Tax returns indicate N.Y. is home of the 1 percent

WASHINGTON -- New York is where the 1 percent live -- and they have the tax returns to prove it. Nine of the 10 most heavily taxed neighborhoods in the United States are in the city's metropolitan area, Internal Revenue Service data show.

The nine neighborhoods, which range from Manhattan to Fairfield County, Conn., accounted for 0.2 percent of all federal income-tax filers in 2008, the latest year for which data are available, according to IRS statistics compiled by Bloomberg. They paid 1.6 percent of all individual income taxes, eight times their proportionate share of the filing population.

The $16.5 billion paid in the nine ZIP codes would be enough to buy a controlling interest in General Motors or match the combined economies of the Bahamas, Fiji and Tajikistan. The disproportionate amount also counters arguments by anti-Wall Street protesters who claim to represent "99 percent" of Americans and say the rich should be taxed more, said Mitchell Moss, an urban policy professor at New York University's Wagner School.

"We're subsidizing the slackers in the rest of the country," Moss said. "This is the most productive part of the United States of America, in terms of taxes paid."

The only ZIP code outside the New York area to make the top 10 was a west Houston suburb that accounted for $1.5 billion in federal individual income taxes. The neighborhood includes the Houstonian Hotel, Club & Spa, which George H.W. Bush listed as his primary residence during his presidency.

Nationally, the IRS showed, 137.7 million U.S. households paid $987.4 billion in federal taxes in 2008. The nine New York- area ZIP codes reported $70.1 billion, or 0.9 percent, of the nation's total adjusted gross income of $7.98 trillion.

Individual income taxes are the federal government's largest source of tax revenue, accounting for 45 cents of every $1 raised. Payroll taxes, which are more regressive, make up 36 cents; corporate taxes another 12 cents; and other taxes account for 7 cents of every tax dollar raised by the government.

There's no doubt that income inequality is growing. The Congressional Budget Office reported last month that after-tax income for the richest 1 percent of U.S. households grew 275 percent between 1979 and 2007. For the lowest 20 percent, after- tax income grew 18 percent over the same period. And the Occupy Wall Street protesters in Manhattan and elsewhere are pressing for more taxes on the highest earners, or the "1 percent," as one way to curb the growing income disparity.

The share of taxes paid in the New York neighborhoods "is irrelevant and a distortion of the fact that as a percentage, wealthy people pay far less as a portion of their earnings," Karanja Gaua, an Occupy Wall Street spokesman who identifies himself as a former Deutsche Bank analyst, said in an email.

The largest amount of individual tax collections came from the 10021 ZIP code on New York's Upper East Side. The IRS data show 29,820 individual returns were filed from residents there, with total income taxes of $2.85 billion, or an average tax bill of $95,489. More than 93 percent of taxes in the ZIP code came from households with adjusted gross income greater than $200,000, the IRS records show.

The ZIP code extends from the East River into Central Park, between 69th and 77th Streets. Property owners include Stephen Schwarzman, founder and chairman of Blackstone Group; David Koch, co-owner of Koch Industries Inc., one of the largest privately held U.S. companies; and John Thain, chairman and chief executive officer of CIT Group.

The $1.4 trillion economy of the New York metropolitan area is a "huge contributor" to the national treasury, said Kathryn Wylde, president and chief executive officer of the Partnership for New York City, a nonprofit coalition that includes more than 100 chief executives.

"Clearly, New York City is paying a disproportionate share of the tax burden," Wylde said in a telephone interview. "It's the country's economic engine."

The individual income tax figures don't take into account the burden of local property and sales taxes, as well as state income taxes that typically affect lower and middle-income households more than wealthy filers, said Rebecca Wilkins, senior counsel for federal tax policy at Citizens for Tax Justice, a nonprofit Washington-based group that advocates a more even distribution of taxes.

People in the lowest 20 percent of earners, or those who have an average cash income of $12,500 a year, pay 3.9 percent of their income in federal taxes and 12.3 percent in state and local taxes, Wilkins said. People in the highest 1 percent, who have an average cash income of almost $1.3 million annually, pay 22.1 percent in federal taxes and 7.9 percent in state and local taxes.

"The federal income tax is very progressive," she said. "It's the state and local taxes that are borne more by lower- income brackets."