New IRS Data based on the adjusted gross income in a large sample of tax returns shows income inequality in America is at a high not seen since the 1920s.
The Wall Street Journal reports:
- The wealthiest 1% of Americans earned 21.2% of all income in 2005. That is up sharply from 19% in 2004, and surpasses the previous high of 20.8% set in 2000, at the peak of the previous bull market in stocks.
- The bottom 50% earned 12.8% of all income, down from 13.4% in 2004 and a bit less than their 13% share in 2000.
- The IRS data go back only to 1986, but academic research suggests the rich last had this high a share of total income in the 1920s.
Experts point to the sky-high salaries of hedge fund managers as a source of the spike in income inequality.
- The highest-earning hedge-fund manager earned double in 2005 what the top earner made in 2003
- The top 25 hedge-fund managers earned more in 2004 than the chief executives of all the companies in the Standard & Poor's 500-stock index, combined.
- Profits per equity partner at the top 100 law firms doubled between 1994 and 2004, to over $1 million in 2004 dollars.
The IRS data, based on a large sample of tax returns, are for "adjusted gross income," which is income after some deductions, such as for alimony and contributions to individual retirement accounts. While dated, many scholars prefer it to timelier data from other agencies because it provides details of the very richest -- for example, the top 0.1% and the top 1%, not just the top 10% -- and includes capital gains, an important, though volatile, source of income for the affluent.
