

22 

8 

1 

16 

2 

1 

4 

under 

20% 

3 

3 

1 

4 

1 

under 

30% 

2 

2 

under 

40% 

1 

2 

1 

1 

under 

50% 

2 

under 

60% 

1 

1 

under 

70% 

1 

1 

July 24, 1978 

under 

100% 

5 

1 

2 

4 

2 

2 

13 

3 

or 

:more 1/ 

23 

3 

3 

8 

3 

ll Includes returns with total reported deductions equal to or exceeding adjusted gross income less 

investment interest. 

11 For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-49-
Table 22 

Itemized Deductions and Credits as Percentages of Expanded Income for Nontaxable 

Returns with Expanded Income of $200,000 or Over 1975 

Number of Returns with Deduction or Credit 

Deduction or Credit To~~l : Deduc~~Xn or ~Bidit a~ ier;enZBie of ~0Janded Bicg~e 701 

Number: Under under under under under under under under 

:Returns: 10% 20% 30% 40% 50% 60% 70% 100% 

All Returns 

Itemized deductions, total ..... 

Medical deduction .......... . 

Taxes paid deduction .....•.. 

Contributions deduction .•... 

Interest deduction ......... . 

Casualty loss deduction 

Miscellaneous deduction 

Deduction Equivalent of: 

Foreign tax credit 

Investment credit ....••..... 

All other preference credits. 

Memo; Investment interest in 

excess of investment income J:./ 

215 

172 

74 

162 

153 

94 

26 

143 

51 

25 

31 

2 

56 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

Source: 1976 Statistics of Income. 

19 

68 

95 

89 

43 

11 

63 

~o 

6 

19 

2 

10 

7 1 5 8 6 

5 1 

29 16 7 2 5 

8 13 13 12 15 

5 1 4 4 5 

2 

20 10 8 16 8 

11 7 1 

3 3 1 

9 3 

3 3 4 4 

July 24, 1978 

!/ Includes returns with total reported deductions equal to or exceeding ~xpanded income. 

9 38 

2 5 

1 2 

2 17 

2 

4 8 

1 11 

1 11 

2 17 

: 100% 

or 

:~rej 

79 

1 

13 

11 

6 

13 

'};_/ For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-soD 

Ite 

D 

Of 

l 

11 
OJ 

or 

tLJI 

Table 23 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income for Nontaxable 

Returns with Adjusted Gross Income of $200,000 or Over -- 1975 

Number of Returns with Deduction or Credit 

Deduction or Credit 

Total =~~~D!!.Ee~d~u~c~t~i~o~n.....J<o~r~C~r~e~d~i~t....iia~si....IP~e~r~c~e~n~t~a~i~eii.-lg~f~A~d~1~·1~1s~t~e~d~G~r~g~s~s~Tp~c~gmii1Sie~~~ 

of : 10% : 20% : 30% : 40% : 50% : 60% : 70% 100% 

Number: Under under under under under under under under or 

------~~~~~~~~~~--==~R~et~u~r~n~s~:__;l~0~%'--~~2~0~%--='--~30~%;:_...;.__4~0~%'--.:-~5~0~%--''--~60_% _____ 7_o~%.._....._.1_0_0~%-"':~mo--..re._.._1/ 

All Returns 260 

Itemized deductions, total 256 

Medical deduction ••....••.•. 123 

Taxes paid deduction .••••••• 253 

Contributions deduction •••.• 242 

Interest deduction .•••••••.• 246 

Casualty loss deduction 29 

Miscellaneous deduction 226 

Deduction Equivalent of: 65 

Foreign tax credit 35 

Investment credit ••••••••••. 39 

All other preference credits. 5 

Memo: Investment Interest: '!:_/ 

Not in excess of investment 

income ••.....•..••••.•••.• 238 

In excess of investment 

income .•••.•..••••••••••.. 119 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

3 

117 

184 

146 

41 

20 

128 

33 

13 

30 

5 

52 

21 

Source: 1975 Internal Revenue Service tax model. 

4 

4 

34 

22 

17 

1 

31 

10 

3 

6 

30 

11 

1 1 4 

1 1 

13 9 2 2 2 

19 29 13 13 

9 12 13 8 19 

1 

21 10 8 7 4 

6 3 1 1 

3 3 1 1 

3 

21 18 15 14 21 

10 18 14 11 6 

July 24, 1978 

Includes returns with total reported deductions equal to or exceeding adjusted gross income. 

70 173 

6 1 

74 53 

2 5 

8 9 

11 

11 

60 7 

18 10 

For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-51-
Table 24 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income Plus Preferences for 

Nontaxable Returns with Adjusted Gross Income Plus Preferences of $200,000 or Over -- 1975 

Number of Returns with Deduction or Credit 

Total : Deduction or Deduction or Credit of 10% 

Number: Under 

:Returns: 10% 

under 

20% 

Credjt as Percepta2e pf AG! plus Preferepces 

: 20% : 30% : 40% : 50% : 60% : 70% 

under under under under under under 

30% 40% 50% 60% 70% 100% 

All Returns 362 

Itemized deductions, total 319 

Medical deduction .••..••.•.. 143 

Taxes paid deduction •....•.• 309 

Contributions deduction ..•.. 295 

Interest deduction ...•••••.. 291 

Casualty loss deduction 44 

Miscellaneous deduction 265 

Deduction Equivalent of: 80 

Foreign tax credit ...•..•... 35 

Investment credit ...•...•... 54 

All other preference credits. 5 

Memo: I nvestment Interest: ]:./ 

Not in excess of investment 

income .......•....••...•.. 233 

In excess of investment 

income ..........•......•.. 116 

Office of the Secretary of the Treasury 

Off ice of Tax Analysis 

12 

137 

233 

196 

52 

29 

156 

45 

14 

42 

5 

66 

25 

Source: 1975 Internal Revenue Service tax model. 

11 8 5 10 6 6 

5 1 

38 16 6 5 2 2 

26 29 19 25 

27 21 18 12 11 16 

1 

33 22 11 17 8 3 

14 8 1 2 

3 5 1 2 

9 3 

38 26 30 13 16 17 

9 9 19 11 11 6 

July 24, 1978 

);/ Includes returns with total reported deductions equal to or exceeding adjusted gross income plus preferences. 

110 

6 

83 

4 

8 

10 

10 

67 

18 

iOol 

ot 

:mor,!, 

151 

51 

10 

10 

8 

!I For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

-52-
151 

51 

10 

0 

- ---- ---- - - - - - - - - - - - - - -- - - - -- -

Table 25 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income less Investment Interest for 

Nontaxable Returns with Adjusted Gross Income less Investment Interest of $200,000 or Over - 1976 

Number of Returns with Deduction or Credit 

Total :_Deduction or Credit as Perceptage gf AGI less Investment Interest 

Deduction or Credit of 10% 20% 30% 40% 50% 60% 70% : 100% 

Number: Under 

:Returns: 10% 

All Returns 

Itemized deductions, total·•··· 

Medical deduction············ 

Taxes paid deduction .....••. 

Contributions deduction .•... 

Interest deduction •••....•.. 

Casualty loss deduction 

Miscellaneous deduction 

Deduction Equivalent of: 

Foreign tax credit 

Investment credit •.......... 

All other preference credits. 

Memo: Investment interest in 

excess of investment income 1:_/ 

126 

122 

59 

119 

114 

78 

13 

108 

39 

24 

19 

2 

55 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

Source: 1976 Statistics of Income. 

4 

53 

65 

58 

29 

6 

43 

11 

5 

11 

2 

10 

under 

20% 

3 

5 

25 

5 

3 

1 

15 

8 

2 

6 

2 

under 

30% 

1 

11 

9 

2 

11 

4 

1 

2 

under 

40% 

1 

7 

11 

2 

8 

3 

3 

2 

under 

50% 

1 

2 

10 

2 

6 

2 

under 

60% 

2 

17 

6 

7 

1 

1 

5 

under 

70% 

4 

2 

2 

2 

5 

1 

1 

J 

July 24, 1978 

under or 

•. 100% :more 1/ 

31 78 

3 2 

2 

17 15 

1 5 

6 7 

11 

11 

16 15 

!/ Includes returns with total reported deductions equal to or exceeding adjusted gross income less 

investment interest. 

~/ For each return total interest was divided into two parts: an amount not in excess of investment income; 

and the remainder which represents investment interest in excess of investment income. Mortgage interest 

(which is ordinarily not a large portion of total interest for these returns) was subtracted from total 

interest to determine investment interest. Investment income consists of dividends, interest, and 

realized capital gains included in income. 

.,...53_ 

271-892 0 - 78 - 5 
returns which filed as nontaxables actually had large enough 

itemized deductions to be subject to the minimum tax and, 

therefore, were taxable. Usually, such returns would fall 

into the nearly nontaxable category. Because of these data 

problems, some of the analysis in this chapter is repeated in 

Chapter 6 for the truly nontaxables, but the corrected data 

is only available for high AG! returns. The data analyzed in 

this chapter are all that is available for the three other 

income measures. Despite these problems, analyzing the 

available data should shed some light on which tax provisions 

are used most commonly to make returns nontaxable or nearly 

nontaxable. 

As in -prior years, the interest paid deduction was the 

largest deduction item most frequently for high AGI returns 

(see Table 17). However, the importance of interest as the 

largest deduction or credit drops by more than half and falls 

to only the third most important item when high expanded 

income returns are used (Table 16). More importantly, on 

only 10 of the 89 high expanded income nontaxable returns was 

there any investment interest in excess of investment income 

(Table 18). Interest expense (including mortgage interest) 

was almost 17.6 percent of expanded income for nontaxables, 

9.6 percent for nearly nontaxables, but only 2.9 percent for 

all other taxables. Excess investment was 6.5 percent for 

nontaxables, 1.6 percent for nearly nontaxables, and only 0.3 

percent for all other taxables (see Table 76-2 ip Appendix 

A). Clearly, investment interest, both non-excess and 

excess, was a less important item for the all other taxables 

than for the other groups. However, under the expanded 

income concept, non-excess investment interest is reognized 

as a legitimate investment expense, and in only six cases was 

excess investment interest large enough to play a major role 

in making a return nontaxable (Table 16). 

The largest item method shows the casualty loss 

deduction to be the most frequent reason for making a high 

expanded income return nontaxable in 1976; it was among the 

least important items for taxable returns (Table 16). The 

importance of casualty losses is confirmed by both other 

methods, and it likely that it played a major role in the 

nontaxability of one quarter of all nontaxable high expanded 

income returns (Table 18). This item is vastly more 

important for nontaxables than for taxable returns. Although 

the absolute number of casualty loss deductions did not 

change appreciably between 1975 and 1976, the relative 

importance of the casualty losses grew dramatically because 

the casualty loss deduction became one of only two itemized 

-54-
deductions not included among the excess itemized deductions 

subject to the minimum tax {Tables 18 and 22). The casualty 

deduction was the largest single item 14 times {out of 89) in 

1976 {Table 16) and 13 times {out of 215) in 1975 {Table 17). 

The deduction for charitable contributions was cited 

second most frequently as the largest item causing 

nontaxability. Contributions were the largest item on 21.3 

percent of nontaxable expanded income returns, about as 

frequently (23.8 percent) as on taxable returns {Table 16). 

Also, on over two-thirds (43 out of 64) of the returns which 

had any contribution deduction, that deduction was less than 

10 percent of expanded income {Table 18). On the the other 

hand, there are 17 returns on which this deduction exceeds 70 

percent of expanded income, and 15 returns on which it 

exceeds 100 percent of expanded income {Table 18). This is 

approximately the same as the 19 cases in which it is the 

largest deduction {Table 16). In the aggregate, the 

deductions for charitable contributions on nontaxable high 

expanded income returns are extremely large {Table 76-2). In 

fact, it is one and one half times AGI, which far exceeds the 

statutory limit of deductibility. It is likely that the data 

are being distorted by a few extremely large deductions which 

have not been reduced to their legal limits because the 

returns would have been nontaxable anyway. In the aggregate, 

the contributions of the nearly nontaxables do not appear as 

impossibly large as for the nontaxables. Nevertheless, the 

charitable deduction is a three times larger share of 

expanded income for nearly nontaxables than for other 

taxables (Table 76-2). Thus, although the contributions 

deduction may have been a major factor in the nontaxability 

of more than one-fifth of the nontaxable returns, for most 

nontaxable returns, contributions are no more important than 

for taxable returns. 

As measured by the largest single item method, the only 

two other items of significance are the miscellaneous 

deduction and the foreign tax credit {Table 16). Both are 

much more important for nontaxables than for taxables. For 

high-income returns, the miscellaneous deduction consists 

mainly of investment expenses other than interest, employee 

expenses, and alimony paid, all of which could arguably be 

"above-the-line" deductions which should be taken in 

computing income. 2/ As Table 76-2 shows, this deduction is 

far more important-for nontaxables (22.8 percent of expanded 

~/ Beginning in 1977, alimony payments have been converted 

from . a miscellaneous deduction for itemizers to a deduction 

in the calculation of AGI. 

-55-
income) than for nearly nontaxables (10.0 percent of expanded 

income) or for all other taxes (1.7 percent of expanded 

income). On 11 percent of the high expanded income returns, 

the miscellaneous exceeded 70 percent of expanded income, 

(Table 18) • 

When the foreign tax credit appears on a nontaxable 

return, it is usually large enough to account for 

nontaxability entirely by itself, even if other deductions 

and credits are relatively small. The nontaxability of about 

one out of six of the expanded income nontaxables can be 

attributed to the foreign tax credit (Table 18). As measured 

by aggregate data (Table 76-2), this credit is moderately 

important for both nontaxables (equivalent to a deduction of 

9.5 percent of expanded income) and for nearly nontaxables 

(11.0 percent), but it is of almost no significance for all 

other taxables (0.2 percent). The foreign tax credit is the 

only credit of any importance for the nontaxables. In fact, 

only three nontaxables have any investment credit, and it is 

never large (Table 18). The investment credit is not the 

largest item on any nontaxable return even though it is the 

largest item for 6.4 percent of taxable high expanded income 

returns (Table 16). Its value relative to total expanded 

income of nontaxables is almost imperceptible (Table 76-2). 

The deduction for state and local taxes is most 

noticeable for its lack of importance in causing. 

nontaxability. In the aggregate, taxes as a percentage of 

expanded income are about the same level for all three 

categories of returns (Table 76-2). Taxes are the largest 

deduction category on only 2.2 percent of nontaxable returns 

but are the largest item on over half, (55.2 percent) of all 

taxable high expanded income taxable (Table 16). Though 

deductions for taxes appeared on most nontaxable expanded 

income returns, the deduction was less than 10 percent of 

expanded income two-thirds of the · time, only exceeded 20 

percent of expanded income 6 percent of the time, and only 

exceeded 70 percent of expanded income in one percent of the 

cases (Table 18) • 

For the nontaxables, preferences comprised 53.6 percent 

of expanded income, about 93 percent of which was due to the 

excluded portion of long-term capital gains. For the nearly 

nontaxables, preferences were substantially smaller (38.7 

percent of expanded income) with about 79 percent of them 

from excluded capital gains. For all other taxable returns, 

preferences were 23.8 percent of expanded income, with about 

74 percent of them for excluded capital gains (Table 76-2). 

-56-
The tax savings from the alternative tax, from the 

maximum tax on earned income, and from income averaging are 

not significant for either nontaxables or nearly nontaxables. 

Taken together, they are much less important for these groups 

than for the remainder of taxable returns (Table 76-2). 

Nontaxables are not affected by the minimum tax. 

For nearly nontaxables, the minimum tax is equivalent to 

losing a deduction of 10.0 percent of expanded income, but it 

does represent 79 percent of that group's tax bill. Thus, 

eliminating the minimum tax would reduce the tax liabilities 

to an insignificant level of 1.5 percent of expanded income. 

For all the other taxable returns, the minimum tax represents 

a loss of deductions of 3.7 percent of expanded income, but 

it represents less than 7 percent of the group's total tax 

bill (Table 76-2). 

In terms of aggregates for the entire group of fully and 

nearly nontaxables, the significance of itemized deductions 

in reducing taxes appears to diminish. Of course, the 

aggregates do tend to show averages and thereby hide some of 

the differences that make individual returns unique. 

Nonetheless, this methodology indicates that the omission of 

tax preference income from the tax base is the most important 

means by which taxes are reduced or eliminated (Table 76-2). 

f_indings 

This chapter has provided the data and the methods for 

analyzing the relative importance of various items in 

reducing taxes or in making a return nontaxable. Three 

different methods have been employed: the largest single 

deduction or credit; deductions and credits on a particular 

return as percentages of income shown on that return; and 

data showing the average shares of preferences, deductions, 

and credits for all returns in a particular class. The data 

indicate that nontaxability often is due to a combination of 

causes. Even in those cases where a very large single item 

does appear, no one particular item is of overwhelming 

importance. In terms of expanded income, several items play 

major rolls in nontaxability: preference income, 

Predominantly capital gains; itemized deductions for 

interest, for miscellaneous expenses, for charitable 

Contributions, and for casualty losses; and the foreign tax 

credit. 

-57-
In order to verify the indications that many high-income 

individuals who reported that they had no tax liabilities 

were actually subject to the minimum tax, an individual 

inspection of the 68 supposedly nontaxable high AGI returns 

was undertaken. As a result of this case by case analysis, 

it was determined that there were only 22 high AGI 

nontaxables in 1976. An analysis of these 22 returns 

including the reasons for their nontaxability is contained in 

Chapter 6. 
Chapter 6 

22 High Adjusted Gross Income 

Nontaxable Returns in 1976 

Fewer Nontaxable Returns 

All of the data presented so far in this report have 

been derived from the Internal Revenue Service Statistics of 

Income (SOI) for individual income tax returns. For each 

year, the SOI consists of a weighted sample of all individual 

tax returns which have been filed. Except for certain 

corrections of obvious arithmetic errors, the SOI data are 

exactly as reported by taxpayers on their tax returns. Not 

only are the data before audit by the IRS, but also the data 

do not reflect errors in tax computations, etc. which are 

apparent from the income, deduction, and credit items shown 

by the taxpayers on their returns -- even if the tax shown is 

inconsistent with other items on the return. 

For purposes of classifying tax returns for this report, 

the most im.portant problem in using tax as reported on the 

return has been the failure of taxpayers to calculate 

properly the minimum tax on items of tax preference. In the 

first year or two after the introduction of the minimum tax 

in 1970, a substantial proportion of high income, supposedly 

nontaxable tax returns contained this error and were actually 

taxable. By 1973, the error rate had fallen to about 5 

percent; and, in 1975, this error had virtually disappeared. 

However, this error has reoccurred on 1976 tax returns to 

such an extent that the 1976 SOI data vastly overstate the 

frequency of high-income, nontaxable returns. An examination 

of all 68 of the supposedly nontaxable high AG! returns 

showed that there are actually only 22 nontaxable returns 

With AG! of. $200,000 or over. 

After all of the 1976 tabulations shown elsewhere in 

this report were completed, it became ~pparent that there 

Were internal inconsistencies in the tabulations that could 

only be a result of taxpayers' errors in the computation of 

the minimum tax on items of tax preference, particularly the 

new preference for excess itemized deductions. Under the Tax 

-59-
Reform Act of 1976, itemized deductions (other than casualty 

losses or medical expenses) to the extent that they exceed 60 

percent of AG! were made a tax preference item for minimum 

tax purposes.l/ Beginning in 1976, the exclusion from the 

minimum tax is the larger of $10,000 ($5,000 on the return of 

a married person filing separately) or one-half of ordinary · 

tax liabilities. For returns with no regular tax liability, 

a minimum tax would be due on any return where a particular 

itemized deduction or the sum of all itemized deductions 

(other than casualty and medical deductions) exceeded 60 

percent of AG! by at least $10,000 (or $5,000 on the separate 

return of a married person). An examination of Table 19 

shows that 54 and of the 68 supposedly nontaxable returns 

with AG! of $200,000 and over have total itemized deductions 

exceeding 60 percent of AG! and 53 have total deductions 

exceeding 70 percent of AG!. Even after excluding the 

returns with large casualty losses or large medical expenses, 

the table shows that 46 of the high-income returns as defined 

by AG! are likely to be subject to the minimum tax simply 

from their excess itemized deductions. 2/ Thus, instead of 

68 high-income, nontaxable returns, Table 19 suggests that 

there are only about 22. 

Examination of the 68 supposedly nontaxable high AG! 

returns for 1976 (which had already been asembled), verified 

the conclusions drawn from the data in Table 19. Based 

solely on the excess itemized deduction tax preference item, 

45 of the returns were actually subject to the minimum 

tax. 21 

1/ Under the "no tax benefit rule," if itemized deductions 

exceed 100 percent of AG!, only the amount between 60 and 100 

percent of AG! is a preference item. Otherwise, itemized 

deductions that did not reduce tax liabilities would produce 

an increase in the minimum tax. 

2/ The exact number of returns subject to the minimum tax 

cannot be determined exactly from Table 19 because it cannot 

be determined which of the returns have the large casualty 

and medical deductions; hence, the table does not show the 

exact distribution of total itemized deductions excluding 

medical and casualty expenses. 

3/ During this examination it was found that one return 

should not have been included in the high AG! group; it was 

included only because of the incorrect placement on the 

return of certain income and deduction items. 

-60-
~ ~ ------ - - - - - - - - - - - --- - - - - ----

Thus, there are only 22 high AGI nontaxables for 1976. 

Only five one-hundredths of one percent of all high AGI tax 

returns filed in 1976 were nontaxable. These 22 nontaxable 

returns represent a reduction of over 90 percent in the 

number of nontaxable high income returns as compared to 1974 

and 1975. With only 22 nontaxable returns, all of which were 

examined, it is possible to describe these returns, their 

characteristics, and the reasons for their nontaxability in 

more detail and with greater certainty than was possible for 

the far larger groups of nontaxable returns in prior years. 

The characteristics of these 22 returns are described in the 

second section of this chapter. 

Since AGI plus preferences is always larger than AGI, 

any return with itemized deductions · (other than medical 

expenses or casualty losses) in excess of 60 percent of AGI 

plus preferences will be subject to the minimum tax, and, 

therefore, will be taxable. Using this methodology for 

returns with at least $200,000 of AGI plus preferences, it 

appears as if at least 63 of the 114 returns, or 55 percent, 

which did not report any tax liabilities are actually 

taxable (See Table 20). This method of determining tax 

status is not quite as reliable for returns selected by 

expanded income or by AG! less investment interest. However, 

because of the substantial overlap of the same tax returns 

within all four groups, the results of a similar calculation 

for these two other groups cannot be too far off. Table 18 

indicates that 36, or 40 percent, of the 89 returns with 

expanded income of $200,000 or over are taxable. Similarly, 

21, or 50 percent, of the 42 returns with high AGI less 

investment interest are taxable (Table 21). 

Unfortunately, it was not possible to verify fully these 

indications about the substantially reduced numbers of 

nontaxable returns as selected by expanded income, AGI plus 

preferences, and AGI less investment interest. The actual 

tax returns for the high income nontaxables under these three 

income definitions were not readily available. Since 

obtaining either the actual returns or additional tabulations 

from the 1976 SOI file would have delayed completion of this 

report inordinately, corrected tabulations and detailed 

analysis based on them will be included in the next high 

income report. 

-61-
For purposes of this report, it will be assumed that the 

indications from Tables 18 through 22 are accurate and that 

in 1976 there are: 

--53 high-income nontaxables as defined by expanded 

income; 

--22 high-income nontaxables as defined by AGI; 

--41 high-income nontaxables as defined by AGI plus 

preferences; and 

--21 high-income nontaxables as defined by AG! less 

investment 1nterest. 

While the additional analyses of the 1976 high-AG! 

nontaxables do show a sign~ficant change from the SOI data, 

they do not eliminate the usefulness of SOI data, especially 

for the nearly nontaxable and all other taxable categories. 

Applying the minimum tax to these returns only shifts the 

returns from the nontaxables to the nearly nontaxables. 

Since these two groups generally exhibit similar 

characteristics, the shift of returns will not significantly 

affect the conclusions about these returns that can be drawn 

from the SOI data. The only significant change is a decrease 

in the number of nontaxables and an equivalent increase in 

the number of nearly nontaxables. 

The 22 High-AG! Nontaxables in 1976 

The examination of the 22 high-AG! nontaxable returns 

for 1976 indicated that all except two were nontaxable for 

one of two reasons: a foreign tax credit or a casualty loss 

deduction. Fourteen of the returns were clearly nontaxable 

because of foreign tax credits; six returns were nontaxable 

because of casualty loss deductions; nontaxability on the 

last two returns was due to a combination of factors. 

As the upper portion of Table 26 indicates, on every one 

of the 14 returns which were nontaxable due to the forecign 

tax credit, the foreign tax credit was equivalent to a 

deduction of at least 70 percent of AGI. On four of these 

returns, either the standard deduction was used, or the 

taxpayers did not bother to take either the standard 

deduction or to itemize their deductions. On the ten returns 

-62-
I 

O'I 

VJ 

I 

Table 26 

Itemized Deductions and Credits as Percentages of Adjusted Gross Income for the 22 Nontaxable Returns 

with Adjusted Gross Income of $200,000 or Over in 1976 

.. NUlnber of Returns with Deduction or Credit .. Total . . Deduction or Credit as Percentaqe of Adjusted Gross Income 

Itemized Deduction .. Number . . 10% 20% 30% 40% SO% 60% 70% or Credit . . of .. Under under under under under under under under 

.. Returns:: 10% 20% 30% 40% 50% 60% 70% 100% 

100% 

or 

More 1/ 

------------------------------------Returns Nohtaxable due to the Foreign Tax Credit-------------------------------------

Number of Returns 

Itemized deduction~, total ..•.•..•.. 

Medical deduction ................ Taxes paid deduction ............. Interest deduction ............... Contributions deduction .......... Casualty loss deduction .......... Miscellaneous deduction .......... 

Deduction Equivalent of: 

Foreign tax credit ..••..•..•.•... 

Investment credit .•..••..••...•.. 

14 

10 7 2 1 

4 4 

9 9 

6 5 1 

8 8 

7 6 1 

14 14 

--------------------------------------Returns Nontaxable due All Other Causes---------------------------------------------

Number of Returns 8 

Itemized deductions, total ...•••... 8 

Medical deduction . . • • . . • . . . • • . • . • 3 

Taxes paid deduction............. 8 

Interest deduction............... 8 

Contributions deduction.......... 8 

Casualty loss deduction.......... 6 

Miscellaneous deduction.......... 6 

Deduction Equ~valent of: 

Foreign tax credit 

Investment credit 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

1 

1 

2 

7 

4 

6 

3 

l 

1 

1 

2 1 1 

1 1 

2 1 

l 

!/ Includes returns with total reported deductions equal to or exceeding adjusted gross income. 

1 2 5 

1 2 3 

July 24, 1978 
that had itemized deductions, seven of the returns had 

deductions of less than 10 percent of AGI, and the remaining 

three had itemized deductions of between 10 and 30 percent of 

AGI. On no return were itemized deductions greater than 30 

percent of AG!. Table 27 shows the relationship between the 

largest and the second largest items of deduction or credit 

on each of these returns. It indicates that on returns that 

were nontaxable because of the foreign tax credit there was 

no uniformly important second largest item of deduction or 

credit. On five of the returns, taxes were the next largest 

item; on three of the returns, the interest deduction was the 

next largest deduction; and on two returns various 

miscellaneous deductions were the next largest item. On four 

returns, there was no other credit or deduction item (except 

for the standard deduction). Moreover, in only two cases was 

the second largest deduction item greater than 10 percent of 

AGI. 

Six of the eight remaining returns were nontaxable 

because of large casualty losses. These losses were about 

evenly divided between losses to income-producing property 

and casualty losses to non-income-producing property such as 

a personal residence. As indicated on the lower portion of 

Table 26, these casualty losses were very large. All six of 

them exceeded 60 percent of AG!; two of them were between 70 

and 100 percent of AG!; and three exceeded the entire amount 

of AGI. The fraction of other itemized deducti9ns on these 

returns was not nearly so uniform as on the returns that were 

nontaxable because of the foreign tax credit; however, 

itemized deductions were never very large. In no case did 

itemized deductions other than the reported casualty loss 

exceed 50 percent of AG!. As indicated on Table 27, there 

was no uniformly second most important deduction or credit 

item on these six returns. In one case it was interest; in 

another, taxes; in two cases, charitable contributions; and 

in two cases, the miscellaneous deduction. It is interesting 

to note that none of these six returns used the foreign tax 

credit or the investment credit. 

The returns that had large casualty losses are likely to 

be nontaxable in two or more successive years because they 

have large carryover losses. However, because of 

peculiarities of the loss carryover computation and its 

placement on the tax return, these returrrs are not likely to 

appear as high-income nontaxable returns in the carryover 

years. The carryover of a casualty loss becomes part of a 

net operating loss. It reduces AGI; it is not a deductjon 

from AGI, as is true for the year in which the casualty 

-64-
I 

°' U1 

I 

Table 27 

Largest and SecE>llKi Largest Deduction or Credit on the 22 Nontaxable Returns with 

Adjusted Gross Income of $200,000 or Over in 1976 

··~~~~~~~~-"'S~e~c~o~n=d;.......;:L=a=r~g~e~s~t~D~e~d~u~c~t~i~o~n=-=o~r;.........;C~r~e~d~i~t~~~~~~~~~~~~~~~~~~~~ 

Largest Deduction 

or Credit 

Interest Paid Deduction 

Taxes Paid Deduction 

Contributions Deduction 

.. Total 

1 

1 

Medical Expense Deduction 

Casualty Loss Deduction 6 

Miscellaneous Deduction 

Foreign Tax Credit 14 

Investment Credit 

Interest: Taxes : Contrib-: Medical : Casualty: Miscel- :Foreign:Invest-: 

Paid Paid utions : Expense : Loss laneous : Tax ment :None 

:Deduction:Deduction:Deduction:Deduction:Deduction:Deduction: Credit: Credit: 

1 

1 

/ 

1 1 2 2 

3 5 2 4 

Office of the Secretary of the Treasury July 24, 1978 

Off ice of Tax Analysis 
actually occurred. Because the large casualty loss carryover 

losses reduce AGI, these returns are not likely to have AGI 

of $200,000 or over in the carryover years, and, therefore, 

they are not likely to be classified as high-income returns 

in those years. 

The two remaining returns were nontaxable for 

combinations of reasons. One of the returns was nontaxable 

because of very large medical and interest deductions. This 

was the only return of the 22 in which the interest-paid 

deduction exceeded 30 percent of AGI. Even on this return, 

the interest deduction was only between 50 and 60 percent of 

AGI. On the last return, itemized deductions just slightly 

exceeded 60 percent of AGI; however, they did not exceed 60 

percent by the $10,000 necessary to produce minimum tax 

liability. While itemized deductions reduced AGI by slightl1 

more than 60 percent, the remainder was eliminated by a 

substantial investment credit and a rather insignificant 

foreign tax credit. It may be of some interest to note that 

of the 22 nontaxable returns, this is the only one which used 

the investment credit at all. ii 

Table 28 summarizes the sources of income, the 

deductions, and the credits for the 22 nontaxable returns. 

The data are presented separately for the 14 returns made 

nontaxable by the foreign tax credit, for those made not 

taxable for any other reason, and for all 22 re~urns 

together. These returns were noticeably different from 

nontaxable.s in the recent past. Aside from the one or two 

items which made them nontaxable, these returns did not 

appear unusual. Their income sources were typical of 

high-income taxpayers, they did not appear to be attempting 

to shelter income from taxes, and their itemized deductions 

were not unusually large. 

Table 29 summarizes some characteristics of these 22 

nontaxable returns. Again, the data are separated by the 

source of nontaxability: either the foreign tax credit or 

all other reasons. Only one of the 22 returns had AGI of 

over $1 million. None of the 8 returns whose nontaxability 

4/ Some of the 14 returns which were made nontaxable by 

large foreign tax credits did have investment credits 

available. However, because the foreign tax credits 

completely wiped out tax liability, the investment credits 

were not used; they were carried forward to future tax years 

or back to prior years. 

-66-
Table 28 

Income, Deductions, and Credits for the 22 Nontaxable Returns with Adjusted Gross Income .of $200,000 or Over in 1976 

Returns Nontaxable due to 

Foreign Tax Credit Other Nontaxable Returns All Nontaxable Returns 

Number of: : Amount as Number of: : Amount as Number of: : Amount as 

Returns : Amount :Percentage Returns : Amount :Percentage Returns : Amount :Percentage 

...___-~~~~~~~~~~~.....:..c~W~i~t~hc......::.I~tem=:.~:~~~~~=---~o~f~A_G_I~~W_i_t_h~I_tem~·-·~~~~~~~o_f~A_G_I~~W_i_t_h~I_te_m~:~~~~~~~o_f~AG_I~ 

llages and salaries 

~le Proprietorship Income 

t~~;~=~~s Y ~Pital gains ~/ ens ions 

llents and royalties 

:artnership income 1/ arm income 

State income tax refunds Other income 

Total 

~justments to income !/ 

~justed Gross Income 

Standard deduction 

~dical expense deduction axes paid deduction 

tnterest paid deduction 

~ontributions deduction 

11!:~:ii~n:~~~c~!~~ction Total deductions 

'raxable Income 

ioreign tax credit nvestment credit 

~duct ion equivalent of: 

Foreign tax credit 

Investment credit 

~Umber of Returns 

11 

5 

5 

12 

5 

1 

3 

5 

2 

2 

_! 

4 

5 

10 

6 

8 

...2 

14 

14 

14 

Office of the Secretary of the Treasury 

Off ice of Tax Analysis 

Source: 1976 income tax returns . Less than O. 05 percent. 

$2,126,484 

804,163 

1,823,485 

141,782 

2,426 

809 

(15,890) 

450,573 

(86, 062) 

8,389 

109 

40.6 

15. 4 

34. 8 

2. 7 

0.1 

(0. 3) 

8.6 

(1. 6) 

o. 2 

5,260,368 100.5 

26,193 0.5 

5,234,177 100 

10,400 

739 

62,786 

81,673 

17,358 

54,700 

217,256 

4,976,321 

2,962,593 

4,742,934 

0.2 

1.2 

1. 6 

0.3 

1.1 

4:2 

95.1 

56.6 

90.6 

5 

6 

l 

3 

~ 

3 

8 

8 

8 

6 

~ 

1 

1 

1 

1 

779,046 

166,077 

1,015,037 

228,763 

152, 888 

14,535 

(112,854) 

(5,418) 

16,394 

(123) 

2,254,345 

3,527 

2,250,818 

110, 903 

131,565 

341,745 

211,888 

3,690,504 

169,949 

4,656,556 

87,087 

262 18,785 

495 

53,368 

34.6 

7.4 

45.1 

10.2 

6.8 

0.6 

(5. 0) 

(0. 2) 

0. 7 

100.2 

0. 2 

100 

4.9 

5. 8 

15. 2 

9.4 

164.0 

7.6 

206.9 

3.9 

0.8 

2.4 

ti Net of $100 dividend exclusion. 

-( Net of the deduction of one-half of the excess of net long-term gains over short-term losses. 

_I Includes income from small business corporations and from estates and trusts. 

!I Predominently, moving expenses. 

-67-

16 

7 

13 

20 

9 

1 

8 

11 

3 

5 

.2 

4 

8 

18 

14 

16 

6 

!}_ 

15 

1 

1 

1 

22 

$2,905,530 

970,240 

2,838,522 

370,545 

155,314 

809 

(l, 355) 

337 I 719 

(91,480) 

24,783 

(14) 

7,514,713 

29,720 

7,484,995 

10,400 

111,642 

194,351 

423,418 

229,246 

3,690,504 

224,649 

4,873,012 

5,063,408 

2,962,855 

18,785 

4,743,429 

53,368 

July 24, 1978 

38.8 

13. 0 

37.9 

5.0 

2.1 

* 

(*) 

4.5 

(1.2) 

0.3 

100.4 

0.4 

100 

0.1 

1.5 

2.6 

5. 7 

3.1 

49.3 

3.0 

GS:T 

67. 6 

39.6 

r.. 3 

63.4 

o. 7 

% 
Table 29 

Characte~istics of the .22 Nontaxable Returns with 

'Adjusted Gr;os:s: Tn'co-me of $200 , .GO.O .or. Over .in 1976 

Adjusted Gross Income 

$ 200,000 - $ 500,000 

$ 500,000 - $1,000,000 

$1,000,000 and over 

ALL 

Age 

Under 65 

65 or over 1/ 

ALL 

Tax Filing Status 

Single 

Married, Filing Joint Return 2/ 

Married, Filing Separate Return 

Unmarried, Head of Household 

ALL 

Nontaxable Due to 

:Foreign Ta:x: 

Credit 

11 

2 

1 

14 

13 

1 

14 

1 

8 

2 

3 

14 

All Other 

Reasons 

8 

0 

0 

8 

7 

1 

8 

0 

7 

.1 

0 

8 

All 

Returns 

Nontaxable 

19 

2 

1 

22 

20 

2 

22 

1 

15 

3 

3 

22 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

July 24, 1978 

!/ Indicates that on a joint return at least one of the taxpayers 

claims the extra exemption for age. 

~/ Includes qualifying widow or widower with at least one 

dependent child. 

-68-
lS 

~ 

~ --- -~- -- - --- --- - -

was not attributable to the foreign tax credit had AG! in 

excess of $500,000. The distribution of the returns by 

filing status was somewhat unusual. Of the 22 retu_rns only 

one filed as a single taxpayer, but 3 filed as heads of 

households, and 3 filed as married persons filing separately. 

Fourteen of the returns, or 64 percent, were joint returns of 

married couples. The age distribution on the returns was 

also noteworthy. On only 2 of the 22 returns were extra 

exemptions claimed because the tax filers were over 65 years 

of age. 

Foreign Taxes and the Foreign Tax Credit 

Because each of these returns was examined individually, 

it was possible to determine the nature of the foreign taxes 

for each return. Twelve of the fourteen taxpayers whose 

liabilities were eliminated by the foreign tax credit paid 

foreign taxes of more than 50 percent of their AGI. In the 

thirteenth case, the foreign tax was almost 40 percent of 

AG!. In the last case, the foreign tax paid during 1976 was 

just over 10 percent of AG! but because of a large foreign 

tax credit carryover the allowable foreign tax credit 

exceeded 40 percent of AGI. By comparison, in 1976, only 

24.6 percent of all persons with AGI of $200,000 or over paid 

an effective tax rate of 50 percent or more (see Table 5). 

One reason why the foreign tax crdit has been considered 

a tax preferences by many tax reformers is that foreign 

taxes, especially those associated with oil and gas 

exploration, may actually be royalty payments to foreign 

979 governments disguised as taxes. For the fourteen high-income 

nontaxables who were made nontaxable by use of the foreign 

tax credit, there is only one instance where the foreign 

taxes may have been disguised royalties to a foreign 

government. On the thirteen other returns, the foreign taxes 

represent legitimate tax payments to foreign governments 

based on income generated in foreign countries. In several 

of these cases, the tax filers were residents of foreign 

countries and either worked abroad, owned and operated 

businesses abroad, or had substantial income-producing 

Properties abroad. To the extent that foreign accounting 

methods coincide with U.S. practices and do not "hide" 

income, these taxpayers, though not paying any U.S. tax, have 

actually paid very substantial income taxes on their 

Worldwide income. It is not at all clear that these persons 

should be considered high-income nontaxables. 

-69-
Conclusion 

While one can ~educe the reasons by which a high-income 

tax return can become nontaxable under present law, such 

theoretical analyses are not as nearly as persuasive to many 

people as is the evidence from actual tax returns. The 

actual evidence from 1976 returns indicates that the problems 

of high-AGI, completely nontaxable returns has been virtually 

eliminated. The 22 nontaxable returns represent only five 

one-hundredths of one percent of all high-income returns. 

Moreover almost two-thirds of these returns, the ones 

n'ontaxable in the United States because of large foreign tax 

credits, are not really nontaxable. 

Thus, in 1976 there were only eight high-AGI individuals 

who paid no income tax. Six of these are nontaxable because 

of casualty losses. One return was nontaxable in large part 

because of extraordinarily large medical expenses. The final 

nontaxable return used a combination of provisions in the tax 

law each of which was provided for a seemingly good and 

equitable reason. None of the provisions were used 

extensively. It would be of particular interest to know 

whether this same taxpayer will be able to perform this feat 

frequently or perennially. 

-70- . 
---.-- - ---- ~------ --- -------- - --- - -

Chapter 7 

Tax Policy Considerations 

The most important conclusions reached in this year's 

high-income report are outlined in Chapter 2, Highlights. 

This chapter discusses some possible tax policy implications 

which may be drawn from the conclusions. 

Nontaxables 

Now that the number of high-income nontaxables has been 

reduced to a virtual handful, is it worth devoting further 

legislative attention to completely eliminating such tax 

returns? The answer to that question depends (1) on whether 

our data indicating virtual elimination are, indeed, correct 

and (2) upon the ease or difficulty in further reducing the 

number of high-income nontaxables. 

As discussed in Chapter 3, even the broader expanded 

income measure used in this report is not as comprehensive as 

economic income because expanded income omits all sources of 

income which cannot be identified from tax returns. Tax 

returns simply do not provide information about several 

sources of income which are of importance to high-income 

taxpayers such as tax-exempt state and local bond interest 

and the income sheltered by straight-line depreciation of 

real estate in excess of economic depreciation. In order to 

get a better measure of tax rates of high-income individuals 

and the true number of high-income nontaxables, more data on 

the amounts of, and distributions of, these income sources 

are needed. 

It would be relatively simple to reduce further the 

number of nontaxables as measured by expanded income. 

Complete elimination could be accomplished by including 

casualty losses and medical expenses in the excess itemized 

deduction preference subject to the minimum tax and by 

~etting some limit on the share or amount of United States 

income taxes which could be offset by the credit for foreign 

tax payments. Both of these changes raise serious question 

of equity. Is it appropriate to disallow foreign taxes as a 

-71-
credit against U.S. taxes? Should people whose extraordinary 

and unavoidable expenses have effectively reduced their 

taxable incomes to zero be made subject to tax? 

Nearly Nontaxables 

The minimum tax has been extremely important in 

substantially reducing the number of high-income nontaxables. 

However, its effect has been to create an equivalent number 

of nearly nontaxables. In this manner, the minimum tax 

obscures the numbers of, and the problems of, individuals 

with very large incomes who do not pay their "fair share" of 

tax liabilities. For those who worry about high-income 

individuals bearing an appropriate share of the tax burden, 

the focus of attention now must move from the nontaxables, 

who have almost disappeared, to the nearly nontaxables whose 

numbers are still substantial. 

When the attention of the Treasury Department and the 

Congress first focused on high-income nontaxables late in the 

1960's, there were fewer than 300 nontaxables with adjusted 

gross income of $200,000 or over. In 1976, even with the 

virtual elimination of high-income nontaxables, there are 

approximately 500 nontaxables and nearly nontaxables with 

income, however defined, of $200,000 or over. · These 500 

people did not carry a fair share of the tax burden. The 

effective tax rates paid in 1976 by the high-income 

nontaxables and nearly nontaxables together was 6.3 percent. 

For the similar high AG! group, the effective tax rate was 

only 5.2 percent. In the same year, 1976, Statistics of 

Income data show that the effective tax rate for taxpayers 

with AG! between $6,000 and $8,000 was 6.2 percent. Between 

$8,000 and $10,000 of AGI, the effective rate was 8.2 

percent. In 1976, a four-person family only had to have had 

an AG! of $11,500 or more (which was below median family 

income) to have had an effective tax rate of 8.2 percent. 

Thus, the nearly nontaxables had lower effective tax rates 

than typical, middle-income and lower middle-income 

taxpayers. Again, this suggests that attention must be 

focused on the high-income nearly nontaxables, who have so 

far escaped serious scrutiny. 

Foreign tax credits 

Should individuals who are nontaxable because of the 

foreign tax credit and who actually paid substantial foreign 

taxes be considered nontaxable for purposes of these 

-72-
analyses? If the U.S. tax return of a U.S. resident or 

citizen must include worldwide income of that individual, it 

seems only proper to give that person credit for his 

Worldwide income tax payments, whether made to the U.S. or to 

a foreign government. Eliminating such returns from the 

analyses would considerably reduce the remaining number of 

high-income nontaxables. It would also focus attention more 

sharply on those remaining high-income nontaxables who do not 

Pay ~ income tax. 

Perennial Tax Avoiders 

A final item of significance concerns the level of taxes 

for the nontaxables and nearly nontaxables over periods of 

several years. Are these people taxable or nearly nontaxable 

for a single year that is preceeded and followed by years in 

Which they pay substantial taxes, or are the same people 

nontaxable and nearly nontaxable, year in and year out? The 

existence of perennial nontaxables or nearly nontaxables 

Would be much more indicative of a fundamental problem in the 

tax system than would the existence of a few high-income 

individuals who pay little or no tax in one year because of 

unusual circumstances but who pay substantial taxes in most 

other years. This is a fruitful subject for future analysis. 

The Treasury Department will begin a project to examine the 

returns of high-income nontaxables and nearly nontaxables for 

a period of several years. 

-73-
~ - - - ------ -- ~- ----- -~----- - --

i\ppendix A 

197S Data 

-75-
--~-- - - ~ -.. ---- ~---- ....... ----=------~-- ~--- - - ----~------~ 

Table 

Number 

76-1 

76-2 

76-3 

76-4 

76-5 

76-6 

76-7 

7 6-8 

271-892 0 - 78 - 6 

List of Tables in Appendix A 

Title 

Income, Deductions, Credits and Taxes 

for Tax Returns with Expanded Income 

of $200,000 or Over -- 1976: Aggregate 

Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Expanded Income 

of $200,000 or Over -- 1976: As 

Percentages of Expanded Income 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income of $200,000 or Over -- 1976: 

Aggregate Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income of $200,000 or Over -- 1976: 

As Percentages of Adjusted Gross Income 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income plus Preferences of $200,000 

or Over -- 1976: Aggregate Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income plus Preferences of $200,000 

or Over -- 1976: As Percentages of 

Adjusted Gross Income plus Preferences 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income minus Investment Interest of 

$200,000 or Over -- 1976: Aggregate 

Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income minus Investment Interest of 

$200, 000 or Over -:-- J976: As 

Percentages of Ad]usted Gross Income 

minus Investment Interest 

-77-

80 

81 

82 

83 

84 

85 

86 

87 
76-9 

76-10 

Cross-Classification of Numbers of Tax 

Returns by Income Class by Alternative 

Income Concepts -- All Returns, 1976 

Cross-Classification of Numbers of Tax 

Returns by Income Class by Alternative 

Income Concepts -- Nontaxable Returns, 

1976 

-79-

90 

91 
Table 76-1 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Expanded Income of $200,000 or Over -- 1976 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

Aggregate Data 

($ in thousands) 

All 

Returns 

$ 22,164,488 

22,164,488 

22,674,237 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 16,844,148 

Investment Interest < Investment Income ]:./ 509,749 

Tax Preferences 5,330,679 

Excluded Long-Term Capital Gains 3,930,427 

Dividend Exclusion 7, 721 

Other Tax Preferences 2/ 1!392,532 

ADJUSTED GROSS INCOME 17,373,180 

Deficits 292623 

AGI of Returns with AGI > 0 17,343,557 

Exemptions 142,169 

Standard Deductions 3,182 

Itemized Deductions 3, 718,477 

Charitable Contributions 1,317,871 

Interest: Total 657,830 

Home Mortgage 92,967 

Invest. Interest < Invest. Income 11 499,410 

Invest. Interest > Invest. Income !!_/ 65,453 

Medical 43,887 

Casualty 29,368 

Tax Expense 1,272,625 

Miscellaneous Deductions 396,896 

Excess of Exem2tions & Deductions over AGI 562175 

Taxable Income 13,565,528 

Tax at Normal Rates 8,086,288 

Saving from Alternative Tax 2_./ 48,161 

Saving from Maximum Tax 2.l 472, 160 

Saving from Income Averaging 1452030 

Tax Before. Credits 7,431,261 

Tax Credits 201,963 

Foreign Tax Credit 74, 646 

Investment Credit 126,693 

All Other Credits 6/ 624 

Tax After Credits 7,229,298 

Minimum Tax 5371737 

Total Income Tax 7,767,036 

Deduction Equivalent of Tax Credits II 313, 927 

Taxable Income which would yield: §_/ 12,600,806 

Income Tax before Credits 12,286,879 

Income Tax after Credits 13,133,143 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 53,587 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

See Uniform footnotes fol lowing Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

-80-

Nontaxable 

Returns 

$ 31,188 

31,188 

34,529 

14,720 

3,341 

16,712 

15,546 

10 

1,156 

20,967 

-3!149 

17,817 

217 

2 

51,739 

30,478 

5,488 

369 

3,097 

2, 022 

163 

7 ,040 

1,458 

7 ,113 

35,987 

4,995 

3,J.'i8 

0 

176 

---1.Q 

2,973 

2, 974 

2,954 

20 ___ o

0 

__ o

0 

4, 726 

4, 726 

0 

0 

89 

Nearly All Other 

Nontaxable Taxable 

Returns Returns 

$ 241,240 $ 21,892,060 

241,240 21,892,060 

259,279 22,380,429 

148,199 16,681,229 

18,039 488,368 

93,411 5,220,557 

73,519 3,841,361 

47 7,664 

19!845 1!371!531 

172,456 17,179,758 

- 6!588 192885 

165,868 17, 159,872 

1,076 140,876 

16 3,164 

110,560 3,556,178 

37,656 1,249,737 

23,093 629,249 

1,683 90,915 

17,669 478,644 

3,741 59,690 

1,914 41,811 

2,856 19, 472 

20,786 1,250,382 

24,255 365,528 

~ 16,932 

64,060 13,496, 472 

3R,231 8,044,899 

138 48,022 

2,006 469,978 

___hill 1432399 

34,465 7,393,823 

30,849 168,140 

28,378 43,314 

2,456 124,217 

15 609 

3,615 7,225,683 

132513 5242225 

17,128 7,749,908 

48,750 260,450 

58,099 12,537,981 

9,349 12,277 ,531 

33,524 13,099,619 

393 53,105 

July 24, 1978 
Table 76-2 

Income, Deductions, Credits, and Taxes for Tax Returns 

with E»panded ~of $200,000 or Over -- 1976 

As Percentages of Expanded Income 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AG! PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income }:_/ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AG! of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income!!._! 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AG! 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 5/ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

100.0 

102.3 

76.0 

2.3 

24.0 

17.7 

* 

~ 

6.3 

~ 

72.3 

0.6 

* 16.8 

6.0 

3.0 

0.4 

2.2 

0.3 

0.2 

0.1 

5.7 

1.8 

0.2 

61.2 

36 . .5 

0.2 

2.1 

~ 

33.5 

0.9 

0.3 

0.6 

* 32T 

-1:..:!±_ 

35.0 

1.4 

56.8 

55.4 

59.2 

53,587 

See Uniform footnotes following Table 76-8 in Appendix A .. 

Source: 1976 Statistics of Income 

* Less than 0.05 percent. 

-81-

Nontaxable 

Returns 

100.0 % 

100.0 

110. 7 

47.2 

10.7 

53.6 

49.8 

* 3.7 

67-:2 

-10.1 

57T 

0.7 

* 165.9 

97.7 

17.6 

1. 2 

9.9 

6.5 

0.5 

22.6 

4.7 

22.8 

115.4 

16.0 

1.0. 1 

0 

0.6 

* g-:s9.5 

9.5 

0.1 

0 --0-

__ o_ 

0 

15.2 

15.2 

0 

0 

89 

Nearly All Other 

Nontaxable Taxable 

Returns Returns 

100.0 % 100.0 % 

100.0 100.0 

107.5 102.2 

61.4 76.2 

7.5 2.2 

38.7 23.8 

30.5 17.6 

* * 

~ 

8.2 6.3 

- 2.7 

~ 

- 0.1 

68T 78:4 

0.4 0.6 

* * 45.8 16.2 

15.6 5.7 

9.6 2.9 

0.7 0.4 

7.3 2.2 

1. 6 0.3 

0.8 0.2 

1.2 0.1 

8.6 5.7 

10.0 1. 7 

---1.:!!.__ _Q_:l_ 

26.6 61.6 

15.8 36.8 

0.1 0.2 

0.8 2.2 

0.7 0.7 

l4T 33:-8 

12.8 0.8 

11.8 0.2 

1. 0 0.6 

* * 1. 5 33.0 

~ 

7.1 ~ 

35.4 

20.2 1. 2 

24.1 57.3 

3.9 56.1 

13. 9 59.8 

393 53,105 

July 24, 1978 
Table 76- ~ 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income of $200,000 or Over -- 1976 

Aggro.::gate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AG! PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income!!_/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax ~./ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

All 

Returns 

$ 15,731,871 

18,903,111 

19,440,638 

15,206,989 

524,882 

3,708,767 

2,784,160 

6,134 

918.473 

15, 731,871 

0 

15, 731,871 

111,354 

1,410 

3,428,127 

1,205,943 

671,146 

74,096 

524,882 

72,168 

37,243 

22,489 

1,138,616 

352,691 

22,501 

12,213,481 

7, '•ll~, 52.5 

39,311 

467,235 

100,073 

6,816,240 

170,890 

66,856 

103,517 

517 

6,645,350 

356,145 

7,001,496 

253,958 

11,341,035 

11,087,077 

11,615,200 

Number of Tax Returns Represented in the tabulation 41,761 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

S~e Uniform footnotes follo-wittg Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

-82-

Nontaxable 

Returns 

$ 23,287 

16,508 

25,321 

14,854 

8,433 

2,034 

1,964 

8 __ 6_3 

23,287 

___ o

23,287 

179 

0 

27,159 

1,689 

13,222 

508 

8,433 

4,280 

226 

3,695 

1,444 

6,884 

9,202 

5,151 

3,217 

0 

176 

28 

3,015 

3,015 

2,954 

61 

0 

---0 

0 ---0 

4,847 

4,847 

0 

0 

68 

Nearly 

Nontaxable 

Returns 

$ 217,952 

162,213 

234,143 

148,175 

69, 777 

16,191 

11-,047 

56 

~ 

217,952 

0 

217,952 

1,115 

3 

173,425 

44,584 

82,915 

1,867 

69, 777 

11,272 

2,497 

1,103 

19,178 

23,148 

6;865 

50,274 

29,499 

63 

1,975 

790 

26,677 

22,774 

21,301 

1,471 

2 

3,902 

8,739 

12,641 

35,573 

45,901 

10,328 

27, 703 

411 

July 24. 1978 

All Other 

Taxable 

Returns 

$ 15,490,632 

18, 724,390 

19,181,175 

15,043,959 

446,673 

3,690,543 

2, 771,150 

6,070 

913.323 

15,490,632 

0 

15,490,632 

110,060 

1,407 

3,227,542 

1,159,670 

575,009 

71, 720 

446,673 

56,616 

34,519 

17,692 

1,117,994 

322,659 

6,434 

12,158,056 

7,381,809 

39,248 

465,085 

99,254 

6,786,549 

145,100 

42,601 

101,985 

514 

6,641,448 

347,406 

6,988,855 

213,538 

11,290,287 

11,076,749 

11,587,497 

41,282 
Table 76-4 

Income, Deductions, Credits, ~nd Taxes for Tax Returns 

with Adjusted Gross Income of $200,000 or Over -- 1976 

As Percentages of Adjusted Gross Income 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AG! of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 11 - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

120.2 

.:L23.6 

96.7 

3.3 

23.6 

17.7 

* 5.8 

100.0 

0 

100.0 

0.7 

* 21.8 

7.7 

4.3 

0.5 

3.3 

0.5 

0.2 

0.1 

7.2 

2.2 

~ 

77. 6 

47.1 

0.2 

3.0 

0.6 

43.3 

1.1 

0.4 

0.7 

* 

1. 6 

72.1 

70.5 

73.8 

41,761 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

* Less than 0.05 percent. 

-83-

Nontaxable 

Returns 

100.0 % 

70. 9 

108.7 

63.8 

36.2 

8.7 

8.4 

* 0.3 

100.0 

0 

100.0 

0.8 

0 

ll6.6 

7.2 

56.8 

2.2 

36.2 

18.4 

LO 

15.9 

6.2 

29.6 

~ 

22.1 

13.8 

0 

0.8 

0.1 

13.0 

13.0 

12.7 

0.3 

0 --0 

0 --0 

20.8 

20.8 

0 

0 

68 

Nearly 

Nontaxable 

Returns 

100.0% 

74.4 

107.4 

68.0 

32.0 

7.4 

5.1 

* 2.3 

100.0 

0 

100.0 

0.5 

* 79.6 

20.5 

38.0 

0.9 

32.0 

5.2 

1. 2 

0.5 

8.8 

10.6 

__B 

23.1 

13.5 

* 0.9 

0.4 

12.2 

10.4 

9.8 

0.7 

* 

16.3 

21.1 

4.7 

12.7 

411 

July 24, 1978 

All Other 

Taxable 

Returns 

100.0 % 

120.9 

123.8 

97.1 

2.9 

23.8 

17.9 

* 5.9 

100.0 

0 

100.0 

0.7 

* 

20.8 

7.5 

3.7 

0.5 

2.9 

0.4 

0.2 

0.1 

7.2 

2.1 

* 

78.5 

47.6 

0.2 

3.0 

0.6 

L;3T 

* 

0.9 

0.3 

0.7 

4Ll 

2.2 

45.2 

1.4 

72. 9 

71.5 

74.8 

41,282 
Table 76- 5 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Grose Income plus Prefe.rences of $200,000 or Over -- 1976 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income!!/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2./ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

$ 

All 

Returns 

23,332,268 

22,683,261 

23,332,268 

17,252,819 

649,007 

5,445,035 

4' 021,577 

8,167 

124152291 

17,916,857 

292623 

17,887,233 

150,599 

3,182 

3,968,676 

1,351,366 

814,716 

100,504 

634,415 

79,798 

46,255 

30,268 

1,311,517 

414,554 

67,754 

13,862,153 

8,~29,784 

49,859 

476,442 

148 2258 

7,565,917 

206,853 

75,802 

130,371 

680 

7,359,064 

552 2240 

7,911,305 

323,376 

12,882,439 

12,559,063 

13,437,036 

56,512 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

-84-

Nearly 

Nontaxable Nontaxable 

Returns Returns 

$ 42,198 $ 556,613 

32,922 424,736 

42,198 556,613 

16,051 251,902 

9,276 131,877 

17,251 177,251 

16,019 139,048 

14 124 

12218 38 2 080 

28,097 385,950 

-32149 - 6,588 

24,947 379,362 

291 2,486 

2 16 

61,323 310,792 

30,904 72 '732 

13,699 149,383 

522 4,512 

8,896 127,460 

4,280 17,411 

289 3,225 

7,041 3,442 

1,911 40,353 

7,479 41,657 

38, 671 14 2239 

5,151 86,895 

3,217 48,116 

0 175 

176 2,052 

3,015 

28 ~ 

42,447 

3,015 34,437 

2,954 29,510 

61 4,907 ___ o20 

0 8,011 

0 32 2883 --0 40,894 

4,847 56,669 

4,847 77 ,456 

0 20, 787 

0 81,874 

114 919 

July 24, 1978 

All Other 

Taxable 

Returns 

$ 22,733,457 

22,225,603 

22,733,457 

16,984,866 

507,854 

5,250,532 

3,866,510 

8,029 

122752993 

17,502,810 

192885 

17,482,924 

147,822 

3,164 

3,596,561 

1,247,730 

651,635 

95,470 

498,059 

58,106 

42,741 

19,785 

1,269,253 

365,418 

142844 

13, 770,107 

e,11~,451 

49,684 

474,214 

1442 778 

7,520,456 

169,402 

43,339 

125,403 

660 

7,351,054 

5192357 

7,870,411 

261,860 

12,800,136 

12,538,276 

13,355,162 

55,479 
Table 76-6 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjus~ed Gross Income plus Preferences of $200,000 or Over 1976 

As Percentages of Adjusted Gross Income Plus Preferences 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AG! of Returns with AGI > 0 

Exemptions 

Standard Deductions 

lteil)ized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income ~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

~aving from Maximum Tax 2,/ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §.../ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

97.2 

100.0 

73.9 

2.8 

23.3 

17.2 

* 6.1 

76.8 

- O.L 

7CT 

0.6 

* 17.0 

5.8 

3.5 

* 2.7 

* 

* 

* 5.6 

1.8 

_9-:l_ 

59.4 

'35. 3 

0.2 

2.0 

0.6 

3Ll 

0.9 

0.3 

0.6 

* 31.5 

~ 

33.9 

1.4 

55.2 

53.8 

57.6 

56,512 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

Less than 0.05 percent. 

-85-

Nearly 

Nontaxable Nontaxable 

Returns Returns 

100.0 % 100.0 % 

78.0 76.3 

100.0 100.0 

38.0 45.3 

22.0 23.7 

40.9 31.8 

38.0 25.0 

* * 2.9 6.8 

66.6 69:3 - 7.5 - 1.2 

59.1 68.2 

0.7 0.4 

* * 145.3 55.8 

73.2 13.1 

32.5 26.8 

1.2 0.8 

21.1 22.9 

10.1 3.1 

0.7 0.6 

16.7 0.6 

4.5 7.2 

17.7 7.5 

91.6 ~ 

12.2 15.6 

7.6 8.6 

0 * 0.4 0.4 

0.1 0.6 

-r:I -=J:6 

7.1 6.2 

7.0 5.3 

0.1 0.9 

0 --0 * -r.-4 

0 5.9 --0 7""":4 

11. 5 10.2 

11. 5 13. 9 

0 3.7 

0 14.7 

114 919 

July 24, 1978 

All Other 

Taxable 

Returns 

100.0 % 

97.8 

100.0 

74.7 

2.2 

23.1 

17.0 

* 6.0 

77:0 

- 0.1 

76.9 

0.6 

* 15.8 

5.5 

2.9 

0.4 

2.2 

0.3 

0.2 

0.1 

5.6 

1.6 

~ 

60.6 

36.0 

0.2 

2.1 

0.6 

33.1 

0.8 

0.2 

0.6 

* 32.""3 

2.3 

34.6 

1.2 

56.3 

55.2 

58.8 

55,479 
Table 76-7 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income minus Investment Interest of $200, 000 or Over -- 1976 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income ~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 2/ 

Saving from Maximum Tax 2./ 

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

$ 

Number of Tax Returns Represented in the tabulation 

Office of the Secretary of the Treasury 

Off ice of Tax Analysis 

All 

Returns 

14,793,632 

18,360,566 

18,752,424 

14,793,632 

382,212 

3,576,580 

2,682,455 

5,753 

888 2 372 

15,175,844 

0 

15,175,844 

104,624 

1,410 

3,163,075 

1,167,757 

510,244 

68,301 

382,212 

59,731 

35,036 

20,144 

1,097,504 

332,389 

121210 

11,918,947 

7,26l.t.,7f.,P. 

37,723 

461,810 

96z852 

6,676,197 

165,023 

65,009 

99,554 

460 

6,511,173 

337,624 

6,848,797 

243,415 

11,062,050 

10,818,635 

11,312,105 

39,346 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

-86-

Nearly 

Nontaxable Nontaxable 

Returns Returns 

$ 13,507 $ 86,059 

14,204 89,854 

16,352 96,302 

13,507 86,059 

1,985 6,122 

860 4,121 

857 2,403 

3 21 

0 _hMl 

15,492 92 ,181 

0 0 

15,492 92,181 

98 475 

0 3 

16,837 53,622 

1,261 18,868 

4,282 9,468 

355 448 

1,985 6,122 

1,942 2,898 

100 1,543 

3,693 1,016 

983 9,012 

6,518 13, 716 

~ ~ 

4,995 38,911 

3,158 24,,1)5 

0 33 

176 1,900 

10 216 

2,973 22,156 

2,974 20,537 

2,954 19,938 

20 599 

0 0 ---0 1,619 

---0 0 ~ 

3,901 

4, 726 31,324 

4, 726 35, 725 

0 4,401 

0 9,120 

42 178 

July 24, 1978 

All Other 

Taxable 

Returns 

$ 14,694,066 

18,256,508 

18,639,770 

14,694,066 

374,106 

3,571,599 

2,679,194 

5, 729 

886,676 

15, 068 ,171 

0 

15,068,171 

104,051 

1,407 

3,092,616 

1,147,628 

496,494 

67,498 

374,106 

54,891 

33,393 

15,436 

1,087,509 

312,155 

41943 

11,875,041 

7,2,7,304 

37,690 

459,733 

96,626 

6,651,067 

141,513 

42,118 

98,935 

460 

6,509,555 

335z341 

6,844,896 

207,368 

11,021, 600 

10,814,232 

11,302,985 

39,126 
Table 76-8 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income minus Investment Interest of $200,000 or Over -- 1976 

As Percentages of Adjusted Gross Income minus Investment Interest 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1./ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income!!._/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 1/ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 r. 

124.1 

126.8 

100.0 

2.6 

24.2 

18.1 

* _§_.:_Q 

102.6 

0 

102.6 

0.7 

* 

2L 4 

7.9 

3.4 

0.5 

2.6 

0.4 

0.2 

0.1 

7.4 

2.2 

0.1 

80.6 

4~.l 

0.2 

3.1 

0.6 

45.1 

L l 

0.4 

0.7 

* 44.0 

2.3 

46.3 

L 6 

74.8 

73.1 

76.5 

39,346 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1976 Statistics of Income. 

* Less than 0.05 percent. 

-87-

Nontaxable 

Returns 

100.0 % 

105.2 

121.1 

100.0 

14.7 

6.4 

6.3 

* 

0 

114.7 

0 

114.7 

0.7 

0 

124.6 

9.3 

3L 7 

2.6 

14.7 

14.4 

0.7 

27.3 

7.3 

48.3 

~ 

37.0 

23.4 

0 

L3 

0.1 

22.0 

22.0 

2L 9 

0.2 

0 --0 

0 

0 

35.0 

35.0 

0 

0 

42 

Nearly 

Nontaxable 

Returns 

100.0 % 

104.4 

111.9 

100.0 

7.1 

4.8 

2.8 

* 2.0 

107.1 

0 

107.1 

0.6 

* 62.3 

21.9 

11.0 

0.5 

7.1 

3.4 

L8 

L2 

10.5 

15.9 

LO 

45.2 

28.2 

* 2.2 

0.2 

25.8 

23.9 

23.2 

0.7 

0 

l"":9 

2.6 

4.5 

36.4 

4L5 

5.1 

10.6 

178 

July 24, 1978 

All Other 

Taxable 

Returns 

100.0 r. 

124.2 

126.8 

100.0 

2.6 

24.3 

18.2 

* 

_hQ 

102.6 

0 

102.6 

0.7 

* 2LO 

7.8 

3.4 

0.5 

2.6 

0.4 

0.2 

0.1 

7.4 

2.1 

* 

80.8 

49.2 

0.3 

3.1 

0.7 

45.3 

LO 

0.3 

0.7 

* 44.3 

2.3 

46.6 

L4 

75.0 

73.6 

76.9 

39,126 
Uniform Footnotes for Tables in Appendices A, B, and C 

1. Investment interest not in excess of investment income. 

Investment interest is defined as total interest paid 

less mortgage interest. Investment income consists of 

dividends (before the $100 exclusion), interest, and 

realized capital gains (including the exceeded portion 

of long-term capital gains). 

2. The amount of percentage depletion in excess of the 

adjusted basis of the property. The excess of 

accelerated over straight-line dpereciation on low 

income rental housing, on other real property, and on 

personal property subject to a net lease. Rapid 

amortization deductions in excess of otherwise allowable 

depreciation for certified pollution control facilities, 

railroad rolling stock, and on-the-job training and 

child care facilities. 

3. Investment interest not in excess of investment income. 

Investment interest is defined as total interest paid 

less mortgage interest. Investment income consists of 

dividends (net of the $100 exclusion), interest, and 

realized capital gains after deducting the excluded 

portion of long-term capital gains. This definition 

differs from the definition in footnote 1 because the 

excluded portion of long-term capital gains and the 

dividend exclusion are omitted from AGI whereas they are 

included in expanded income. 

4. Investment interest in excess of investment income. 

Investment interest (as defined in footnote 3) in excess 

of the the amount allowed as investment interest not in 

excess of investment income. 

5. Savings from the alternative tax or the minimum 

tax on earned income are included on the appropriate 

line even if the taxpayer foregoes them in order to 

calculate his tax liablllty under the income averaging 

procedure. 

6. All other credits include the child care credit, the 

credit for contributions to candidates for public 

offices, the retirement income credit or the credit for 

the elderly (depending on the year), the work incentive 

(WIN) credit, the credit for purchase of a new 

residence, and the earned income credit. The general 

tax credit not included. 

-88-
7. The deduction equivalent of tax credits is caluclated in 

order to allow the relative importance of deductions and 

credits to be compared. The deduction equivalent is 

defined as the difference between the taxable income 

which would yield tax before credits and the taxable 

income which would yield tax after credits. 

8. The amount of income which taxed under the appropriate 

ordinary tax rate schedule would yield tax after credits 

plus the minimum tax. For purposes of this computation, 

the general tax credits available in 1975 and 1976 have 

been ignored. 

Off ice of the Secretary of the Treasury 

Off ice of Tax Analysis 

-89-

August 25, 1978 
Table 76-9 

Cross-Classification of Numbers of Tax Returns by Income Class by Alternative Income Concepts 

--All Returns, 1976 

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~------

Less Than $50,000 to $100,000 to $200,000 

~~~~~~~~~~~~~~~T_o_t_a_l~~~~~$~5_0~,_00_0~~~~-$~1~0~0~,~0-0~0~~~~~$-2_00--L...,O~O~O~~~~__;:;a~n~d--'-ov~e-r"----J----

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

plus Preferences 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

---------------------------Adjusted Gross Income------------~-------------------;~ 

84,670,389 83,495,452 948,034 185,142 41,761 

83,408,673 83,389,317 19,149 193 14 Less 

1,003,851 103,478 894,752 5,597 24 $so 

204,278 2,058 33,287 167,745 1,188 hoo 

53,587 599 846 11,607 40,535 $200 

---------------------Adjusted 

84,670,389 83,379,625 

Gross Income plus 

1, 021, 791 

28,822 

992,969 

Preferences---------------------' ~ 

212,461 56,512 

83,408,673 83,379,625 

1,003,851 

204,278 

53,587 

-----------------Adjusted Gross 

84,670,389 83,528,276 

83,408,673 83,408,673 

1,003,851 116,367 

204,278 2,529 

53,587 707 

195 31 

10,858 24 

201,408 2,870 

53,587 

Income minus Investment Interest----------------' 

925,833 176, 934 39,346 

887,484 

37,337 

1,012 

164, 412 

12,522 39,346 

Leas 

$ so 

hoo 

$200 

--------------------------Adjusted Gross Income plus Preferences--~------------- Ad 

84,670,389 83,379,625 1,021,791 212,461 

2,120 

38,338 

172, 003 

56,512 

607 

1,005 

13,139 

41,761 

83,495,452 113,100 

948,034 908,691 

185,142 

41, 761 

-----------------Adjusted Gross 

84,670,389 83,528,276 

83,495,452 83,495,452 

948,034 32,460 

185,142 326 

41,761 38 

-----------------Adjusted Gross 

84,670,389 83,528,276 

83,379,625 83,379,625 

1,021,791 144,262 

212,461 3,560 

56,512 829 

Income minus Investment Interest-----------------

925, 833 176,934 39,346 

915,574 

10,160 

99 

174,656 

2,278 39,346 

Income minus Investment Interest-~--------------

925,833 

877,529 

46,828 

1,476 

176,934 

162,073 

14,861 

39,346 

39,346 

Les 

$ 50 

$10 

$200 

~ 

Less 

$ 50 

ho 

$20 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

July 12, 1978 ~ 0 

Source: 1976 Statistics of Income. 

-90-
er 

- ~ -- - - -- - - - - - - - -

Table 76-10 

Cross-Classification of Numbers of Tax Returns by Income Class by Alternative Income Concepts 

-- Nontaxable Returns, 1976 

Less Than $50,000 to $100,000 to $200,000 

----~~~~~~~~~~~..;..._~~T~o~t~a_l~~~~~$_5_0~,o~o_o~~~~~$~l~O~OL,~o~oo;:__~-'-~-$~2~0~0~,~o~o~o~~-'-~......:;.an=d;;;;_;o~v~e~r~~ 

---~ ~nded Income -----------------------------Adjusted Gross Income--------------------------------

Total 

less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200, 000 and over 

·---~ ~nded Income 

__ .,,, 

Total 

less than $ 50, 000 

$ 50, 000 to $100, 000 

$100,000 to $200,000 

$200,000 and over 

~nded Income 

Total 

less than $ 50,000 

$ 50, 000 to $100,000 

$loo, ooo to $200,000 

$200,000 and over 

~sted Gross Income 

Total 

less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

20,249:~022 20,245,282 3,180 

20,244,296 20,243,890 393 

4,104 1,271 2,765 

533 109 7 

89 12 15 

492 

3 

64 

406 

19 

68 

10 

4 

11 

43 

---------------------Adjusted Gross Income plus Preferences-----------------------

20,249,022 20,243,728 

20,244,296 20,243,728 

4,104 

533 

89 

4,480 

554 

3, 926 

700 

4 

174 

522 

114 

10 

4 

11 

89 

-----------------Adjusted Gross Income minus Investment Interest------------------

20,249,022 20,245,824 

20,244,296 20,244,296 

4,104 1,405 

533 110 

89 13 

--------------------------Adjusted 

20,249,022 20,243,728 

20,245,282 20,243,728 

3,180 

492 

68 

-91-

2, 721 435 42 

2,699 

7 416 

15 19 42 

Gross Income plus Preferences-----------------

4,480 

1,432 

3,048 

700 

110 

117 

473 

114 

12 

15 

19 

68 
Appendix 8 

1975 Data 

-93-
Table 

Number 

75-1 

75-2 

75-3 

75-4 

75-5 

75-6 

75-7 

75-8 

List of Tables in Appendix B 

Title 

Income, Deductions, Credits and Taxes 

for Tax Returns with Expanded Income 

of $200,000 or Over -- 1975: Aggregate 

Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Expanded Income 

of $200,000 or Over -- 1975: As 

Percentages of Expanded Income 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income of $200,000 or Over -- 1975: 

Aggregate Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income of $200,000 or Over -- 1975: 

As Percentages of Adjusted Gross Income 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income plus Preferences of $200,000 

or Over -- 1975: Aggregate Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income plus Preferences of $200,000 

or Over -- 1975: As Percentages of 

Adjusted Gross Income plus Preferences 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income minus Investment Interest of 

$200,000 or Over -- 1975: Aggregate 

Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income minus Investment Interest of 

$200,000 or Over -- 1975: As 

Percentages of Adjusted Gross Income 

minus Investment Interest 

-95-

98 

99 

100 

101 

102 

103 

104 

105 
75-9 

75-10 

Cross-Classification of Numbers of Tax 

Returns by Income Class by Alternative 

Income Concepts -- All Returns, 1975 

Cross-Classification of Numbers of Tax 

Returns by Income Class by Alternative 

Income Concepts -- Nontaxable Returns, 

1975 

-97-

106 

107 
Table 75-1 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Expanded Income of $200,000 or Over -- 1975 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > O 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AG! 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2/ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

16,852,472 

16,852,472 

17, 318, 131 

13,161,611 

465,659 

3,700,821 

3,097,209 

5,913 

597,699 

13,643,754 

26,442 

13,617,309 

107,622 

2,580 

2, 975, 329 

1,016,809 

594,532 

61,658 

455,699 

77,175 

31,147 

24,052 

969,228 

339,561 

31,897 

10,590,121 

6,340,213 

31,149 

334,153 

123,664 

5,853,658 

157,176 

56,069 

99,451 

1,656 

5,696,482 

109,981 

5,806,462 

240,178 

9,878,904 

9,638, 726 

9,826,656 

40,884 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

-98-

Nontaxable 

Returns 

81,111 

81,111 

97,916 

44,316 

16,805 

37,348 

34,850 

26 

~ 

67, 705 

-7,134 

60,569 

602 

7 

74,894 

11,127 

31,292 

664 

16,253 

14,375 

401 

7, 772 

8,228 

16,074 

15,102 

7,305 

4,317 

12 

180 

198 

3,926 

3,926 

3,681 

241 

4 

--0 

0 --0 

6, 728 

6, 728 

0 

0 

215 

Nearly 

Nontaxable 

Returns 

824,351 

824,351 

948,605 

356, 026 

124,254 

473,920 

389,018 

207 

84,695 

482,361 

- 7,676 

474,685 

3,887 

54 

383,085 

96,624 

148,522 

6,585 

118,659 

23,278 

2,997 

3,530 

54,813 

76,599 

14,266 

109,602 

57,188 

164 

1,050 

_}_,JJ]_ 

52,194 

34,570 

24,894 

9,662 

14 

17, 621 

36,632 

54,254 

58,157 

101,285 

43,128 

113,030 

1,409 

July 24, 1978 

All Other 

Taxable 

Returns 

15,947,009 

15,947,009 

16, 271, 609 

12,761,269 

324 ,601 

3,189,555 

2,673,342 

5,681 I 

510,532 

13,093,688 

11, 631. 

13, 082, 057 

103,133 

2,520 

2,517,350 

909,058 

414,717 

54,408 

320, 787 

39,523 

27,750 

12,750 

906,186 

246,889 

2,530 

10,473,215 

6,278, 708 

30,973 

332,923 

119, 689 

5,797,538 

118,677 

27,494 

89,547 

1,636 

5,678,860 

73,348 

5,752,209 

175,292 

9, 770,891 

9,595,599 

9, 713, 628 

39,260 

----, 

lNCOJ 

In 

T 

l 
09 

Table 75-2 

Income, Deductions, Credits. and Taxes for Tax Returns 

with Expanded Income of $200,000 or Over -- 1975 

As Percentages of Expanded Income 

INCOME, PER CONCEPT 

l!XPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

__ Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income -;,_1 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2./ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

100.0 

102.8 

78.1 

2.8 

22.0 

18.4 

* 3.6 

81.0 

- 0.2 

80.8 

0.6 

* 17.7 

6.0 

3.5 

0.4 

2.7 

0.5 

0.2 

0.1 

5.8 

2.0 

_Q.:1 

62.8 

37.6 

0.2 

2.0 

o.7 

34:7 

0.9 

0.3 

0.6 

* 33.8 

0.6 

3CT 

1.4 

58.6 

57.2 

58.3 

40,884 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

Less than 0.05 percent. 

-99-

Nontaxable 

Returns 

100.0 % 

100.0 

120.7 

54.6 

20.7 

46.0 

43.0 

* 

3.0 

83.5 

- 8.8 

7CT 

0.7 

* 92.3 

13. 7 

38.6 

0.8 

20.0 

17.7 

0.5 

9.6 

10.1 

19.8 

18.6 

9.0 

5.3 

* 0.2 

0.2 

-u 

4.8 

4.5 

0.3 

--0 * 

0 - -0 

8.3 

8.3 

0 

0 

215 

Nearly 

Nontaxable 

Returns 

100.0 % 

100.0 

ll5.1 

43.2 

15.1 

57.5 

47.2 

* 10.3 

58.5 

- 0.9 

57.6 

0.5 

* 46.5 

11. 7 

18.0 

0.8 

14.4 

2.8 

0.4 

0.4 

6.6 

9.3 

_____!_:2 

13.3 

6.9 

* 0.1 

0.5 

~ 

4.2 

3.0 

1.2 

* 2"":l 

4.4 

~ 

7.0 

12.3 

5.2 

13. 7 

1,409 

All Other 

Taxable 

Returns 

100.0 % 

100.0 

102.0 

80.0 

2.0 

20.0 

16.8 

* 

3.2 

82.1 

- 0.1 

82.0 

0.6 

* 15.8 

5.7 

2.6 

0.3 

2.0 

0.2 

0.2 

0.1 

5.7 

1.6 

* 

65.7 

39.4 

0.2 

2.1 

0.8 

36.4 

0.7 

0.2 

0.6 

* 

1.1 

61. 3 

60.2 

60.9 

39,260 

July 24, 1978 
Table 7 5-3 

Income, Deductions. Credits and Taxes for Tax Returns 

with Adjusted Gross Income of $200,000 or over -- 1975 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income!!._/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Ta)Cflble Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 11 - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Office of the Secretary of the Treasury 

Off ice of Tax Analysis 

All 

Returns 

12 ,682' 728 

14, 779,494 

15,326,302 

12,148,688 

534,039 

2,643,575 

2,191,266 

4,960 

4471349 

12, 682, 728 

0 

12,682,728 

89,7ll 

1,484 

2,901,840 

968,519 

681,502 

54,248 

534,039 

93,216 

25,238 

18,848 

891,328 

316,404 

311026 

9, 720, 721 

5,903,344 

25,541 

333,701 

88,003 

5,457,908 

1\41, 285 

54,100 

85,859 

11326 

5,316,625 

721317 

5,388,942 

209,927 

9,074,719 

8,864,792 

8,975,907 

33,606 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

-100-

Nontaxable 

Returns 

ll7,100 

65,809 

124,283 

60,027 

57,073 

7,183 

6,212 

38 

932 

ll7 ,100 

0 

ll7,100 

701 

7 

127,044 

13,661 

80,416 

1,155 

57,073 

22,187 

537 

3,967 

10,015 

18,448 

18,228 

7,576 

4,lf04 

12 

180 

199 

4:oI2 

4,0ll 

3,763 

243 

5 ---0 

___ o

0 

6,984 

6,984 

0 

0 

260 

Nearly All Other 

Nontaxable Taxable 

Returns Returns 

382,812 12,182,817 

330,472 14,393,214 

467,749 14,734,271 

242,992 ll,845,670 

139,819 337,147 

84,938 2,551,454 

65,815 2,ll9,238 

ll5 4,807 

191007 4271409 

382,812 12,182,817 ] 0 0 

382,812 12,182,817 

2,004 87,007 

13 1,465 

319,771 2,455,025 

64,160 890,698 

172,ll8 428,969 

4,961 48,133 

139,819 337,147 

27,340 43,690 

1,469 23,232 

2,709 12,172 

32,305 849,008 

47,0ll 250,945 

~ 41787 

69,036 9,644,108 

37,816 5,061,123 

ll9 25,410 

1,010 332,512 

~ 861319 

35,202 5,418,694 

24, 706 ll2,563 

22,049 28,286 

2,650 82,963 

7 11314 

10,493 5,306,132 

~ 661647 

16,164 5,372,77'l 

38,244 164,700 

64,758 9,002,978 

26,514 8,838,278 

38,126 8,937,781 

732 32,614 

July 24, 1978 
Table 75-4 

Income, Deductions, Credits, and Taxes for T~x Returns 

with Adjusted Gross Income of $200,000 or over -- 1975 

As Percentages of Adjusted Gross Income 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns wfth AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income l_! 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2,/ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

All 

Returns 

100.0 % 

116.5 

120.8 

95.8 

4.2 

20.8 

17.3 

* 3.5 

100.0 

0 

100.0 

0.7 

* 22.9 

7.6 

5.4 

0.4 

4.2 

0.7 

0.2 

0.2 

7.0 

2.5 

_Q_:±_ 

76.6 

46.6 

0.2 

2.6 

0.7 

43.0 

1..1 

0.4 

0.7 

* 41. 9 

0.6 

42.5 

1. 7 

71. 6 

69.9 

70.8 

Number of Tax Returns Represented 

in the tabulation 

33,606 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-101-

2 71-892 0 - 78 - 7 

Nontaxable 

Returns 

100.0 % 

56.2 

106.1 

51.3 

48.7 

6.1 

5.3 

* 0.8 

100.0 

0 

100.0 

0.6 

* 108.5 

11. 7 

68.7 

1.0 

48.7 

19.0 

0.5 

3.4 

8.6 

15.8 

15.6 

6.5 

3.8 

* 

0.2 

0.2 

~ 

3.4 

3.2 

0.2 

--0 * 

0 --0 

6.0 

6.0 

0 

0 

260 

Nearly All Other 

Nontaxable Taxable 

Returns Returns 

100.0 % 100.0 % 

83.7 118.1 

122.2 120.9 

63.5 97.2 

36.5 2.8 

22.2 20.9 

17.2 17.4 

* * 5.0 3.5 

100.0 100.0 

0 0 

100.0 100.0 

0.5 0.7 

* * 83.5 20.2 

16.8 7.3 

45.0 3.5 

1. 3 0.4 

36.5 2.8 

7.1 0.4 

0.4 0.2 

0.7 0.1 

8.4 7.0 

12.3 2.1 

2.1 * 

18.0 79.2 

9.9 48.1 

* 0.2 

0.3 2.7 

0.4 0.7 

9:2 44.5 

6.4 0.9 

5.8 0.2 

0.7 0.7 

* * -u 43.6 

1.5 0.6 

4:2 44.1 

10.0 1.4 

16.9 73.9 

6.9 72.6 

10.0 73.4 

732 32,614 

July 24, 1978 
Table 75-5 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income plus Preferences of $200,000 or Over -- 1975 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income !!_/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2,/ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All . 

Returns 

17,912,101 

17,269,318 

17,912,101 

13,495,332 

642,783 

3,788,730 

3,171,700 

6,289 

6101742 

14,149,815 

261442 

14,123,370 

114,493 

2,580 

3,262,745 

1,049,761 

793,069 

67, 649 

628,038 

97,383 

33,087 

25,526 

1,002,517 

358,785 

47z765 

10,817,759 

6,450,171 

32,163 

337,674 

1251692 

5,951,059 

160,997 

57,658 

101,621 

1, 718 

5,796,062 

112 1 677 

5,908,739 

248,051 

10,095,744 

9,847,693 

10,043,925 

43,344 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

-102-

Nearly 

Nontaxable Nontaxable 

Returns Returns 

157,876 1,244,343 

95,631 1,009,540 

157,876 1,244,343 

55,208 451,660 

62,244 234,803 

41,891 566,594 

38,764 463,354 

so 327 

-1..iP.]_ 1021912 

123,119 685,426 

- 7 ,134 - 71676 

115,985 677, 750 

1,045 6,272 

7 54 

138,332 558,265 

14,177 121,390 

84,462 268,185 

1,341 9,932 

60, 777 226,089 

22,344 32,164 

556 3,869 

8,121 4,151 

11,228 70, 508 

19,788 90,162 

24,107 22,265 

7,844 143,100 

Lf,468 70,786 

12 219 

180 1,078 

199 41746 

4:D76 64,741 

4,075 37,601 

3,763 26,222 

307 11,361 ___ 5 18 

0 27,140 

0 42,360 ---0 69,500 

7,241 64,469 

7,241 132,697 

0 68,228 

0 152,685 

362 2,257 

July 24, 1978 

All Other 

Taxable 

Returns 

16,509,882 

16,164,146 

16,509,882 

12,988,464 

345,735 

3,180,245 

2,669,580 

5,913 

5041753 

13,341,267 

111631 

13,329,636 

107,178 

2,520 

2,566,148 

914,194 

440,422 

56,376 

341,173 

42,875 

28,662 

13,254 

920,781 

248,836 

1 1 393 

10,666,815 

6,374,917 

31,932 

336,416 

1201748 

5,888,242 

119,319 

27,674 

89,951 

1 1 694 

5,768,923 

70,318 

5,839,240 

176,342 

9,955,807 

9, 779,465 

9,891,241 

40, 725 
Table 75-6 

Income, Deductions, Credits, and Taxes for Tax 

with Adjusted Gross Income Plus Preferences of $200,000 or Over -- 1975 

As Percentages of Adjusted Gross Income Plus Preferences 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income !/ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income !:!_/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2_/ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: §_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulaion 

All 

Returns 

100.0 % 

96.4 

100.0 

75.3 

3.6 

21. 2 

17.7 

* 3.4 

79.0 

- 0.2 

78.8 

0.6 

* 18.2 

5.9 

4.4 

0.4 

35 

0.5 

0.2 

0.1 

5.6 

2.0 

---9.!.l 

60.4 

36.0 

0.2 

1. 9 

0.7 

33.3 

0.9 

0.3 

0.6 

* 32.4 

0.6 

33.0 

1. 3 

56.4 

55.0 

56.1 

43 ,344 

Nearly 

Nontaxable Nontaxable 

Returns Returns 

100.0 % 100.0 % 

60.6 81.1 

100.0 100.0 

35.0 36.3 

39.4 18.9 

26.5 45.5 

24.6 37.2 

* * 2.0 8.3 

78.0 55.1 

- 4.5 - 0.6 

73:5 54.5 

0.7 0.5 

* * 87.6 44.9 

9.0 9.8 

53.5 21.6 

0.8 0.8 

38.5 18.2 

14.2 2.6 

0.4 0.3 

5.1 0.3 

7.1 5.7 

12.5 7.2 

15.3 ~ 

5.0 11.5 

2.8 5.7 

* * 0.1 0.1 

0.1 0.4 

~ s-:2 

2.6 3.0 

2.4 2.1 

0.2 0.9 

--0 * * 2:2 

0 3.4 --0 s-:-6 

4.6 5.2 

4.6 10.7 

0 5.5 

0 12.3 

362 2,257 

All Other 

Taxable 

Returns 

100.0 % 

97.9 

100.0 

78.7 

2.1 

19.3 

16.2 

* 3.1 

80.8 

- 0.1 

80.7 

0.6 

* 15.5 

5.5 

2.7 

0.3 

2.1 

0.3 

0.2 

0.1 

5.6 

1.5 

* 

64.6 

38.6 

0.2 

2.0 

~ 

35.7 

0.7 

0.2 

0.5 

* 34.9 

0.4 

35.4 

1.1 

60.3 

59.2 

59.9 

40,725 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

July 24, 1978 

See Uniform footnotes following Table 76-7 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-103-
Table 75-7 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income minus Investment Interest of $200,000 or Over -- 1975 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income !/ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income!±_/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 21 - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

ll,788,400 

14,282,404 

14,629,433 

ll,788,400 

338 '213 

2,502,820 

2,073,083 

4, 602 

425 2 135 

12,126,613 

0 

12,126,613 

83,477 

1,484 

2,582,521 

931,624 

461,584 

49,360 

338,213 

74, Oll 

23,644 

17,690 

854,672 

293,306 

161545 

9,475,676 

5,780,480 

24,373 

330,005 

841827 

5,343,035 

137,006 

52,906 

82,816 

11284 

5,206,027 

651210 

5,271,237 

201,786 

8,842,379 

8,640,593 

8,737,761 

31,391 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

-104-

Nearly 

Nontaxable Nontaxable 

Returns Returns 

47,469 170, 417 

51,402 205,307 

65,669 247,897 

47,469 170,417 

13,853 38,294 

4,349 39,184 

3,803 29,256 

16 52 

530 9,875 

61,321 208,712 

0 0 

61,321 208,712 

326 919 

7 13 

63,325 162,271 

10,209 43,090 

28, 631 61,393 

602 3,644 

13,853 38,294 

14,176 19,453 

387 813 

3,585 2,610 

6, 762 20,523 

13, 750 33,844 

~ 3,253 

6,986 48,765 

!1' 228 2~,842 

12 88 

180 934 

198 734 

3,838 27,086 

3,837 22,300 

3,676 20,844 

157 1,454 

4 2 ---0 4,787 

---0 0 ~ 

7, 717 

6,415 33,696 

6,415 46,010 

0 12,314 

0 18,121 

126 345 

July 24, 1978 

All Other 

Taxable 

Returns 

ll,570,514 

14,025,695 

14,315,866 

ll,570,514 

286, 066 

2,459,287 

2,040,023 

4,533 

414 2 729 

ll,856,580 

0 

ll,856,580 

82,234 

1,465 

2,356,925 

878,324 

371,560 

45,113 

286, 066 

40,382 

22,444 

ll,495 

827,388 

245,711 

3!970 

9,419,927 

5,747,410 

24,274 

328,891 

831895 

5,312,111 

110,869 

28,387 

81,205 

11277 

5,201,241 

62!279 

5,263,520 

161,675 

8,789,954 

8,628,279 

8,719,640 

30,920 
Table 75-8 

Income. Deductions, Credits. and Taxes for Tax Returns 

with Adjusted Gross Income minus Investment Interest of $200,000 or Over -- 1975 

As Percentages of Adjusted Gross Income Minus Investment Interest 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income ll 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 21 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 11 

Invest. Interest > Invest. Income !ii 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 51 

Saving from Maximum Tax ~./ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 61 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~I 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

All 

Returns 

100.0 % 

121. 2 

124.1 

100.0 

2.9 

21. 2 

17.6 

* 3.6 

102.9 

0 

102.9 

o. 7 

* 21.9 

7.9 

3.9 

0.4 

2.9 

0.6 

0.2 

0.2 

7.2 

2.5 

0.1 

80.4 

49.0 

0.2 

2.8 

0.7 

45.3 

1.2 

0,4 

0.7 

* 

1. 2 

75.0 

73.3 

74.1 

31,391 

Nontaxable 

Returns 

100.0 % 

108.3 

138.3 

100.0 

29.2 

9.2 

8.0 

* 1.1 

129.2 

0 

129.2 

0.7 

* 133.4 

21.5 

60.3 

1.3 

29.2 

29.9 

0.8 

7.6 

14.2 

29.0 

19.6 

14.7 

8.9 

* 0.4 

0.4 

-s.l 

8.1 

7.7 

0.3 

--0 * 

__ o

0 

13.5 

13.5 

0 

0 

126 

Nearly 

Nontaxable 

Returns 

100.0 % 

120.5 

145.5 

100.0 

22.5 

23.0 

17.2 

* 5.8 

122.5 

0 

122.5 

0.5 

* 95.2 

25.3 

36.0 

2.1 

22.5 

11.4 

0.5 

1.5 

12.0 

19.9 

~ 

28.6 

16.9 

0.1 

0.6 

0.4 

15.9 

13.1 

12.2 

0.8 

* 

19.8 

27.0 

7.2 

10.6 

345 

All Other 

Taxable 

Returns 

100.0 % 

121.2 

123.7 

100.0 

2.5 

21.2 

17. 6 

* 3.6 

102.5 

0 

102.5 

0.7 

* 20.4 

7.6 

3.2 

0.4 

2.5 

0.4 

0.2 

0.1 

7.2 

2.1 

* 

81.4 

49.7 

0.2 

2.8 

0.7 

45.9 

1.0 

0.2 

0.7 

* 45.0 

0.5 

45.5 

1.4 

76.0 

74.6 

75.4 

30,920 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

July 24, 1978 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1975 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-105-
Table 75-9 

Cross-Classification of Numbers of Tax Returns by Income Class by Alternative Income Concepts 

-- All Returns, 1975 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

plus Preferences 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Total 

Less Than 

$50,000 

$50,000 to 

$100,000 

$100,000 to 

$200,000 

$200,000 

and over 

----------------------------Adjusted Gross Income---------------------------------

82, 229, 182 81,262,674 780,470 152,432 33,606 

81,215,630 81,197,893 17,524 180 33 

807 ,399 63,103 738,376 5,825 95 

165,269 1,307 24,156 138,670 1,136 

40,884 371 414 7,757 32,342 

---------------------Adjusted 

82,229,182 81,190,697 

81,215,630 81,190,697 

807,399 

165,269 

40,884 

Gross Income plus 

821,253 

24,477 

796, 776 

Preferences-----------------------

173, 888 43,344 

418 38 

10,481 142 

162,989 2,280 

40,884 

-----------------Adjusted Gross Income minus Investment Interest------------------

82,229,182 81,289,752 

81,215,630 81,215,630 

807,399 71,746 

165,269 1,890 

40,884 486 

762, 709 145,330 31,391 

735,653 

26, 480 

576 

136,899 

8,431 31,391 

--------------------------Adjusted Gross Income plus 

821,253 

Preferences-----------------

82,229,182 81,190,697 

81,262,674 81,190,697 

780,470 

152,432 

33,606 

-----------------Adjusted Gross 

82,229,182 81,289,752 

81,262,674 81,262,674 

780,479 26,582 

152,432 410 

33,606 86 

-----------------Adjusted Gross 

82,229,182 81,289,752 

81,190,69] 81,190,697 

821,253 94,959 

173,888 3,412 

43,344 684 

173,888 43,344 

70,022 1,569 386 

751,231 28,747 492 

143,572 8,860 

33,606 

Income minus Investment Interest-----------------

762, 709 145,330 31,391 

753,813~ 

8,678 

143 

143,344 

1,986 31,391 

Income minus Investment Interest-----------------

762, 709 145,330 31,391 

726, 294 

35,442 

973 

135,034 

10,296 31,391 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

July 12, 1978 

Source: 1975 Internal Revenue Service Tax Model. 

-106-
Table 7 5-10 

Cross-Classification of Numbers of Tax Returns by Income Class by Alternative Income Concepts 

-- Nontaxable Returns, 1975 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Expanded Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Adjusted Gross Income 

plus Preferences 

Total 

Less than $ 50,000 

$ 50,000 to $100,000 

$100,000 to $200,000 

$200,000 and over 

Total 

Less Than 

$50,000 

$50,000 to 

$100,000 

$100,000 to 

$200,000 

$200,000 

and over 

----------------------------Adjusted Gross Income---------------------------------

20,822,251 20,816,533 4,749 709 260 

20,816,696 20,815,601 958 115 

219 

366 

22 

39 

61 

4,654 779 3,617 

686 107 152 

215 46 22 9 138 

---------------------Adjusted Gross Income plus Preferences-----------------------

20,822,251 20,813,859 6, 607 1,423 362 

20,816,696 20,813,859 2,467 343 27 

4,654 4,140 471 43 

686 609 77 

215 215 

-----------------Adjusted Gross Income minus Investment Interest------------------

20,822,251 

20,816,696 

4,654 

686 

215 

20,817,839 

20,816,696 

876 

212 

55 

3,879 

3, 778 

87 

14 

407 

387 

20 

126 

126 

--------------------------Adjusted Gross Income plus 

6,607 

Preferences-----------------

20,822,251 20,813,859 

20,816,533 20,813,859 

4,749 

709 

260 

-----------------Adjusted Gross 

20,822,251 20,817,839 

29,816,533 20,316,533 

4,749 1,135 

709 141 

260 30 

-----------------Adjusted Gross 

20,822,251 20,817,839 

20,813,859 20,813,859 

6,607 3,279 

1, 423 596 

362 105 

1, 423 362 

2,498 123 53 

4,109 618 22 

682 27 

260 

Income minus Investment Interest-----------------

3, 879 407 126 

3,614 

229 

36 

339 

68 126 

Income minus Investment Interest-~--------------

3, 879 407 126 

3,328 

501 

50 

326 

81 126 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

July 12, 1978 

Source: 1975 Internal Revenue Service Tax Model. 

-107-
Appendix C 

1974 Data 

The eight tables in this appendix contain aggregate data 

and percentage distributions of the income, preference, 

deduction, credit, and tax items from 1974 returns. They are 

the counterparts to Tables 76-1 through 76-8 for 1976 and 

Tables 75-1 through 75-8 for 1975. They are similar to the 

Tables 15 through 22 in last year's high-income report, with 

two major exceptions. The first change is that the nearly 

nontaxable group has been redefined to be consistent with the 

definition for 1975 and 1976 used throughout this report. 

Nearly nontaxable returns are those returns which show some 

tax liability but which have a ratio of taxable income to 

income of less than 20 percent. 1/ The redefinition of 

nearly nontaxable returns also required a revision of the 

data for all other taxable returns. Again consistent with 

the data for 1975 and 1976, the second change is that in the 

percentage tables the income concept used as the classifier 

is considered to be 100 percent; in 1974-1975 report, 

expanded income was 100 percent on all tables, regardless of 

the classifier. 

The data in this appendix, along with all other 1974 

data in this report and all 1974 data in last year's 

high-income report, are derived from the 1974 Internal 

Revenue Service tax model. It has just been discovered that 

there is a systematic error in the 1974 IRS tax model and 

that all of the 1974 data in both last year's and this year's 

high-income report are subject to revision. The , weights 

assigned to some of the specific tax returns in the model 

were incorrect. As a result, some of the population 

estimates from the 1974 IRS tax model are too large. The 

incorrectly weighted tax model indicates that there are 

36,015 returns with adjusted gross income of $200,000 or more 

as compared to 31,132 in the correctly weighted 1974 

1/ The denominator in the taxable income to income ratio is 

whichever income concept is used for selection and 

classification for that particular table. 

-109-
Statistics of Income file from which the tax model itself was 

derived. This represents a 16 percent overstatement in the 

number of high-income returns. However, since the number of 

nontaxable returns appears to be correct, only the numbers of 

nearly nontaxables and of all other taxables are inflated. 

It is believed that the overestimates of the numbers of 

high-income returns for the three other income concepts are 

of the same order of magnitude. 

While these errors are disturbing, we do not believe 

that they make the 1974 data published so far useless. The 

dollar aggregates of income, deductions, credits, and taxes 

attributable to these high-income returns are incorrect, but 

the distributions are correct. Thus, the shares representing 

the relative importance of each deduction, etc., which are 

shown on the even numbered tables are essentially correct. 

-110-
Table 

Number 

74-1 

74-2 

74-3 

74-4 

74-5 

74-6 

74-7 

74-8 

List of Tables in Appendix C 

Title 

Income, Deductions, Credits and Taxes 

for Tax Returns with Expanded Income 

of $200,000 or Over -- 1974: Aggregate 

Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Expanded Income 

of $200,000 or Over -- 1974: As 

Percentages of Expanded ~ncome 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income of $200,000 or Over -- 1974: 

Aggregate Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income of $200,000 or Over -- 1974: 

As Percentages of Adjusted Gross Income 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income plus Preferences of $200,000 

or Over -- 1974: Aggregate Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income plus Preferences of $200,000 

or Over -- 1974: As Percentages of 

Adjusted Gross Income plus Preferences 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income minus Investment Interest of 

$200,000 or Over -- 1974: Aggregate 

Data 

Income, Deductions, Credits and Taxes 

for Tax Returns with Adjusted Gross 

Income minus Investment Interest of 

$200,000 or Over -- 1974: As 

Percentages of Adjusted Gross Income 

minus Investment Interest 

-111-

112 

113 

114 

115 

116 

117 

118 

119 
Table 74-1 

Income, Deductions, Credits, And Taxes for Tax Returns 

with Exl>anded Income of $200,000 or Over -- 1974 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESl'KENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest". Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income ~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving fro• Alternative Tax ~/ 

Saving from Mad.aua Tax ~/ 

Saving froa Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

}jinimua Tax 

Total Income Tax 

Deduction Eq~ivalent of Tax Credits J../ 

Taxable Income which would yield: !/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

17,087,358 

17,087,358 

17 ,603, 969 

13,439,765 

516,610 

3,657,128 

3,381,524 

6,022 

269,583 

13,968,792 

21,950 

13,946,840 

113,375 

2,255 

2,907,140 

970,901 

636,691 

41,366 

507,077 

88,250 

29,180 

18,180 

919,220 

332,967 

25,639 

10,972,110 

6,567,115 

40,141 

290,766 

203,136 

6,033,169 

111,218 

47,933 

62,650 

635 

5,921,951 

114,594 

6,036,542 

170,539 

10,196,555 

10,026,016 

10,220,917 

42, 687 

See Uniform footnotes follow;tn_g Table 76-8 in Append-f.x,A. 

Source: 1974 Internal Revenue Service tax model. 

-lUNontaxable 

Returns 

58,190 

58,190 

78,076 

33,673 

19,887 

24,754 

24,732 

21 

0 

56,302 

-2,978 

53,323 

724 

11 

61,799 

8,333 

31,715 

182 

19,651 

11,883 

141 

2,721 

5,583 

13,306 

10,259 

4,075 

2 ,2.48 

0 

66 

90 

2,094 

2,094 

1,916 

178 

0 ---0 

0 ---0 

3,854 

3,854 

0 

0 

167 

Nearly 

Nontaxable 

Rgturns 

697,474 

697,474 

824,151 

285,814 

126,677 

416,207 

338,785 

179 

77 ,245 

415,584 

- 7,643 

407,941 

3,569 

41 

344,380 

81,222 

148,395 

1,669 

122,129 

24,598 

2,560 

3,601 

46,906 

61,693 

11,170 

78,856 

39,816 

42 

978 

2,790 

36, 007 

22,092 

16,400 

5,688 

4 

13,916 

32,705 

46,616 

37,865 

72,687 

34,822 

96,990 

1,275 

July 24, 1978 

All Other 

Taxable 

Returns 

16,331,694 

16,331,694 

16,701,742 

13,120,278 

370,046 

3,216,167 

3,018,007 

5,822 

192,338 

13,496,906 

11,329 

13,485,576 

109,082 

2,203 

2,500,961 

881,346 

456,581 

39,515 

365,297 

51,769 

26,479 

11,858 

866,731 

257' 968 

4,210 

10,889,179 

6,525,051 

40,099 

289,722 

200,256 

5,995,068 

87,032 

29,617 

56,784 

631 

5,908,035 

81,889 

5,989,926 

128,820 

10,120,014 

9,991,194 

10,123,927 

41,245 
Table 74-2 

Income, Deductions_, Credits, and 'raxes for Tax Returns 

with Expanded Ineom~ of $200,000 or Over -- 1974 

As Percentages of Expanded Income 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 1./ 

Invest. Interest > Invest. Income!!_/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax !j_/ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

100.0 

103.0 

78.7 

3.0 

21.4 

19.8 

~ 

* 

81. 7 

- 0.1 

81.6 

0.7 

* 17.0 

5.7 

3.7 

0.2 

3.0 

0.5 

0.2 

0.1 

5.4 

· l. 9 

~ 

64.2 

3g;4 

0.2 

1. 7 

1.2 

35.3 

0.7 

0.3 

0.4 

* 34:7 

0.7 

35.4 

1.0 

59.7 

58.7 

59.8 

42,687 

See Uniform footnotes following Table 76-8 in Appaudix A. 

Source: 1974 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-113-

Nontaxable 

Returns 

100.0 % 

100.0 

134.2 

57.9 

34.2 

42.5 

42.5 

* 0 

96.8 

- 5.1 

91.6 

1.2 

* 106.2 

14.3 

54.5 

0.3 

33.8 

20.4 

0.2 

4.7 

9.6 

22.9 

~ 

7.0 

3.9 

0 

0.1 

0.2 

-r6 

3.6 

3.3 

0.3 

0 --0 

__ o

0 

6.6 

6.6 

0 

0 

167 

Nearly All Other 

Nontaxable Taxable 

Returns Returns 

100.0 % 100.0 % 

100.0 100.0 

118.2 102.3 

41.0 80.3 

18.2 2.3 

59.7 19.7 

48.6 18.5 

* * 11.1 1.2 

59.6 82.6 

- 1.1 - 0.1 

58.5 82.6 

0.5 0.7 

* * 49.4 15.3 

11.6 5.4 

21.3 2.8 

0.2 0.2 

17.5 2.2 

3.5 0.3 

0.4 0.2 

0.5 0.1 

6.7 5.3 

8.8 1.6 

~ * 

11.3 66.7 

5.7 40.0 

* 0.2 

0.1 1.8 

0.4 1.2 

-.s:-2 36.7 

3.2 0.5 

2.4 0.2 

0.8 0.4 

* * 2:o 36.2 

4.7 0.5 

-u 36.7 

5.4 0.8 

10.4 62:0 

5.0 61.2 

13.9 62.0 

1,275 41,245 

July 24, 1978 
Table 74-3 

Income, Deductions, Credits, and Taxes for Tax Returns 

with.Adjusted Gross Income· Qf $200,000 or Over -- 1974 

Ag$.regate Data 

($ :tn thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AG! of Returns with AG! > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 1./ 

Invest. Interest > Invest. Income !!_/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AG! 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 5/ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

13,181,598 

15,097,684 

15,741,891 

12,551,430 

630,168 

2,560,293 

2,404,443 

5,242 

1502609 

13,181,598 

0 

13,181,598 

96,396 

1,286 

2,938,358 

934,795 

781,040 

35,140 

630,168 

115,734 

27,042 

17,743 

860,934 

316,802 

362330 

10,181,889 

6,170,348 

35,243 

291,366 

155,228 

5,688,566 

101,942 

45,837 

55,414 

692 

5,586,624 

70, 710 

5,657,334 

152,181 

9,488,324 

9,336,143 

9,444,781 

36,015 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1974 Internal Revenue Service tax model. 

-114-

Nontaxable 

Returns 

109,808 

45,979 

114,595 

42,148 

67,660 

4,787 

4,752 

36 

0 

109,808 

0 

109,808 

972 

4 

127,958 

11,254 

88,920 

317 

67,660 

20,944 

401 

2,785 

8,814 

15,782 

23,013 

3,887 

2,208 

0 

66 

93 

2":051 

2,051 

1,965 

85 

0 

0 

0 

0 

3,659 

3,659 

0 

0 

244 

Nearly All Other 

Nontaxable Taxable 

Returns Returns 

412,479 12,659,311 

313,614 14,738,091 

498,492 15,128,804 

235,265 12,274,017 

177 ,215 385,293 

86,012 2,469,494 

74,777 2,324,914 

134 5,072 

11,103 1392506 

412,479 12,659,311 

0 0 

412,479 12,659,311 

2,538 92,886 

0 1,282 

362,875 2,447,525 

64,331 859,210 

213,599 478,521 

1,281 33,542 

177 ,215 385,293 

35,104 59,686 

1,912 24,729 

3,391 11,567 

33,225 818,895 

46,415 254,605 

112975 1 2 342 

59,040 10,118,962 

30,271 6,137,869 

67 35,176 

986 290,314 

678 154,457 

28,539 5,657,976 

17,852 82,039 

15,815 28,057 

1,949 53,380 

90 602 

10,688 5,575,936 

5 2 828 642882 

16,516 5,640,818 

28,490 120,032 

56,299 9,428,366 

27,809 9,308,334 

40,107 9,404,674 

896 34,875 

July 24, 1978 
Table 74-4 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income of $200,000 or Over -- 1974 

As Percentages of Adjusted Gross Income 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1./ 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 1/ 

Invest. Interest > Invest. Income !!_I 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2,/ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

All 

Returns 

100.0 % 

ll4.5 

ll9.4 

95.2 

4.8 

19.4 

18.2 

* 

--1:1. 

100.0 

0 

100.0 

0.7 

* 22.3 

7.1 

5.9 

0.3 

4.8 

0.9 

0.2 

0.1 

6.5 

2.4 

_Q=.l 

77 .2 

t.6.8 

0.3 

2.2 

1. 2 

43.2 

0.8 

0.4 

0.4 

* 42.4 

0.5 

42.9 

1.2 

72.0 

70.8 

71. 6 

36,015 

Nontaxable 

Returns 

100.0 % 

41. 9 

104.4 

38.4 

61.6 

4.4 

4.3 

* 0 

100.0 

0 

100.0 

0.9 

* ll6.5 

10.2 

81.0 

0.3 

61. 6 

19.1 

0.4 

2.5 

8.0 

14.4 

21. 0 

3.5 

2.1) 

0 

0.1 

0.1 

1. 9 

1. 9 

1.8 

0.1 

0 --0 

0 --0 

3.3 

3.5 

0 

0 

244 

Nearly 

Nontaxable 

Returns 

100.0 % 

76.0 

120.8 

57.0 

43.0 

20.8 

18.1 

* 2.7 

100.0 

0 

100.0 

0.6 

0 

88.0 

15.6 

51.8 

0.3 

43.0 

8.5 

0.5 

0.8 

8.0 

11.2 

~ 

14.3 

7.3 

* 0.2 

0.2 

6.9 

4.3 

3.8 

0.5 

* 

6.9 

13.6 

6.7 

9.7 

896 

All Other 

Taxable 

Returns 

100.0 % 

ll6.4 

ll9.5 

97.0 

3.0 

19.5 

18.4 

* 1.1 

100.0 

0 

100.0 

0.7 

* 19.3 

6.8 

3.8 

0.3 

3.0 

0.5 

0.2 

0.1 

6.5 

2.0 

* 

79.9 

48.5 

0.3 

2.3 

1. 2 

44.7 

0.6 

0.2 

0.4 

* 44.0 

0.5 

44.6 

1.0 

74.5 

73.5 

74.3 

34,875 

Office of the Secretary of the Treasury July 24, 1978 

Office of Tax Analysis 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1974 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-115-
Table 74-5 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gross Income plus Preferences of $2~0,000 or Over -- 1974 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income ll 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AG! of Returns with AG! > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 1/ 

Invest. Interest > Invest. Income !!_I 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AG! 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 11 

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Off ice of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

18,335,322 

17,572,387 

18,335,322 

13,839,140 

762,934 

3,753,498 

3,469,828 

6,494 

277 ,177 

14,603,775 

21,950 

14,581,823 

122,073 

2,255 

3,294,290 

1,006,520 

918,086 

45,561 

742,682 

129,842 

30,960 

19,460 

963,294 

355,971 

55,380 

ll,240,983 

6,696,412 

41,184 

294,535 

206, 673 

6,154,104 

114,757 

49,225 

64,804 

729 

6,039,347 

117,372 

6,156,719 

177,590 

10,452,087 

10,274,497 

10,477,920 

45,704 

See Uniform footnotes following Table 76-8 in Appendix A 

Source: 1974 Internal Revenue Service tax model. 

-116-

Nontaxable 

Returns 

148,012 

70,995 

148,012 

43,463 

77 ,018 

29,377 

29,329 

49 

0 

121, 613 

- 2,978 

118,635 

1,253 

11 

144,638 

12,415 

101,574 

450 

75,172 

25,951 

422 

2,785 

10,126 

17,315 

28,768 

4,528 

2,396 

0 

66 

93 

2,238 

2,238 

1,970 

268 

0 

0 

0 ---0 

4,300 

4,300 

0 

0 

355 

Nearly 

Nontaxable 

Returns 

1,168,928 

893,327 

1,168,928 

386,851 

275,599 

519,373 

429,079 

329 

89,965 

657,198 

7,643 

649,553 

6,484 

41 

563,150 

105,104 

309,592 

3,137 

262,703 

43,752 

3,395 

4,367 

65,463 

75,232 

24,666 

112,274 

52,638 

74 

986 

3,769 

47,809 

24,154 

17 ,138 

6,925 

92 

23,653 

39,404 

63,057 

42,425 

104,213 

61,788 

140,452 

2,285 

July 24, 1978 

All Other 

Taxable 

Returns 

17,018,382 

16,608,065 

17,018,382 

13,408,826 

410,317 

3,204,748 

3,011,420 

6,ll6 

187 ,212 

13,824,964 

11,329 

13,813,635 

ll4,336 

2,203 

2,586,502 

889,001 

506, 920 

41,974 

404,$07 

60,139 

27,143 

12,308 

887,705 

263,424 

1,946 

ll,124,181 

6,641,378 

41,110 

293,483 

202,811 

6,104,057 

88,365 

30,ll7 

57,611 

637 

6,015,694 

77, 968 

6,093,662 

130,865 

10,343,574 

10,212,709 

10,337,467 

43,064 
Table 74-6 

Income, Deductions, Credits, and Taxes for Tax Returns 

with Adjusted Gro~s Income plus Preferene~s of $200,000 or Over -- 1974 

As Eercentages of Adjusted Gross Income Plus Preferences 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income 1/ 

Tax Preferences -

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 1./ 

Invest. Interest > Invest. Income !!._/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2/ 

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented in the tabulation 

Office of the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

95.8 

100.0 

75.5 

4.2 

20.5 

18.9 

* 1.5 

79.6 

- 0.1 

79:5 

0.7 

* 18.0 

5.5 

5.0 

0.2 

4.0 

0.7 

0.2 

0.1 

5.2 

1. 9 

___Q__:] 

61.3 

36.5 

0.2 

1.6 

1.1 

33.6 

0.6 

0.3 

0.4 

* 32.9 

0.6 

33.6 

1.0 

57.0 

55.9 

57.2 

45,704 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1974 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-117-

Nearly 

Nontaxable Nontaxable 

Returns Returns 

100.0 % 100.0 % 

48.0 76.4 

100.0 100.0 

29.4 33.1 

52.0 23.6 

19.8 44.4 

19.8 36.7 

* * 0 7.7 

82.2 56.2 

- 2.0 - 0.6 

80.2 55.6 

0.8 0.6 

* * 97.7 48.2 

8.4 9.0 

68.6 26.5 

0.3 0.3 

50.8 22.5 

17.5 3.7 

0.3 0.3 

1.9 0.4 

6.8 5.6 

11. 7 6.4 

19.4 _B 

3.1 9.6 

1.6 4.5 

0 * * 0.1 

0.1 0.3 

--w l;3 

1.5 2.1 

1.3 1.5 

0.2 0.6 

0 --0 * -z.o 

0 3.4 --0 -s:-4 

2.9 3.6 

2.9 8.9 

0 5.3 

0 12.0 

355 2,285 

July 24, 1978 

All Other 

Taxable 

Returns 

100.0 % 

97.6 

100.0 

78.8 

2.4 

18.8 

17.7 

* 1.1 

81.2 

- 0.1 

81.2 

0.7 

* 15.2 

5.2 

3.0 

0.2 

2.4 

0.4 

0.2 

0.1 

5.2 

1.6 

* 

65.4 

39.0 

0.2 

1. 7 

1.2 

35.9 

0.5 

0.2 

0.3 

* 35.4 

0.5 

35.8 

0.8 

60.8 

60.0 

60.7 

43,064 
Table 74-7 

Income, Deductions, Credits, and Taxes for Tax Return 

with Adjusted Gross Income minus Investment Interest of $200,000 or Over -- 1974 

Aggregate Data 

($ in thousands) 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income ll 

Tax Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income ~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax ]./ -

Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: ~/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

All 

Returns 

12,097,231 

14,506,370 

14,889, 783 

12,097,231 

375,242 

2,417,307 

2,271,746 

4,789 

140, 774 

12,472,476 

0 

12,472,476 

88,234 

1,286 

2,531,637 

895,503 

492,795 

31,687 

375,242 

85,867 

25,306 

15,562 

812,789 

289,682 

14,459 

9,865, 778 

6,011,449 

33,611 

286,647 

150,694 

5,540,560 

97,705 

44,494 

52,611 

598 

5,442,855 

64,152 

5,507 ,007 

144,306 

9,188,943 

9,044,637 

9,139,904 

Number of Tax Returns Represented in ~he tabulation 33,142 

Office of the Secretary of the Treasury 

Off ice of Tax Analysis 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1974 Internal Revenue Service tax model. 

-118-

Nontaxable 

Returns 

32,719 

~ 34,437 

50,985 

32,719 

16,323 

1,943 

1,932 

11 

0 

49,041 

0 

49,041 

535 

4 

54,807 

7,461 

28,303 

110 

16,323 

11,871 

115 

2,719 

4,370 

11,839 

9,669 

3,365 

2,034 

0 

66 

90 

1,880 

1,880 

1,875 

6 

0 --0 

___ o

0 

3,144 

3,144 

0 

0 

89 

Nearly 

Nontaxable 

Returns 

146,957 

162,358 

202,360 

146,957 

37,735 

17,664 

12,479 

51 

~ 

184,696 

0 

184,696 

996 

0 

157,163 

41,439 

59,447 

517 

37,735 

21,195 

1,176 

1,806 

19,743 

33,552 

~ 

30,684 

16,252 

36 

977 

259 

14, 977 

10,415 

9,893 

516 

3 

16,766 

28,761 

11,995 

14,467 

366 

July 24, 1978 

All Other 

Taxable 

Returns 

11, 917 ,555 

14,309,575 

14,636,438 

11,917,555 

321,184 

2,397,700 

2,257,335 

4,727 

135,638 

12,238,739 

0 

12,238,739 

86,703 

1,282 

2,319,667 

846,603 

405,045 

31,060 

321,184 

52,801 

24,015 

11,037 

788,676 

244,291 

641 

9,831,729 

5,993,163 

33 ,575 

285,604 

150,345 

5,523,703 

85,410 

32,726 

52,089 

595 

5,438,295 

63,188 

5,501,483 

124,396 

9,157,038 

9,032,642 

9,125,437 

32,687 
Table 74-8 

Income, Deductions. Credits. and Taxes for Tax Returns 

~ith Adjusted Gross I~ minus Investment Interest of $200,000 or Over -- 1974 

As Percentage of Adjusted Gross Income less Investment Interest 

INCOME, PER CONCEPT 

EXPANDED INCOME 

AGI PLUS PREFERENCES 

AGI MINUS INVESTMENT INTEREST < INVESTMENT INCOME 

Investment Interest < Investment Income l/ 

Tax .Preferences 

Excluded Long-Term Capital Gains 

Dividend Exclusion 

Other Tax Preferences 2/ 

ADJUSTED GROSS INCOME 

Deficits 

AGI of Returns with AGI > 0 

Exemptions 

Standard Deductions 

Itemized Deductions 

Charitable Contributions 

Interest: Total 

Home Mortgage 

Invest. Interest < Invest. Income 3/ 

Invest. Interest > Invest. Income ~/ 

Medical 

Casualty 

Tax Expense 

Miscellaneous Deductions 

Excess of Exemptions & Deductions over AGI 

Taxable Income 

Tax at Normal Rates 

Saving from Alternative Tax 5/ 

Saving from Maximum Tax 2./ - Saving from Income Averaging 

Tax Before Credits 

Tax Credits 

Foreign Tax Credit 

Investment Credit 

All Other Credits 6/ 

Tax After Credits 

Minimum Tax 

Total Income Tax 

Deduction Equivalent of Tax Credits II 

Taxable Income which would yield: '§_/ 

Income Tax before Credits 

Income Tax after Credits 

Total Income Tax 

Number of Tax Returns Represented 

in the tabulation 

Off ice o{ the Secretary of the Treasury 

Office of Tax Analysis 

All 

Returns 

100.0 % 

119.9 

123.1 

100.0 

3.1 

20.0 

18.8 

* 1. 2 

103.1 

0 

103.1 

0.7 

* 20.9 

7.4 

4.1 

0.3 

3.1 

0.7 

0.2 

0.1 

6.7 

2.4 

_Q.:l_ 

81.6 

49.7 

0.3 

2.4 

1. 2 

45.8 

0.8 

0.4 

0.4 

* 45.0 

0.5 

45 . .5 

1.2 

76.0 

74.8 

75.6 

33,142 

See Uniform footnotes following Table 76-8 in Appendix A. 

Source: 1974 Internal Revenue Service tax model. 

* Less than 0.05 percent. 

-119-

Nontaxable 

Returns 

100.0 % 

105.2 

155.8 

100.0 

49.9 

5.9 

5.9 

* 0 

149.g 

0 

149.9 

1.6 

* 167.5 

22.8 

86.5 

0.3 

49.9 

36.3 

0.4 

8.3 

13.4 

36.2 

..12.:.2. 

10.3 

6.2 

0 

0.2 

0.3 

-s.s 

5.8 

5.7 

* 0 --0 

0 --0 

9.6 

9.6 

0 

0 

89 

Nearly 

Nontaxable 

Returns 

100.0 % 

110.5 

137.7 

100.0 

25.7 

12.0 

8.5 

* 3.5 

125.7 

0 

125.7 

0.7 

0 

106.9 

28.2 

40.4 

0.4 

25.7 

14.4 

0.8 

1.2 

13.4 

22.8 

~ 

20.9 

11.1 

* 0.7 

0.2 

10.2 

7.1 

6.7 

0.4 

* 3.1 

0.7 

~ 

11.4 

19.6 

8.2 

9.8 

366 

July 24, 1978 

All Other 

Taxable 

Returns 

100.0 % 

120.1 

122.8 

100.0 

2.7 

20.1 

18.9 

* 1.1 

102.7 

0 

102.7 

0.7 

* 19.5 

7.1 

3.4 

0.3 

2.7 

0.4 

0.2 

0.1 

6.6 

2.0 

* 

82.5 

50.3 

0.3 

2.4 

1.3 

46.4 

0.7 

0.3 

0.4 

* 45.6 

0.5 

46.2 

1.0 

76.8 

75.8 

76.6 

32,687 
Appendix D 

Comparing Deductions, Credits, and 

Special Tax Computations 

In order to be able to compare tax credits and special 

tax computations such as the minimum tax, the alternative 

tax, the maximum tax, and income averaging to deductions and 

exclusions, a deduction equivalent for each of these 

provisions must be calculated. The deduction equivalent of a 

credit or of a special tax computation is computed by 

determining the difference between the taxable income which, 

using normal tax rate schedules, would yield the actual tax 

before the provision and the actual tax after the provision. 

For example, "deduction equivalent of tax credits" is equal 

to the difference between "taxable income which would yield 

tax before credits" and "taxable income which would yield tax 

after credits." !/ 

It should be noted that under this method of computing 

deductions and credits, the order in which the various 

deductions, credits, and special tax provisions are 

calculated affects the value of deduction equivalents. 

Because the tax rate schedule is progressive and successive 

increments to income are taxed at successively higher rates, 

the deduction of equivalent of the items which are last 

converted to a deduction equivalent will be larger (for the 

same amount of a credit) than the items converted first. 

For purposes of computing the deduction equivalent of 

the credits for the tables in Appendices A, B, and c, credits 

were taken after deductions, so that the deduction equivalent 

of credits is biased upwards. In order to simplify 

computation, the general tax credits available to taxpayers 

in 1975 and 1976 were ignored. In 1975, the credit was $30 

1/ An alternative would have been to compute the value of 

the tax saving provided by deductions and exclusions. That 

saving would be comparable to the value of a special tax 

computation and of a tax credit. Neither method is superior 

analytically. 

-121-
for each exemption claimed, other than exemptions for age and 

blindness. In 1976, the general tax credit was the larger of 

$35 per exemption (other than those for age or blindness) or 

two percent of the first $9,000 of tax ($4,500 on a separate 

return of a married person) • Omitting consideration of these 

credits is not significant for high-income returns. It also 

facilitates accurate comparisons between the deduction 

equivalents of nontaxable and taxable returns. 

For Tables 16 and 17, credits and deductions were 

compared in a slightly different manner which tends to 

over-value credits as compared with the deduction equivalent 

method. Whether the largest credit or the largest deduction 

yielded a larger tax saving was determined by comparing the 

tax saving yielded by the largest deduction with the value of 

the largest credit. 

-122-

U. S. GOVERNMENT PRINTING OFFICE : 1978 0 - 271-892 
f 

r 

>-==== a:= 

:J ~-'° ~ )EPARTMENT OF THE TREASURY 

~-... Washington, D.C. 20220 ~ 0 ~ P"'I OFFICIAL BUSINESS a:=O i-: .,.. Penalty for Private Use $300 (/) 

::;:::::::::::::: 

FIRST CLASS