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Economic News, Data and Analysis

Income-Inequality Gap Widens

WSJ (news) looks at income inequality. How long before the WSJ editorial page will attack the methodology?

Income-Inequality Gap Widens – WSJ.com

The richest Americans’ share of national income has hit a postwar record, surpassing the highs reached in the 1990s bull market, and underlining the divergence of economic fortunes blamed for fueling anxiety among American workers.
The wealthiest 1% of Americans earned 21.2% of all income in 2005, according to new data from the Internal Revenue Service. 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, 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.
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.
Scholars attribute rising inequality to several factors, including technological change that favors those with more skills, and globalization and advances in communications that enlarge the rewards available to “superstar” performers whether in business, sports or entertainment.
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