The capitalist case against extreme inequality

Mistakes like the “Big Beautiful Bill” discredit free markets more than any socialist

The United States just gave itself a Fourth of July gift: a turbocharged accelerant for inequality. The “Big Beautiful Bill,” rammed through Congress by Republicans, slashes taxes for the ultra-wealthy while gutting vital safety nets. According to the Congressional Budget Office, the top 0.1% will gain hundreds of thousands per year —while tens of millions of poorer Americans will lose healthcare and food support.

So the richest country in human history, already the most unequal in the developed world, has chosen to deepen the divide in a moral breakdown that highlights capitalism’s flaw: It structurally produces inequality and rightly so, since the successful must be incentivized; but when, left to its own devices, it takes this too far, the legitimacy that comes from popularity evaporates.

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Put another way, when the rich get too big for their britches and start buying politicians, via PACs for example, who would then make them richer still, the system is endangered because the extreme unfairness corrodes trust, discredits markets and invites rebellion.

We are approaching that breaking point. The US leads its OECD peers by far in inequality, with the top 1% controlling over 30% of national wealth (more than double the share held by the bottom 90%) and earn over 20% of national income, up from 10% in 1979. The top 10% hold more than 75% of national wealth, while the bottom 50% hold just 2.5%.

And, insanely, whereas 60 years ago the average CEO made 20 times more than the typical worker, which is a deserved and very nice paycheck to be sure, by 2022 it was over 340 times, which is an abomination. This, while despite productivity increasing by 64.6% from 1979 to 2021, median worker compensation rose only 17.3%. So working families are squeezed, social mobility stagnates and resentments boil over.

This is how populist movements rise — on the right and the left. Donald Trump, himself a billionaire born into wealth, brilliantly redirected economic anger into a culture war that protects people like him. But with figures like socialist Zohran Mamdani winning the Democratic mayoral primary in New York City, the pendulum could swing the other way. A more disciplined left-wing populism might soon emerge to harness that same fury — with a very different target.

Centrists must experience an inequality epiphany: the realization that the U.S. economic system has drifted far from its meritocratic ideals and now sustains an entrenched elite whose wealth is largely insulated from market discipline. I am a capitalist myself, and so I prize economic growth, with a rising tide lifting all ships; that’s why I note that the OECD estimates that rising inequality reduced U.S. GDP growth by as much as 6–9 percentage points cumulatively over two decades.

This is the product of decades of policy — especially from the GOP — favoring capital over labor, deregulation over oversight, and tax cuts for the ultra-wealthy, beginning with the Reagan-era tax revolution that slashed the top marginal rate from 70% to 28%. That’s why the top 0.1% alone control more than 20% of U.S. wealth, a share that has nearly tripled since the 1980s. The Bush and Trump tax cuts further enriched the top 0.1%, with the Trump-era Tax Cuts and Jobs Act directing 83% of its benefits to the top 1% by 2027.

So over the past decade, the ultra-rich have cleaned up. Within the U.S., the number of centi-millionaires—those with wealth over $100 million—has soared by 81% over the past decade. But this isn’t about more rich people but how much flows to a tiny slice: The world’s richest 1% have captured $33.9 trillion in new wealth since 2015, with just 3,000 billionaires gaining $6.5 trillion of that total – gains that could eradicate global poverty 22 times over at the World Bank’s poverty threshold.

Does this sound good for society? Consider that nearly 60% of Americans can’t cover a $1,000 emergency with savings, according to Bankrate’s 2025 report.

Meanwhile, efforts to fix the problem – and the outrageously complex tax code itself – target the wrong people. When some leftist politicians talk about taxing "the rich," they sometimes start at incomes of $200,000 or even less — which in major metro areas means dual-income professional households facing sky-high housing, education, and healthcare costs. They’re not the uber-rich but precisely those capitalism is meant to incentivize. Punishing them alienates a politically engaged constituency that sees itself lumped in with oligarchs, resulting in anti-tax backlash. It’s stupid, because it makes the concept toxic, and drives more voters to the right.

Instead, consider a focused strategy that targets the actual elite:

1. Wealth Taxes: The U.S. could raise trillions in revenue by targeting the ultra-wealthy without touching the upper-middle class. Economists Gabriel Zucman and Emmanuel Saez estimate that a 2–3% annual tax on wealth over $50 million—affecting just 75,000 households— could raise around $3 trillion over a decade.

2. Capital Gains Reform: Equalize capital gains and income tax rates for earners above $1 million. End stepped-up basis and other scams to generate up to $2 trillion over ten years, according to the Penn Wharton Budget Model.

3. Billionaire Minimum Income Tax: Require a minimum 25% tax rate on all income — realized and (problematically, yes) unrealized — for individuals with wealth over $100 million. Else you get this: According to IRS data, the top 400 households pay an effective federal income tax rate of just 23% — lower than many professionals.

4. Estate Tax Overhaul: Lower exemption from $13 million to $3–5 million, close valuation loopholes, and raise rates for estates over $50 million. Estimated revenue: $200–300 billion over 10 years, according to the Tax Policy Center.

5. Loophole Closures: Eliminate carried interest, restrict dynasty trusts, limit offshore deferrals. Estimated impact: $250–400 billion in recouped revenue.

6. Executive Pay Reform: Disallow corporate tax deductions for executive compensation exceeding a fixed ratio of median employee pay. Encourage board reforms that include employee representation, as in Germany.

Another key point: complexity in the tax code is not an accident. The U.S. tax code spans over 6,800 pages, enabling the ultra-rich to exploit obscure provisions like grantor-retained annuity trusts (GRATs), carried interest, and offshore pass-through entities. IRS audit rates for the ultra-wealthy have fallen by 70% since 2010, largely due to budget cuts, while audits of low-income Americans claiming the Earned Income Tax Credit remain disproportionately high. Get rid of this nonsense — as opposed to taking it to the stratosphere as Trump has done.

It’s also essential to understand what’s happening inside companies – where the CEOs are paid like each one of them found the cure for death. In the first quarter of 2025, S&P 500 firms spent over a record $293 billion on share repurchases – a scam that inflates executive bonuses tied to earnings-per-share metrics. Continue this greedfest, and people will elect a socialist that will nationalize Goldman Sachs.

Defenders of the current situation would argue for economic freedom, and for not messing with the markets. That sounds seductive, but it is based on a false understanding. It is the current setup – a global historic con – that is messing with the markets. In favor of the rich.

Politicians like Mamdani, with utterly unrealistic proposals, should not be the answer. But a more pragmatic effort to reassert the state’s role as a neutral guarantor of fairness would be a public service. Otherwise, as inequality worsens, the next populist may not be a faux champion of the people, but a genuine anti-capitalist insurgent.

Communism failed because it violated human nature by not allowing a needed amount of inequality (except for party bosses). America’s version of capitalism risks the same fate for the opposite reason. Free markets need consent.