I presented this information at a talk about the growing income inequality in the United States. It was shared in a PowerPoint format. I am sharing the information with you, my readers, as a document as it is extremely important to understand the extent of income inequality, the causes of income inequality, and the benefits, costs and taxation associated with income inequality, both domestically and abroad.
The Extent of Income Inequality
- In 1970, the Middle 60% of earners received approximately 62% of after-tax income. By 2020, their share had declined to roughly 42%. The middle-income earners pay between 10% and 20% of all income taxes.
- In 1980, the Top 1% of households received roughly 8 percent of all after-tax income. The source of this income could be earnings, dividend payments, royalty payments, etc. By 2025, that share had risen to approximately 20% of all after-tax income.
- The Top 1% earn about 20% of overall income and pay about 38% of all taxes. One can argue that the Top 1% are not paying enough, but that is debatable.
- The Top 10% of income earners have grown from 30% of all income to 47% of all income. The Top 10%, which includes the Top 1%, pay about 76-78% of all taxes. While it is theoretically possible to increase their share of taxes paid, it would probably be unproductive.
- The bottom 20% of income earners percentage of overall income has remained roughly the same. Federal transfer payments and other services have made this possible.
The Causes of Increased Income Inequality
- Differences in education and skills
People with higher education, specialized training, or scarce skills often earn more. Economies that reward advanced technical or managerial skills can widen income gaps.
- Technology and automation
New technologies often increase demand for highly skilled workers while reducing demand for some routine jobs, increasing wage differences. Artificial Intelligence will accelerate this trend. - Globalization
International trade and outsourcing can lower wages or reduce jobs in some sectors while increasing profits and earnings in others.
- Unequal access to opportunities
Differences in:
-
- quality of education,
- healthcare,
- neighborhoods,
- social networks,
- access to capital,
can affect earning potential over a lifetime.
- Wealth inequality
People with assets (stocks, property, businesses) earn investment income in addition to wages. Existing wealth can generate more wealth over time. For example, in 1969 the Dow Jones Industrial Index was approximately 800. Today, it is over 50,000.
Median hourly income is roughly 20-30% higher than in 1969. That works out only about .3-.5% annual growth in purchasing power over 57 years. Typical workers real pay has risen only a fraction of the increase in either real estate prices or the stock market.
- Labor market changes
The percent of union workers in the private sector has declined from 20% to 10%. Companies have moved to states that discourage unions.
- Tax and government policies
Transfer payments have kept the bottom 20% of income earners constant, but they have not helped appreciably the middle classes.
- Executive compensation and “winner-take-most” markets
In industries like finance, entertainment, sports, or tech, top performers have received disproportionately high compensation.
- Family background and intergenerational effects
Children from higher-income families often have advantages in education, stability, and networks, which can perpetuate inequality across generations.
- Geographic differences
Income opportunities differ between regions, cities, and rural areas due to local industries, costs of living, and infrastructure. The United States has poured $ Trillions into slum areas and rural areas without appreciable benefits. Trying to bring back manufacturing to the “rust belt” is a waste of resources. Helping people move from blighted areas and providing training for more productive vocations would be more constructive.
- Economic shocks
Recessions, pandemics, inflation, or financial crises can affect groups differently and sometimes widen inequality.
Economists debate which factors matter most. Some emphasize technology and globalization, while others stress policy choices, bargaining power, and wealth concentration.
Costs have increased
- Median home prices have skyrocketed since 1960. In 1960, the median home cost was approximately $11,900.
- The recent median home sale price in 2025–2026 is about $400,000+.
- A full year tuition at the University of Texas in 1960 was $100. Today, it costs $13,000.
- Total national health spending in 1960 was $17 billion. It is now $5.3 trillion—196x higher.
These figures highlight the enormous increase in the costs of housing, education, and healthcare. These costs reflect how difficult it is for the middle class to afford the basics and why the middle class feels beleaguered.
Who is the Middle Class – Why are they so important?
- Stabilizer of society
- Spends consistently on housing, healthcare, education, and local business
- Creates predictable demand, which keeps businesses alive
- Is less volatile than economies dominated by extremes of wealth and poverty
When I was growing up, most of my friends belonged to the middle class. Everyone seemed satisfied with their status. Since then, the cost of housing, education and medical care has outstripped their income, making life much more stressful.
Benefits, Costs and Taxation Associated with Income Inequality – Domestically vs. Europe
Europe does not have nearly the income inequality found in the United States. That said, because their tax system has stifled innovation, their growth rate since 2000 has been 40% of the U.S. growth rate.
In 2000, four of the largest companies by capitalization were in Europe. Today, there are none. By contrast, the United States enjoys 9 out of the top 10. The only other top 10 company is Taiwan Semiconductor.
The Per Capita income in the USA is one-third greater than Germany and 40-45% greater than France and the UK.
Technology has supercharged income inequality. In 1985 IBM was America’s most valuable company and employed 400,000 people. Today, Nvidia enjoys a capitalization that is 20 times the size of IBM in 1985. Nvidia employs only 40,000 people. Thus, Nvidia can pay its employees far more than IBM did and its employees have significantly higher stock accounts.
Historically, the United States has encouraged immigration. The mythical “streets paved of gold” while not literal was an inducement for immigration. Today, some 12% of Fortune 500 CEOs are immigrants. These dynamic leaders chose America over Europe because of our greater economic opportunity. Look at the number of CEO’s who are from India—Google, Microsoft, Adobe, Micro Technology, Novatis, Match, You Tube. They came to America because it provided much more economic opportunity than either India or Europe.
Should America raise capital gains tax from today’s maximum of 23%?
We need to remember that for an economy to grow it requires investment in new technology. Raising the capital gains tax could significantly discourage risk taking.
Opponents of great wealth suggest wealth taxes and high inheritance taxes to reduce income inequality. As we have recently witnessed, high state income taxes have motivated wealthy people to not only move to Red States but also relocate their companies. California has seen billionaires leave over their proposed wealth taxes. In Europe, high income taxes and inheritance taxes have motivated many of their wealthy populace to move. Stated differently, the most mobile people in the world are affluent. High-income taxes and wealth taxes, while in principle will reduce income inequality, they also reduce risk taking, innovativeness, and migration.
Summary
America has experienced growing income inequality because of the 12 causes mentioned with technology and globalization being the main reasons. A change in tax policy could alter this phenomenon; however, the costs might outweigh the benefits.
While I detest conspicuous consumption, such as the spending of $50 million for a wedding or owning 5 mansions, I do not want to discourage the Top 1% from creating companies that provide needed goods and services that employ hundreds of thousands of people. The Top 1% – Amazon, Google, Apple, Space X, Tesla, Walmart, Costco, Estee Lauder and others – have created jobs and enriched my life and made our lives so much better.
I do not want to create disincentives to entrepreneurship. While I am tempted to throw out the baby—ostentatious spenders, I recognize that my life has been enhanced by their risk taking.
