Tax rates fell for 400 richest

The average tax rate paid by the richest 400 Americans fell by a third to 17.2% through the first six years of the Bush administration, and their average income doubled to $263.3 million, new data show.

The 17.2% in 2006 was the lowest since the Internal Revenue Service began tracking the 400 largest taxpayers in 1992, although they paid more tax on an inflation-adjusted basis than for any year since 2000.

The drop from 2001’s tax rate of 22.9% was largely because of President Bush’s push to cut tax rates on most capital gains to 15% in 2003.

Capital gains made up 63% of the richest 400 Americans’ adjusted gross income in 2006, or a combined $66.1 billion, according to the data. In all, those taxpayers reported a combined $105.3 billion in adjusted gross income in 2006, the most recent year for which the IRS has data.

“The big explosion in income for this group is clearly on the capital gains side, although there are also sharp increases in dividend and interest income,” said Dean Baker, co-director of the Center for Economic Policy and Research in Washington.

In addition, “they are realizing more of their gains due to the lower tax rate,” Baker said.

The data may provide ammunition for Democrats such as House Speaker Nancy Pelosi of San Francisco who say they intend to increase the capital gains tax rate even as the credit crunch roils markets and is producing more investment losses than gains.

President Obama pledged during the presidential campaign to increase the rate.