|Richest Americans See Their Income Share Grow
By JESSE DRUCKER July 23, 2008
The Wall Street Journal
IN A NEW sign of increasing inequality in the U.S., the
richest 1% of Americans in 2006 garnered the highest
share of the nation's adjusted gross income for two
decades, and possibly the highest since 1929, according
to Internal Revenue Service data. [Charts]
Meanwhile, the average tax rate of the wealthiest 1%
fell to its lowest level in at least 18 years. The
group's share of the tax burden has risen, though not
as quickly as its share of income.
The figures are from the IRS's income-statistics
division and were posted on the agency's Web site last
week. The 2006 data are the most recent available.
The figures about the relative income and tax rates of
the wealthiest Americans come as the presumptive
presidential candidates are in a debate about taxes.
Congress and the next president will have to decide
whether to extend several Bush-era tax cuts, including
the 2003 reduction in tax rates on capital gains and
dividends. Experts said those tax cuts in particular
are playing a major role in falling tax rates for the
Sen. John McCain has proposed extending the lower tax
rates of 15% on long-term capital gains and dividends
that apply to most taxpayers, while Sen. Barack Obama
has said he will seek to raise them to at least 20%,
the rate before the 2003 cut, and possibly higher.
According to the figures, the richest 1% reported 22%
of the nation's total adjusted gross income in 2006.
That is up from 21.2% a year earlier, and is the
highest in the 19 years that the IRS has kept strictly
comparable figures. The 1988 level was 15.2%. Earlier
IRS data show the last year the share of income
belonging to the top 1% was at such a high level as it
was in 2006 was in 1929, but changes in measuring
income make a precise comparison difficult.
The average tax rate in 2006 for the top 1%, based on
adjusted gross income, was 22.8%, down slightly from
2005 and the fifth straight year of declines. The
average tax rate of this group was 28.9% in 1996, and
was 24% in 1988.
As the wealthiest Americans' share of income has risen,
so has their share of the income-tax burden. The group
paid 39.9% of all income taxes in 2006, compared with
27.6% in 1988. In the most recently reported five
years, however, the share of income reported by the
very wealthy has risen faster than the group's share of
The IRS data look only at so-called adjusted gross
income, which is reported on tax returns, and focus
only on income taxes. A report by the Congressional
Budget Office late last year, which used wider
definitions of both income and taxes, found similar
Joel Slemrod, a tax economist at the University of
Michigan's business school, said that some portion of
the increase in income for the top 1% could stem from
the increasing shift to entities such as partnerships,
which means some income previously reported by
businesses is now reported by individuals. Larger
factors likely include changes in trade policy and
other aspects of the increasingly global economy, he
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