Ohio sees sharp drop in number of millionaires

Millionaires in the state declined 40 percent from 2007 to 2009.

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By Cornelius Frolik and Randy Tucker
Staff Writers Updated 8:24 AM Monday, October 31, 2011

The richest 1 percent of Americans have been the target of the Occupy Wall Street demonstrations, with protesters loudly condemning income inequality in the country and accusing the rich of getting richer while the rest of the country suffered.

While no one can deny the vast gap between rich and poor in this country, the Great Recession spread the economic pain across all income groups, including the so-called 1-percenters in Ohio, based on a Dayton Daily News analysis of state income tax returns.

In 2009, the Internal Revenue Service set the minimum threshold for the top 1 percent of all wage-earners at $343,927 in annual income.

The number of Ohio taxpayers in that group fell by 24 percent during the recession, from more than 62,000 in 2007 to less than 47,000 in 2009, according to state tax data.

Rich hurt by market

The drop in their collective adjusted gross incomes was even more dramatic, plunging 47 percent to $68.4 billion from $128.5 billion.

The rich, especially millionaires, have been hurt by volatility in the stock market because they derive so much of their income from investments and capital gains, which include sales from stocks, real estate and bonds, economists said.

“There actually was a 43 percent decline of millionaires in Ohio, and nationally, the decline was 40 percent, so we are just mirroring the country,” said Gary Gudmundson, spokesman for the Ohio Department of Taxation.

But rich Americans saw their incomes surge before the recession began. The Congressional Budget Office reported this month that between 1979 and 2007 the top 1 percent of households saw their incomes grow by 275 percent, compared to 18 percent growth for the bottom 20 percent of earners.

Even though they represented less than 0.2 percent of all tax returns, the 236,883 tax filings nationally reporting $1 million or more in income accounted for $150 billion in taxable net gains, or 57.2 percent of the total amount, according to the IRS.

Taxable net gains are the amount of positive capital gains that are subject to taxation, said James Nunns, senior fellow at the Urban-Brookings Tax Policy Center in Washington, D.C.

So when taxable net gains fell to $263 billion in 2009 from $912 billion in 2007, the highest income earners were disproportionately impacted, according to IRS data.

“The amount of capital gains in the aggregate dropped a lot, and those are heavily received by high-income people,” Nunns said.

When the stock market peaked in 2007, capital gains also soared, said Martin Sullivan, an economist and contributing editor for Tax Analysts publications. But when the market tanked in 2009, so did the amount of income from capital gains.

Ohio lost 3,360 millionaires

The adjusted gross income of Ohio taxpayers earning $1 million or more, including capital gains, was cut almost in half to about $50 billion in 2009 from $103 billion in 2007. The number of resident Ohio millionaires also fell to 4,478 from 7,838.

Nationwide, the number of tax returns reporting $1 million or more in income dropped by 40 percent to about 236,880 in 2009 from about 392,200 in 2007, according to the IRS.

“As you move up the income scale, a larger and larger share of that income is capital gains,” Sullivan said. “The aggregate amount of capital gains realized over time is far more cyclical than wage and other income that makes up most regular people’s income.”

The ranks of the highest income groups are always volatile, because earnings are usually tied to the health of the stock market, economists said.

“The fluidity of the $1 million and above crowd is very high — meaning that those in it don’t stay in it very long and get replaced by someone new,” said Matt Mayer, president of the Buckeye Institute. “As the economic pain spread, those in it fell out and those who would naturally replace them became fewer.”

The “occupy” protesters have railed against corporate greed, tax breaks for the rich and income inequalities that have widened the wealth gap to record proportions.

But one of the main reasons the poor and middle-class are losing ground in such a sour economy has been a dramatic increase in household debt, said Curvin Miller, vice president of the wealth management firm Russell & Co. in Fairborn.

“We’ve seen our country since 1981 become addicted to the credit card, and we see the results of that now here and in Europe and even worldwide,’’ Miller said, referring to recent debt crisis in the U.S. and abroad.

The absence of debt is perhaps the most distinguishing characteristic of the Dayton area’s 1-percenters, many of whom are former high-ranking officers from Wright-Patterson Air Force Base and former top executives for such Fortune 500 companies as General Motors and NCR Corp.

Occupy for ‘99 percent’

Unlike high-income earners who have stocks and investments, members of the lower classes derive most of their income from their jobs, and stagnate wages and the weak employment market has hurt the finances of most Ohioans, said Amy Hanauer, executive director of Policy Matters Ohio.

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