Richest Americans' Income 
Share Jumps Sharply

The richest Americans sharply increased their share of total income in 2004, though it remained below the high-water mark of 2000, new data from their tax returns show.

Internal Revenue Service data, posted on the agency's web site Friday, also show that the average tax rate for Americans as a whole remained near its lowest in 20 years and has fallen most sharply for the best-off.

The share of all income earned by the top 1% of taxpayers rose to 19% in 2004 from 16.8% in 2003, the IRS said. That remains below the 20.8% high hit in 2000, when it was elevated by capital gains related to the stock boom.

Jared Bernstein, economist at the Economic Policy Institute, a liberal-leaning think tank, attributed the jump, the biggest in 16 years, to "both higher earnings and stock market returns that high-end folks enjoyed in 2004, and continuing on last year too." He called it another piece of evidence of an unbalanced recovery: "You have an economy generating growth, and it's got to be going somewhere. It certainly wasn't reaching the bottom half, so it's no surprise it was accumulating at the top."

After tax, the share of income of the best-off 1% jumped to 16.5% from 14.4% but remains below the 2000 peak of 17.8%.

The data show that the average tax rate for all taxpayers was 12.1%, up slightly from 11.9% in 2003 but down from 15.3% in 2000, due in part to the Bush tax cuts. Rates fell most for those at the top. The tax rate of the richest 1% fell to 23.5% from 24.3% in 2003 and 27.5% in 2000. For the bottom 50%, the 2004 tax rate was 3%, unchanged from 2003 and down from 4.6% in 2000.

Although dated, the IRS figures are among the best ways to compare the gains of the rich, middle class and poor because they include things that some other reports don't, including capital-gains income and taxes paid. Because capital gains are volatile and mainly reflect swings in the stock market, some experts prefer the Census Bureau data. That showed the richest families' share of total income in 2004 equaled its previous high and rose to a new high in 2005.

Chris Frenze, executive director of the Republican-controlled Joint Economic Committee of Congress, noted that the top half of taxpayers now pay 96.7% of all taxes, the highest in decades. And he said the data understate the after-tax situation of those at the bottom by excluding the full impact of refundable tax credits.

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