2024 Budget

Here is a link the the 2024 Federal Budget:

https://www.cbo.gov/publication/61181

Note that Mandatory spending ($4.1 Trillion) plus Interest on Debt ($.881 Trillion) amounts to $4.981 Trillion. Note also that Total Revenues amount to $4.9 Trillion.

Thus, the total amount collected by the entire government ($4.9 Trillion) is spent on Mandatory spending and Interest.

The remaining governmental functions (discretionary spending), such as defense, salaries and overhead of the three branches of the government and miscellaneous, are paid with borrowed money.

Assuming we want to balance the budget, what should we do? Should we raise taxes or reduce spending?

Total collections amounted to 17.1% of GDP in 2024 (the value of all goods and services produced by the entire country). In recent years, federal revenue has hovered around 17% of GDP. Total spending amounted to 23.4% of GDP. This means that the government taxed, seized or borrowed and spent about a quarter of the value of all goods and services produced by the entire country.

In 1964, total spending amounted to 18% of GDP (about $122.5 Billion) and mandatory spending was under 30% of total spending (about $40 Billion).

Considering the above, it seems that income is about in line with the growth of GDP but expenditures are not. Therefore, maybe we should look at spending and see why it is so out of line.

It seems that the establishment and expansion of programs like Social Security (1935), Medicare (1966), and Medicaid (1965) increased government outlays as a share of GDP. These “mandatory spending” programs have grown exponentially over the past 60 years and have, in some instances, far outpaced GDP growth.

Let's take a look at these spending programs in detail. Click here.

It is obvious from the above that welfare is the culprit. Interestingly, all you hear about in the press is how Social Security and Medicare are breaking the budget when, in reality, they pretty much pay their way. Welfare (Medicaid, etc.) does not. 

While it is true that Social Security and Medicare spending has increased similarly to Medicaid but so has their related income.

Medicaid spending in the U.S. has significantly increased over time, particularly following the Affordable Care Act (ACA) and the pandemic. In 2023, Medicaid expenditures reached $894 billion, the highest in the program's history. This growth is partly due to increased enrollment and partly due to rising healthcare costs. The ACA allows every Tom, Dick and Harry who makes less than $21,597 access to Medicaid and the Feds reimburse the states 90% of the costs (50% for regular recipients). Check out this Chart.

Approximately 22% of the U.S. population is enrolled in Medicaid. This translates to roughly 72 million people or one in five Americans.

Clearly, this trajectory is unsustainable because it is driving the country into bankruptcy. The recently signed One Big Beautiful Bill Act has made an attempt to, at least, slow the growth of the program.

It is my hope that people will begin to understand the reality and stop believing the misleading information put out by the press.

And That's that!

 

The One Big Beautiful Bill Act: A Boon for Most Americans

    

    Nearly half (46%) of the public says that they expect the new tax and budget law signed by President Trump in July to generally hurt them and their families, nearly twice the share (26%) who say it will generally help, a new KFF Health Tracking Poll finds. 

    At the same time, most Americans admit they know relatively little about the bill, with two-thirds responding to a Washington Post poll on June 9 that they had heard “a little” (40 percent) or “nothing at all” (26 percent) about it.

    So what should we make of the polls? Probably that most people know nothing of the bill other than the Democratic talking point about cutting Medicaid. These critics are the ones who spent $7+ Trillion on the green new deal which caused inflation to soar higher than it had been in 40 years.

    So, I thought I would try to bring some clarity to the issue.

Introduction

    In recent years, few pieces of legislation in the U.S. have captured as much public scrutiny as the One Big Beautiful Bill Act (OBBBA), which President Donald Trump signed into law on July 4, 2025. Commonly known as the “One Big Beautiful Bill,” this extensive legislation aims to significantly reform tax policies, economic incentives, and social programs, keeping in line with key promises made during Trump’s second term. To navigate around potential filibusters in an evenly divided Congress, the OBBBA was passed through the budget reconciliation process.

    The most significant part of the bill simply makes the tax cuts established in the 2017 Tax Cuts and Jobs Act (TCJA) permanent. It also introduces new deductions beneficial to everyday workers, enhances family savings options, and shifts federal spending to focus on priorities such as border security and domestic energy initiatives. Although critics argue that it could lead to greater economic disparity and national debt, a deeper look shows that the bill's measures offer real advantages to the vast majority of Americans—workers, families, seniors, and small business owners—by increasing disposable income, spurring economic growth, and promoting responsible fiscal management in government initiatives.

Tax Relief for Working Americans: Strengthening the Middle Class

    The OBBBA focuses on provisions aimed at benefitting the working class, a crucial segment of the American populace. One of its standout features is the removal of federal income taxes on tips and overtime pay. For the roughly 6 million tipped workers—many employed in sectors such as restaurants, ridesharing, and hospitality—this change translates to an estimated annual savings of $1,300, complete with retroactive refunds for earnings in 2025. Furthermore, over 20 million Americans who put in overtime—including nurses, law enforcement officers, and factory workers—could see an additional $1,400 per year. These tax exemptions not only boost disposable income but also encourage workers to log extra hours, potentially enhancing productivity and economic growth without the burden of higher marginal tax rates.

    Some critics raise concerns that these deductions complicate the tax system and could favor particular industries, leading to increased compliance costs. However, for the majority, especially those in blue-collar and service roles, these changes represent a clear benefit. By excluding earnings that stem from hard work and extra effort, the bill promotes a fairer approach to taxation, allowing workers to keep more of their hard-earned money. Additionally, a new deduction for auto loan interest on U.S.-made vehicles (up to $10,000) aids the over 10 million Americans financing their cars, thus lowering transportation costs and supporting domestic manufacturing. In times of ongoing inflation and stagnant wages for many, these targeted relief efforts provide essential financial relief, benefiting far more households than they hinder.

    The legislation makes permanent the TCJA's reduced individual income tax rates. The TCJA doubled the standard deduction, and adjusted alternative minimum tax thresholds, simplified the filing process for millions. By making these TCJA changes permanent the OBBBA prevented a significant tax increase that would have affected all working people and could have disproportionately affected middle-income earners after the TCJA's expiration (December 2025). For example, making the standard deduction permanent ensures that around 90% of taxpayers can continue to avoid itemizing, saving both time and money. Additionally, the increase in the state and local tax (SALT) deduction cap to $40,000 for those earning under $500,000 protects residents in high-tax states from excessive federal penalties, fostering a sense of geographic fairness. The OBBBA provided for permanent expensing for investments in plant and equipment and R&D, paving the way for job creation and higher wages that ultimately benefit many workers. Overall, these tax reforms are anticipated to increase long-term GDP by 0.7%.

Support for Families and Seniors: Building a Secure Future

    The OBBBA places a strong emphasis on supporting families and seniors, recognizing their vital role in our society. One of the key initiatives is the introduction of "Trump Accounts," which are tax-deferred savings plans designed for children. These accounts allow contributions of up to $5,000 each year, and parents will receive a $1,000 government bonus for newborns over the next four years. This initiative encourages families to engage in long-term financial planning, as the accounts transition to traditional IRAs when the child turns 18. This will help provide essential savings for education, buying a home, or preparing for retirement. Additionally, a permanent $200 increase in the child tax credit, which will adjust with inflation, aims to enhance affordability for over 40 million families with children, helping to address declining birth rates and fostering family growth.

    For our seniors, an increased standard deduction of $6,000 ensures that 88% of the 51 million individuals receiving Social Security will not face federal taxes on their benefits, with retroactive refunds available for 2025. This support is especially critical for the 7.7 million seniors who are veterans, providing them with financial stability in retirement as living costs continue to rise. While some critics argue that the $350 billion cost of these exemptions over four years is financially unsound, the potential for increased consumer spending driven by higher disposable income may contribute significantly to economic growth. Ultimately, these measures promote greater financial security, allowing families to invest in their futures while ensuring seniors can live with dignity and respect, all without unnecessary government intrusion.

Economic Growth and Fiscal Reforms: Long-Term Benefits for All

    The OBBBA outlines key economic initiatives that promise lasting advantages for the majority. It made permanent the 20% pass-through business deduction and boosted expensing options for small businesses. The bill supports the 26 million entrepreneurs who are vital to our local economies—potentially creating millions of jobs in the process. While the bill modifies the Inflation Reduction Act’s green energy credits and expands incentives for the fossil fuel and semiconductor industries, it also aims to lower energy costs and strengthen domestic supply chains. This translates to savings for consumers in the form of reduced utility bills and lower-priced goods.

    Additionally, the proposed allocations of $150 billion each for defense and border enforcement directly address national security concerns, while also tackling the societal costs associated with illegal immigration—estimated at billions each year in public service usage. This approach also safeguards American workers from wage suppression.

    However, it is important to acknowledge the controversy stemming from the bill's 12% cut to Medicaid's projected spending increases and its new work requirements for the Supplemental Nutrition Assistance Program (SNAP). Note that the OBBBA does not impose absolute cuts that would reduce Medicaid spending below current levels. Instead, it reduces the program's projected growth rate through mechanisms that restrict state funding options, and impose new requirements, resulting in lower federal spending over time compared to baseline projections under prior law.

    Critics express concern that up to 10.9 million individuals could lose their health coverage, potentially increasing hardship for low-income families. Public sentiment reflects this anxiety, as 64% of voters share a negative view of the bill, fueled by fears of higher uninsured rates and reduced funding for hospitals. Nevertheless, these reforms aim to eliminate inefficiencies and fraud, promote self-sufficiency, and redirect funds to more effective uses. 

    The cost of the Medicaid program increased by 50 percent over the past five years (from $675 Billion to $1 Trillion per year) without obvious reason so the objective was to slow its’ unsustainable growth rate.

    The bill's projected net fiscal impact of $3 trillion over a decade (mostly attributed to making current law permanent as opposed to new expenses) is counterbalanced by an anticipated $940 billion in dynamic revenue from growth and more than $1 trillion in spending cuts, paving the way for sustainability. For the majority of Americans—not just the wealthiest but the vast middle class—these changes are designed to cultivate a more robust economy rich in opportunity, ultimately outweighing any immediate challenges.

Conclusion

    While the One Big Beautiful Bill Act does have its shortcomings, such as increased complexity in the tax code and varied benefits across income levels, it offers significant advantages for the average American. Workers seeking better wages, families striving to accumulate wealth, and seniors looking for stability can all find value in its provisions.

    By reducing taxes on everyday earnings, encouraging savings, and stimulating economic growth, the OBBBA empowers individuals to flourish within a more liberated market. Historical examples, such as the TCJA, demonstrate that such ambitious policies can yield record-low unemployment rates, rising wages and increase revenue for the Treasury. The OBBBA illustrates that decisive action can benefit the many rather than just a select few. In a nation marked by division, this legislation underscores a commitment to American prosperity, rendering it a positive development for the broader populace.

    And That’s that!

Income Inequality 

Oligarchs Mentioned by Bernie Sanders and Alexandria Ocasio-Cortez

    Bernie Sanders and Alexandria Ocasio-Cortez (AOC) have been vocal critics of oligarchy in the United States, particularly through their "Fighting Oligarchy" tour, which began in early 2025. The term "oligarchs" in their discourse refers to a small group of extremely wealthy individuals who wield significant influence over the economy and politics, often, they say,  to the detriment of the general population. This analysis, current as of August 4, 2025, draws on a range of sources to identify the specific oligarchs they mention, their criticisms, and the broader context of their campaign.

Identification of Oligarchs

    

    Research suggests that Sanders and AOC primarily target a handful of billionaires, with the following individuals frequently mentioned in their speeches and related articles:

Elon Musk:       

     He is a Republican and a former Democrat. Cited as a key figure due to his role as head of the Department of Government Efficiency (DOGE) under President Donald Trump. Musk is criticized for his policies aimed at slashing federal spending, which Sanders and AOC argue harm public services like Social Security, Medicaid, and Medicare, benefiting the wealthy at the expense of working-class Americans. For example, during a rally in Los Angeles on April 12, 2025, Sanders noted that Musk's actions make Trump and him "very nervous," as reported by Al Jazeera.

Jeff Bezos: 

    He is a Democrat. Mentioned as one of the richest men in America, present at Trump's inauguration, and was criticized for his immense wealth and influence. He owns the Washington Post and is a large shareholder of Amazon. The New Yorker article from March 25, 2025, highlights Bezos as part of the "big tech takeover" of American politics, with Sanders specifically calling out his role in exacerbating economic disparity.

Mark Zuckerberg: 

    He is a Democrat. Similarly identified as one of the richest men in America, also present at Trump's inauguration, and criticized for the influence of tech giants like Facebook on politics and society. The New Yorker article notes Zuckerberg's presence at the inauguration, reinforcing Sanders and AOC's narrative of billionaire control.

    These individuals are seen as exemplars of a broader class of billionaires and corporate interests, with Sanders and AOC arguing that they represent a cabal that has taken the government hostage, enriching themselves at the expense of millions, as Ocasio-Cortez stated during a rally in Tempe, Arizona, on March 20, 2025, according to Politifact.

Context and Criticisms

    Sanders and AOC's criticisms are rooted in their progressive stance against wealth inequality and corporate power. Their "Fighting Oligarchy" tour, which drew record-breaking crowds (e.g., 36,000 in Los Angeles and 34,000 in Denver, as reported by The New York Times on April 16, 2025), aims to energize ordinary Americans against the influence of these oligarchs. Specific points of criticism include:

Economic Inequality-

    

    Sanders and AOC argue that billionaires like Musk, Bezos, and Zuckerberg control a disproportionate share of economic and political life, leading to policies that favor the rich. For instance, Ocasio-Cortez slammed Trump's "corrupt and disastrous tariff scheme" as a ploy to enrich corporate cronies, mentioning Musk's role in market manipulation, as reported by Al Jazeera on April 13, 2025.

Policy Impact-

    Musk's leadership in DOGE is particularly targeted, with Sanders claiming at a Missoula rally on April 16, 2025, that Musk is decimating federal agencies and programs, affecting workers and retirees, as noted by Montana Public Radio.

Democratic Erosion-

    They see these oligarchs as undermining democracy by using their wealth to influence government decisions, a theme echoed in their rallies across states like Utah and Colorado, where they drew large crowds in traditionally conservative areas, as reported by Utah News Dispatch on April 13, 2025.

Demographic and Economic Context

    The oligarchs mentioned are part of the top 1% of income earners, with Musk, Bezos, and Zuckerberg often cited in discussions of wealth concentration. For example, Inequality.org data from December 4, 2024, shows the top 1% holding more than half of the nation's wealth in stocks and mutual funds, aligning with Sanders and AOC's narrative. Their racial and educational backgrounds (predominantly White and highly educated, based on 2006 data from Wikipedia's "Affluence in the United States") reflect the overrepresentation of certain groups in high-income brackets, which Sanders and AOC argue contributes to systemic inequality.

Reception and Controversy

    The identification of these oligarchs has sparked controversy. Supporters of Sanders and AOC, such as those at their rallies, see their criticism as a necessary call to action against corporate power, with events like the Denver rally drawing 34,000 people, the largest for either politician, as reported by Common Dreams on March 22, 2025. Critics, however, argue that their focus on individual billionaires overlooks systemic issues, with some, like an opinion piece in Yahoo News on March 21, 2025, suggesting their tour is hypocritical given the Democratic Party's funding from wealthy backers and the fact that they are themselves millionaires.

Implications and Future Outlook

    The focus on Musk, Bezos, and Zuckerberg highlights a broader debate about the role of billionaires in American society. Sanders and AOC's tour, with its emphasis on people power, aims to build a movement capable of challenging this influence, as noted by The Guardian on March 26, 2025. However, the effectiveness of this strategy remains to be seen, with political tensions likely to intensify as the 2026 midterms approach.

Summary

    When Sanders and AOC speak about oligarchs, they primarily refer to Elon Musk, Jeff Bezos, and Mark Zuckerberg, seen as part of a billionaire class that exacerbates economic inequality and undermines democracy. Their criticisms are part of a larger effort to rally public support against corporate power, with ongoing controversy over the fairness and impact of their approach.

The Problem with their Arguments

    The concept of "oligarchs" in the US, while not formally defined, often refers to extremely wealthy individuals who wield significant political and economic influence, potentially shaping policy decisions and societal norms to their benefit. While not a universally accepted term, it highlights concerns about the concentration of wealth and power in the hands of a few, and its potential impact on democratic principles. 

    Oligarchs are nothing new to the U.S., as they have existed for as long as there has been a U.S. Think Ford, Chrysler, duPont, Boeing and J.P.Morgan of the early 20th century. The ones cited by Sanders are unique only in the sense that their wealth was created recently (the 21st Century), they did not grow up rich/or inherit their wealth, and they are Baby Boomers. 

    I share AOC’s concern about potential undue influence upon political and policy matters, but not on income inequity. It could be that we need to change some laws concerning tax policy, political contributions and involvement in policy matters. However, since there are as many rich Democrats as there are Republicans, their influences tend to neutralize one another. Therefore, I will restrict my comments to Income and Wealth inequality.

    The mentioned “Oligarks” employ more than 3.5 million people, all of whom contribute to Social Security and Medicare and pay Federal income taxes. They pay property taxes and sales taxes just as most do. The employees buy homes and cars and otherwise contribute to the economy. That’s a good thing!

    These Oligarks, and others like them, are risk takers/innovators who have been on the verge of being broke on more than one occasion. Most of their “wealth” and income is tied up in stock certificates issued by their respective companies. The value of their stock certificates fluctuates daily based on the psychology of the stock market, and much of it is “restricted,” which means they cannot be sold until the restrictions are removed.

    Sanders would have you believe that as these oligarchs accumulate wealth (in the stock market),  they somehow deprive the rest of us of something, which is far from the truth.  The stock certificates that they own are represented by pieces of paper printed up by their companies and given to them, in place of cash, in exchange for their services. Other similar stock certificates are sold to the investing public (stock market), which provides the Oligarchs a place to sell their stock certificates, once unrestricted, as they so choose. If, when they sell,  the value of the stock certificate has increased, they make money; if the value has decreased, they don't. Therefore, the oligarch’s compensation is paid for by investors in the stock market, not by you and me. 

    For example, Elon Musk has experienced several significant single-day net worth losses, with one of the largest being a $34 billion drop following a public dispute with Donald Trump and a 14% plunge in Tesla's stock price, according to Yahoo Finance. Another instance saw a $29 billion loss due to a 15% drop in Tesla's stock, according to NDTV. 

    Did either of these events impact your day(s)? Did you even know about it?

    So, what is happening is that private investors are buying and selling (gambling) on Wall Street, and their activities have little to do with others. All the while, their companies are employing millions of employees. And that's a good thing.

    The innovators grow the size of the American Pie; they do not just take a larger piece of a limited-size pie, i.e., when the NBA signs a multi-million contract with a star player, does that player take an unfair size of a limited-size American Pie, or has the size of the pie increased due to the NBA selling more tickets and advertising spots? And what about Bill Gates? When he got rich by creating and growing Microsoft, did his wealth deprive anyone of their slice of the pie, or was the pie enlarged by Microsoft’s innovation? The same goes for Steve Jobs and Apple.

    Many economic factors drive the success. Everyone is better off when the economy grows. The top earners grow richer for no other reason than the economy is growing larger. As the economy grows larger, the pool of customers grows larger. Today, successful innovators, business leaders, and entertainers can serve more customers than they could have fifty years ago. As a result, the payback for economy-wide success is bigger than it used to be. An entertainer like Taylor Swift, for example, can reach a much larger market for her music than the Beatles could have in the 1960s. 

    Few people recognize the extent of the growth of the world economy. In 1964, the entire world economy was only as large as China’s economy is today. That growth has had a big impact on the success of the most successful workers. Over the same period, the incomes of doctors, schoolteachers, plumbers, and other tradesmen remain limited by the number of customers they can serve. The size of the economy doesn’t change that. All other things being equal, economy-wide success, like Taylor Swift’s success, will grow larger relative to the income of typical workers. This increases income inequality.

    It is no surprise, then, to find that as the world’s population has grown, income inequality has grown around the world.  A more prosperous world values and rewards innovations—a new song or movie, a new technology, or a new insight—more highly than a less prosperous world. That’s a good thing. The growing income of the 1 percent is the result of simple multiplication, not a deduction from the pockets of the less successful.

    Innovation in the information age can be extremely profitable, and as America devotes a greater share of its resources to producing innovation, it will produce a greater number of outsized successes. In turn, this increases inequality.

Is Income Inequality Real?

    Yes, it is real. There is a wide disparity in income and wealth between the top 10% and the bottom 10%.  The following will explain where we are today and over time:

    The percentage of total salaries and wages earned by the top 10% of earners in the United States from the 1930s to the 2020s shows a U-shaped trend, with high inequality in the early decades, a compression in the mid-20th century, and a sharp rise from the 1980s onward. Data for earlier decades often includes broader income sources (e.g., capital gains), but I’ve focused on wages and salaries where possible, relying on tax records, Social Security Administration (SSA) data, and economic studies like those from Piketty and Saez and the Economic Policy Institute (EPI). Below is a decade-by-decade breakdown with approximate shares and notes on data limitations.

Summary Table

Decade	Top 10%  Share (%)  of Total Income	Notes
1930s	43–48%	High inequality; limited wage-specific data.
1940s	35–40%	Great Compression; declining share.
1950s	30–35%	Low inequality; stable wage distribution.
1960s	30–33%	Continued stability; middle-class wage growth.
1970s	30–34%	Stable, early inequality rise.
1980s	35–40%	Rising inequality; deregulation impacts.
1990s	40–43%	Tech boom, executive pay growth.
2000s	43–47%	Peak inequality; ~41.4% wages in 2007.
2010s	45–48%	Post-crisis recovery; tech-driven wage concentration.
2020s	47–50%	Persistent inequality; ~47.8% in 2022.

Key Trends

    

    U-Shaped Curve: The top 10% wage share dropped from the 1930s to the 1970s (Great Compression), then rose sharply from the 1980s onward due to technological change, globalization, tax policy shifts, and declining unionization.

Income Inequality by Household Demographics

See source here

    Most of the discussion on income inequality focuses on the relative differences over time between low-income and high-income American households. But it’s also informative to analyze the demographic differences among income groups at a given point in time to answer questions like:

    How are high-income households different demographically from low-income households that would help us better understand income inequality?

    For low-income households today who aspire to become higher-income households in the future, what lifestyle and demographic changes might facilitate the path to a higher income?

    

    The chart above (click to enlarge) shows some key demographic characteristics of US households by income quintiles (five equal groups of 25,986 US households) for 2020.

    Below is a summary of some of the key demographic differences between American households in different income quintiles in 2020:

1. Mean Number of Earners per Household. On average, there are five times more income earners per household in the top income quintile households (2.0) than earners per household in the lowest-income households (0.40). 

2. Share of Households with No Earners. More than six out of every ten American households (64.7%) in the bottom fifth of households by income had no earners in 2020. 

3. Marital Status of Householders. Married-couple households represent a much greater share of the top income quintile (77.3%) than for the bottom income quintile (16.7%), and single-parent or single households represented a much greater share of the bottom one-fifth of households (83.3%) than for the top one-fifth (22.7%). 

4. Age of Householders. Nearly 7 out of every 10 US households (69.1%) in the top income quintile included Americans in their prime earning years between the ages of 35-64, compared to fewer than half (41.1%) of households in the bottom income quintile who had householders in that prime earning age group.

5. Work Status of Householders. More than four times (4.5X) as many top quintile households included at least one adult who was working full-time in 2020 (78.4%) compared to the bottom income quintile (only 17.6%), and more than five times as many households in the bottom quintile included adults who did not work at all (70.4%) compared to top quintile households whose family members did not work (13.4%). 

6. Education of householders. Family members of households in the top fifth of US households by income were four times more likely to have a college degree (69.3%) than members of households in the bottom income quintile (only 17.1%). In contrast, householders in the lowest income quintile were 13.7 times more likely than those in the top income quintile to have less than a high school degree.

    Summary: Household demographics, including the average number of earners per household and the marital status, age, and education of householders, are all very highly correlated with Americans’ household income. Specifically, high-income US households have more income earners on average than lower-income households, and individuals in high-income households are far more likely on average than individuals in low-income households to be well-educated, married, working full-time, and in their prime earning years. In contrast, individuals in lower-income US households are far more likely than Americans in higher-income households to be less educated, working part-time, either very young (under 35 years) or very old (over 65 years), and living in single-parent or single-member households.

    

    The good news about the Census Bureau is that the key demographic factors that explain differences in household income are not fixed over our lifetimes and are largely under our control (e.g., staying in school and graduating from high school and college, getting and staying married, working full-time, etc.), which means that individuals and households are not destined to remain in a single-member, low-income quintile forever. Fortunately, studies that track people over time find evidence of significant income mobility in America, confirming that individuals and households move up and down the income quintiles over their lifetimes.

Consumption

    Poverty in America is certainly a serious problem, but the plight of the poor has been moderated by advances in the economy. Between 1970 and 2010, the net worth of American households more than doubled, as did the number of television sets and air-conditioning units per home. In his book “The Poverty of the Poverty Rate,” Nicholas Eberstadt shows that over the past 30 or so years, the percentage of low-income children in the United States who are underweight has gone down, the share of low-income households lacking complete plumbing facilities has declined, and the area of their homes adequately heated has gone up. The fraction of poor households with a telephone, a television set, and a clothes dryer has risen sharply.

    In other words, the country has become more prosperous, as measured not by income but by consumption: In constant dollars, consumption by people in the lowest quintile rose by more than 40 percent over the past four decades.

    Some argue that income as measured by the federal government is not a reliable indicator of well-being, but consumption is. Though poverty is a problem, it has become less of one.

Why is there Economic Inequality?

    Rising income inequality is the by-product of an economy that has deployed its talent and wealth more effectively than that of other economies, and not from the rich stealing from the middle and working classes.

    The U.S. economy has produced a disproportionate share of innovation. As a result, the nation has more income inequality but also faster employment growth and higher median incomes than other high-wage economies.

    Globalization, technological advancements, and the decline of unions can contribute to income inequality by shifting job opportunities and wage growth towards skilled workers while leaving others behind. 

    Tax policies that favor high-income earners can exacerbate income inequality. 

    Unequal access to quality education can limit opportunities for individuals from disadvantaged backgrounds, contributing to the cycle of inequality. While true, in the U.S., access to education is provided to all who are willing to pursue it. So, why do 30% of young people, in some areas, fail to graduate high school?

The concentration of wealth at the top can further exacerbate income inequality as those with more wealth have greater access to investment opportunities and financial resources. 

    Immigration by low-skilled, uneducated persons puts downward pressure on low-skilled jobs, which contributes to income inequality.

    People who are unwilling to pursue suitable training also increase income and wealth inequality.

Globalization

    Globalization describes the growing interconnectedness and reliance among countries across the globe. This phenomenon is fueled by trade, advancements in communication, and the sharing of cultures. It leads to the integration of economies and societies, facilitating the movement of goods, services, capital, information, and people beyond borders. While globalization brings benefits such as economic growth and cultural interactions, it also creates challenges like heightened competition, potential job losses, and the risk of cultural uniformity.

    The effects of globalization on income inequality in the United States are multifaceted, presenting both advantages and drawbacks. On the one hand, globalization can drive overall economic progress and help reduce prices for consumers. On the other hand, it might widen the gap in income distribution, often displacing lower-skilled workers while disproportionately benefiting those with higher skills.

Technology and Finance

    Technology's impact on income inequality in the U.S. is complex, with potential to both exacerbate and mitigate the issue. Generally, technological advancements tend to increase the demand for skilled workers while potentially displacing low-skilled workers, leading to a widening income gap. However, technology can also create new jobs and industries, and policies can be implemented to manage the risks and harness the potential benefits, i.e., offering training programs for those displaced by automation to reskill and adapt.

    Information technology disproportionately benefits the most productive workers, thereby increasing income inequality. Computers, software, smartphones, and the Internet have not only increased the productivity of trained talent, making their labor worth more, but they have also opened a window of new investment opportunities that generate even more profit.

    Americans earn more because customers value their work more. Higher pay for properly trained talent and more success in producing innovation increase income inequality.

Immigration

    In 2022, the foreign-born population in the U.S. reached 46.2 million, representing 13.9% of the total population. Mexico is the top country of birth for U.S. immigrants, with about 10.6 million people, followed by India, China, the Philippines, and El Salvador. By region of birth, Asia accounts for 28% of the foreign-born population, while Latin America (excluding Mexico) makes up 27%.  A higher percentage of foreign-born individuals have completed high school or higher (75.1%) compared to the native-born population (68.3%).  About 60% of immigrants are employed. 

Undocumented Immigrates

    The educational attainment of undocumented immigrants in the US varies, but a significant portion has lower levels of education compared to the native-born population. A large percentage, around 67%, do not have education beyond high school. However, a notable number, over 1.7 million, have earned at least a bachelor's degree. One study reports that 47% of undocumented immigrants aged 25-64 have not completed high school, with over half of those (29% of the total) having less than a ninth-grade education.

Due to the lack of education of many immigrants, they make up a significant portion of the poor in America and 60% of such households use some form of welfare compared to 39% for U.S.-born households.

Folks Who Do Not Pursue Training

    

    America boasts an abundance of high-scoring talent, yet many shy away from the rigorous training and sacrifices needed to truly impact our economy. This hesitation can set the bar for what success costs. To cultivate a broader pool of well-trained individuals, several measures could be taken. For instance, reducing subsidies for students and colleges focused on degrees that don’t significantly enhance employability—such as psychology, history, and English—could be beneficial. There’s a noticeable gap between what talented students choose to study and what employers are actively seeking.

    As global competition intensifies, America must avoid squandering its talent. We need to shift the prevailing mindset that often dissuades students from acquiring practical skills. Instead, we should promote the idea that those with talent have a responsibility to apply it towards the betterment of society—whether that's through customer service or philanthropic efforts. Additionally, it’s crucial to support high-achieving students from low-socioeconomic backgrounds, as many of them face challenges that prevent them from completing college.

Stock-Based Compensation and Capital Gains

    Stock-based compensation (SBC) is a non-cash form of payment where a company rewards employees with equity in the company, typically in the form of stock options or restricted stock units. This practice aligns employee interests with company performance, as the value of their compensation is tied to the company's stock price. 

    SBC is recorded as an expense on the company's income statement, but it does not involve the actual disbursement of cash. 

    By offering stock-based compensation, companies aim to motivate employees, foster a sense of ownership, and encourage them to contribute to the company's growth and success. 

    Since 1993, the amount of tax-deductible compensation paid to executives of publicly traded companies has been limited to $1 million per year. Since that time, SBC has become more common, as it provides a method for a company to offer (potentially) greater rewards to its executives without being penalized by the $1 million limit. 

    For example, suppose a company offers an executive an option to purchase a certain number of its common stock for $10 per share. The market value of the common stock is $10 per share, according to the stock market. The option is exercisable after three years. Three years later, the common stock is worth $15, the executive exercises the option, pays $10 for the common stock, and immediately sells the stock for $15. The executive has a capital gain of $5 for each share sold. That $5 gain is paid for by investors in the stock market, not the company.

    A capital gain refers to the increase in the value of a capital asset that is realized when it is sold. In other words, a capital gain occurs when you sell an asset for more than what you paid to purchase it.

    The Internal Revenue Service (IRS) taxes individuals on capital gains under certain circumstances. The tax rate on most net capital gains is no higher than 15% for most individuals, which contributes to economic inequality.

    Almost any type of asset you own is a capital asset. They can include investments such as stock, bonds, or real estate, and items purchased for personal use, such as furniture or a boat.

What to do about it?

    We must be careful not to overly penalize those who innovate and take risks, as their efforts are crucial for driving economic growth, enhancing productivity, and raising wages.

    While it's essential to support those in need, public investments should be made where there is clear justification. Such evaluations must stem from rigorous assessments of reality, rather than relying on misleading narratives propagated by those seeking support for their agendas.

    Currently, many capable families receiving welfare benefits equivalent to a potential annual income of $40,000 may feel disincentivized to work. This lack of motivation can lead to irresponsible behavior, ultimately harming their children and perpetuating cycles of disadvantage.

    

    It's challenging to motivate reluctant, able-bodied workers to engage in work, and doing so can come with high costs, even when we empathize with their children. Still, we must keep looking for better solutions.

    Simply redistributing wealth isn’t the answer; we've seen that in Europe and other places. When income is redistributed, it often dampens motivation and slows down overall growth.

    Our current strategies also risk leaving the next generation to grapple with stubborn issues, which is unfair. As we explore new ways to tackle these challenges, we need to be cautious. Sometimes, our desire to help can unintentionally cause more harm than good. It’s essential to be aware of our knowledge limits and capabilities and to focus on creating positive change rather than just feeling good about our intentions.

    Interestingly, America's poor are among the wealthiest globally. According to Pew Research, over half of those classified as poor by U.S. standards would actually fall into the middle-income bracket when compared to the rest of the world.

    Limiting illegal immigration would reduce the downward pressure on wages,  lowering marginal corporate tax rates would attract employers and increase international competitiveness and demanding balanced trade and strengthening the Fed would accelerate growth.

Grow the Economy and Increase Productivity

Encourage Ultra-High-Skilled Immigration

    An effective way to drive growth forward is to significantly ramp up immigration for ultra-high-skilled individuals.

    In a landscape where the availability of skilled talent and the economy’s willingness to take risks are limiting factors, the United States has the opportunity to attract global talent instead of solely focusing on enhancing its domestic workforce. By fostering an environment that encourages business innovation and high-tech entrepreneurial ventures, America can create a thriving ecosystem that supports success rather than placing obstacles in its path or imposing excessive taxation.

Encourage Education

    America should shift its current mindset away from discouraging students from acquiring practical skills. Instead, we ought to embrace a culture that highlights the moral responsibility of talented individuals to apply their abilities for the betterment of others—whether that means serving consumers or engaging in charitable efforts. Additionally, America must support high-achieving students from low-income backgrounds, as a significant number of them struggle to complete their college education.

    Further, we should teach Robert Woodson’s Principles:

1. Graduate from high school.

2. Wait to get married until after 21 and do not have children till after being married.

3. Having a full-time job.

    If you do all three things, your chance of falling into poverty is just 2 percent. Meanwhile, you'll have a 74 percent chance of being in the middle class.

Conclusion 

    We are missing out on valuable chances to fuel growth. Our economic expansion is limited by both our capacity and willingness to take risks, as well as the availability of skilled individuals eager to embrace thoughtful risks that can drive progress. To truly foster growth, we must increase the equity available to shoulder the associated risks, invest in better-trained talent, and create stronger incentives to motivate this talent. These three elements—equity, training, and incentives—work together to build institutional capabilities that can significantly boost growth over time.

    Ignoring these challenges will not solve America’s complex issues—sluggish growth, the retirement wave of baby boomers whose benefits will strain our resources, persistent poverty, and the challenges posed by low-skilled immigration, all while competing with a rapidly advancing China. We must confront these realities head-on rather than hoping the situation will improve by shifting responsibilities elsewhere. It’s essential to adopt a mindset similar to that of successful entrepreneurs. We need to discard unrealistic optimism and be realistic about what we can achieve. Our resources are limited, and an effective strategy is about making tough choices.

    The notion that we can simply innovate, export, or redistribute our way out of these problems is flawed. We’ve seen attempts at redistributing income lead to diminished incentives and stagnant growth in Europe and elsewhere.

    Today, thriving in a competitive landscape necessitates a shift from past approaches. We can no longer afford to show hostility toward businesses and investors. Growth cannot be taken for granted; we cannot passively wait for demand to trigger investment. We also cannot allow risk-averse savings from trade partners to flood into our economy when they offer no real benefit. Additionally, we must prioritize talent by ensuring our education system trains students in fields that hold value for taxpayers.

    We must stop pretending there’s a simple solution for transforming underperforming students into high achievers when our current educational framework fails to prepare at-risk children for job competition and escape from poverty.

    America must focus on optimizing its talent pool. A good start would be to reconsider subsidies for college students pursuing degrees that exceed the current market demand. By reallocating resources, the nation can better support high-achieving students from lower-income backgrounds to ensure their graduation. However, that’s just the beginning. We should also actively seek skilled professionals from around the globe. Attracting this diverse talent, coupled with a competitive corporate tax rate, will encourage companies to invest in America. The success of these businesses will generate momentum for growth and build the equity necessary for taking further risks. Over time, this strategy will yield significant benefits for job creation and wage increases across all skill levels.

    Additionally, advocating for balanced trade with our partners is a more effective strategy for addressing the issue of excessive savings, which stifles growth, than relying on monetary policy adjustments or increased government expenditures. Strengthening the Federal Reserve's role as a last-resort lender will help stabilize the economy during bank runs, offering a more reliable solution than other alternatives.

    To foster faster growth, America needs to focus on hiring well-trained talent—both domestically and from abroad—while ensuring a favorable corporate tax environment and streamlining government spending. Beyond this approach, any further plans may just amount to empty hopes and good intentions.

And That’s that!