US Inequality Widens, Redistribution Gets Harder in the US
US inequality keeps widening as tax policy and stock-based wealth make redistribution harder. Here’s why the gap persists.
JAKARTA — US Inequality Widens, Redistribution Gets Harder as tax policy keeps shifting away from the kind of large-scale redistribution that briefly narrowed income gaps during the Obama years. The result is familiar: wealth keeps pooling at the top, and political support for changing that looks thin.
That tension matters far beyond Washington. When taxes and transfers lose force, middle- and lower-income households feel it in the public services governments can afford, while the richest Americans keep finding new ways to shelter gains. The numbers in the United States show how stubborn the pattern has become.
Obama-era gains did not last
Eduardo Porter, writing in The Guardian, traced the long American fight over inequality and pointed to what Barack Obama’s administration managed before it left office. Jason Furman, then chair of the president’s Council of Economic Advisers, called it “the biggest investment to reduce inequality since Great Society.” That claim was backed by real movement in the data.
By the end of 2016, taxes and social transfers had reduced the share of income going to the richest 1 percent of households by more than one-fifth, according to Congressional Budget Office estimates. At the same time, the poorest fifth of households saw their share of income rise from 3.9 percent to 7.9 percent, the highest level since at least 1979. It was a sharp break from the past. Brief, though.
When the administration changed, the policy direction changed with it. The gap widened again.
Tax cuts shifted the balance back up
Donald Trump, who often styled himself as a defender of workers, took a different route. The 2017 Tax Cuts and Jobs Act delivered substantial relief to higher-income groups. Near the end of his first term, the richest 1 percent of households was receiving 13.2 percent of income after taxes and transfers, up from 12.5 percent when Obama left office.
The pandemic briefly interrupted that trend. The $2.2 trillion Cares Act stimulus package signed by Trump lifted lower-income households, and in 2020 the poorest fifth of households received 8.2 percent of national income, the highest level in decades. But that boost faded fast. CBO data show the figure slipped to 7.4 percent in 2022, the latest year counted.
That decline tells a blunt story. Emergency aid can move the numbers. Durable redistribution is harder.
Why redistribution keeps hitting a wall
Porter argues that deep inequality is not simply a Trump-era problem. It has survived across Democratic and Republican administrations because the United States has repeatedly resisted large progressive tax moves. High taxes are unpopular. Especially among people with the biggest bills.
Researchers at the University of California, Berkeley, found that the 400 richest Americans paid a smaller share of tax on their income than the average citizen. The reason is not mysterious. Wealthy households have more ways to shift assets, defer income and structure holdings so the tax bill stays low.
Many rich Americans do not live off salary at all. They live off rising stock values. They can borrow against shares, spend the cash and avoid selling the assets that would trigger capital-gains tax. Inherited wealth gets another layer of protection. Porter noted that unrealized capital gains account for 55 percent of the largest inheritances.
That is the heart of the system. The richer the household, the easier it becomes to keep taxable income looking small. The mechanics reward patience, legal sophistication and access to advisers. Ordinary wages do not get the same treatment.
What the system does for the very top
Elon Musk stands as one of the clearest examples in Porter’s account. ProPublica reported that Musk’s wealth rose by $13.9 billion between 2014 and 2018, while he paid $455 million in tax on his official income. In 2015, he was said to have paid $68,000 in federal income tax. In 2017, $65,000. In 2018, nothing.
Those figures are stark because they show how wealth and taxable income can drift apart. A billionaire can become richer by the year without showing much on the tax ledger. The assets keep appreciating. The advisers keep arranging. The tax bill stays light.
Steve Jobs, Mark Zuckerberg, Larry Ellison and Larry Page were also cited as examples of people standing near the top of a system designed to protect capital accumulation. The point is not just that they are wealthy. It is that the rules are built to make wealth last.
So what does this mean for readers outside the United States? The same fight shows up in many countries, including Indonesia, where debates over progressive tax, social assistance and public-service funding keep returning to one hard question: who pays, and who is protected? When wealth concentrates faster than wages rise, governments find less room to fund schools, health care and social protection without asking more from those already carrying most of the load.
That is why Porter’s warning lands with force. Obama’s efforts, the strongest in more than half a century, now look like a temporary interruption in a much longer American pattern. As long as assets grow faster than paychecks, the richest households will keep pulling away, and redistribution will remain a political fight as much as an economic one.
The latest CBO figure leaves little room for comfort: the poorest fifth of households received 7.4 percent of national income in 2022, down from the 8.2 percent peak reached during the pandemic.
