As Americans were gathering party supplies to greet the New Year, the Internal Revenue Service released their annual report of cumulative tax data reported on the 400 tax returns with the highest reported income in 2013. The media widely reported the surprising news that these highest-income taxpayers saw their average tax rate jump to 22.9 percent in 2013, up from 16.7 percent in 2012. Journalists said the change resulted from President Obama’s success in raising tax rates on capital gains and dividends from 15 percent to 20 percent for taxpayers in the highest tax bracket starting in 2013.

While that’s true, there’s more to the story.

2013 was an exceptional year for the stock market.  The S&P 500 stock index rose 29.6 percent, its largest gain since 1997. Usually when markets soar, capital gains (the gains on sales of stock, bonds, houses, etc.) also soar. But in 2013 capital gains reported on the tax returns of the top 400 taxpayers fell sharply, declining by more than a third from the previous year.  This meant that a smaller share than usual of overall income on the highest income tax returns was taxed at low capital gains rates, contributing to the higher tax rates reported.

Why would reported capital gains fall in the face of a soaring stock market?

Foreseeing the pending tax increases on investment income approved by Congress and signed into law by President Obama in 2012, our nation’s highest earners loaded as much of their investment income as was possible in order to take advantage of the lower rates in effect in 2012.

The preferential tax rates afforded to people with investment income are central to why the rich pay so little. In 2013, 54 percent of the income reported by the Top 400 taxpayers was subject to lower preferential tax rates on investment income. This share was down significantly from 2012, when more than 68 percent of the income reported by the Top 400 taxpayers was taxed at the deeply discounted rates on capital gains and dividends.

Preferential rates on investment income overwhelmingly benefit the highest income taxpayers. There were 147,351,299 tax returns filed in 2013, and just 400 of them (0.0002 percent of the total) reported nearly 10 percent (9.77 percent) of the total capital gains reported on all 147 million tax returns. To put that in proportion that’s like one person in all of Minneapolis, Minnesota garnering 10 percent of the city’s income.

The IRS report also provides a wealth of other interesting information on these members of the economic elite.

The threshold for making it into the elite Top 400 universe in 2013 was just over $100 million in adjusted gross income.

Top 400 taxpayers reported 1.33 percent of the total income reported on more than 147 million tax returns filed in 2013. (Twenty years earlier in 1993, the Top 400 reported 0.5 percent of the total income on tax returns that year, one sign of the concentration of income.) They paid 1.96 percent of all federal income taxes paid in 2013. This suggests that the income tax system remains mildly progressive. In 2007, the Top 400 taxpayers as a group paid 2.05 percent of the nation’s individual income taxes.