A: The nation's top 400 taxpayers made more than $263 million on average in 2006, as the stock market was rallying, but paid income taxes at the lowest rate in the 15 years that the Internal Revenue Service has tracked such data, according to figures released Thursday.

Source: For 'Fortunate 400,' a Tumbling Tax Rate (Wall Street Journal)

Each year, the IRS releases information on the so-called Fortunate 400, the 400 U.S. taxpayers with the highest adjusted gross income.

The average income of this group was the highest recorded by the IRS and was up from $213.9 million the year before. In constant dollars, the average income of the top 400 taxpayers nearly quadrupled from 1992, the first year such data were collected.

Meanwhile, the group's average income tax rate -- calculated as income taxes paid as a percentage of adjusted gross income -- fell to 17.2% in 2006 from 18.2% the prior year. That's down from a high of 29.9% in 1995.

IRS data last year examining the top 1% of taxpayers based on adjusted gross income -- roughly 1.4 million taxpayers -- showed their average tax rate in 2006 fell to its lowest level in at least 18 years. This larger group also garnered the highest share of the nation's adjusted gross income for two decades, and likely the highest since 1929.

The cutoff for being included in the top 400 was adjusted gross income of $110.6 million. That doesn't include some items, such as tax-free interest from municipal bonds. It is also higher than the taxable income taxpayers use to calculate their tax burden.

Can we finally dispense with the threadbare ideological cover that low taxes on stupendous unearned income is necessary because this fuels "the productive elements in our economy"? Excuse me, but just how "productive" is it to collect hundreds of millions in dividends, capital gains and tax-free muni bonds?

The taxpayers who are actually the top producers by the practical metric of creating goods, services and jobs tend to make $100,000 to $250,000--small business owners, professionals, entrepreneurs, managers of small companies, etc. When you count FICA (Social Security) and self-employment taxes and Medicare taxes, these taxpayers usually end up paying about 35-45% of their gross income in Federal taxes--a far, far higher rate than the 17% enjoyed by the top 1% who own 3/4 of the productive wealth of the nation.

Is it really too much to expect this elite to pay taxes at the same rate as the citizenry slogging their guts out to keep the real economy running?

And note that tax-free municipal bond income was not even counted. That means hundreds of millions in real income is not even being counted.

How about we cap tax-free muni bond income at $100,000 per tax return, and then tax everything above that at standard income rates? 99.9% of the owners of muni bonds or muni bond funds make well under $100,000 per year from tax-free bonds, so such a generous limit would only affect the "Fortunate 400" or perhaps a few thousand fortunate few at most.

And please don't tell me the muni bond market will collapse if the Fortunate 400 can't collect hundreds of millions in tax-free income. The muni bond market is collapsing because the local governments and agencies which issue such bonds are headed straight to insolvency.

Here's one more thing: fully 1/3 of the Fortunate 400 would have paid no tax at all on their $263 million incomes if it weren't for the Alternative Minimum Tax. Now the AMT needs to be radically revised to capture only the top 5% of tax evaders, but the importance of such a net in a nation where the top 1% can buy tax breaks and protect their income basically at will via political influence and high-priced tax attorneys is obvious.

Here are two articles which support yesterday's thesis on bond yields and oil prices. Correspondent Craig McCarty sent in this Bloomberg piece:

Treasuries Headed for Full-Blown Bear Market, Citigroup Says:

“This may sound a bit ridiculous, but we think we have begun a full-blown bear market in fixed income,” wrote Tom Fitzpatrick, Citigroup’s New York-based chief technical analyst, and London-based strategist Shyam Devani. “The commodity that is going to be the most in demand as far as the eye can see is capital. As a consequence, the cost of capital can only go one way -- up.”

The 30-year bond’s yield may rise to 5 percent by late 2009, the highest level since August 2007, according to Citigroup. The U.S. will probably borrow $2.5 trillion this fiscal year, compared with $892 billion last year, according to Goldman Sachs Group Inc.

“The most striking feeling we have as 2009 begins is that there is this wall of consensus negativity about financial markets,” the analysts wrote. “We believe this comes from the need for huge government issuance around the world competing for a scarce resource.”

Oil Rebound Could Drown in Diesel (WSJ)

Last year's superspike in oil prices was diesel-powered. That is bad news for oil bulls.

This is no mere rear-view exercise. Diesel demand is tied closely to trade and economic growth. With the likes of Volvo reporting slumping demand for trucks, and China's power output falling, the diesel train has been thrown into reverse. Without it, hopes of a rebound in crude prices are misplaced.

New Reader essay!
Report from California
(Steve R.)

Thought you might be interested in some reports from the front lines.

First off, I have learned that the number of "extreme" poaching offenses in the state during 2008 increased over prior years. We have discussed this before in our correspondence and our prediction that the economic downturn will increase impacts on ecosystems seems to be materializing.

Regarding crime, a funny thing happened to me this past holiday weekend.

Operation SERF, Part 8

Chris Sullins' "Strategic Action Thriller" is fiction, and on occasion contains graphic combat scenes.

"This guy is THE leading visionary on reality. He routinely discusses things which no one else has talked about, yet, turn out to be quite relevant months later."
--An anonymous comment about CHS posted on another blog.

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