The rich didn't necessarily get richer in the 1980s. They may simply have reported more taxable income because the tax laws changed.

• Most of the income gain among the wealthiest fifth of taxpayers was realized by just a few of them - the top one-fourth of 1 percent of all taxpayers.

• The reported income of this small group rose slowly in the early 1980s.

• There was a very sharp increase in their reported income in 1987 and 1988 - immediately after the top marginal tax rate dropped from 50 percent to 28 percent.

The very rich are able to change the way they receive much of their income, enabling them legally to reduce, defer or avoid taxable income. The pattern in 1987 and 1988 indicates that many decided to receive more taxable income because of the lowered top marginal tax rate.

The makeup of the income reported by the very rich also changed with the change in tax laws.

• Capital gains were an important part of their reported income in 1986, when capital gains were taxed at a lower rate.

• Beginning in 1987, they reported few capital gains, but their reported income from wages, which became subject to a lower tax rate, rose sharply.

• Their share of interest income, which also had a lower tax rate after 1986, was another category that rose sharply.

The reason for the uncertainty about the income of the rich is that taxpayers were not required to report tax-exempt income, so only the taxable amount is known.

Source: Daniel R. Feenberg and James M. Poterba, "Income Inequality and the Incomes of Very High Income Taxpayers: Evidence from Tax Returns," NBER Working Paper No. 4229, National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138, (617) 868-3900.

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