Why Do the Rich Keep Getting Richer?

The Story You Were Told

The rich deserve it. They worked harder. They were smarter. They took risks, they innovated, they built things. Wealth is a reflection of value created. If you're not rich, you either haven't worked hard enough, haven't taken enough risks, or haven't created enough value. The implication is clear: the current distribution of wealth is basically fair. Meritocracy is working.

Then Warren Buffett — one of the richest people on Earth — published an op-ed in the New York Times saying his secretary pays a higher percentage of her income in taxes than he does. Not that he feels bad about it. That it's just factually true, and Congress should fix it.

They didn't fix it. It's still true fifteen years later.

ProPublica, using leaked IRS records, found that between 2014 and 2018: Jeff Bezos paid a “true tax rate” of 0.98%. Warren Buffett paid 0.10%. Elon Musk paid 3.27%. Not 10%. Not 1%. Zero point one percent.

These aren't tax cheats. They broke no laws. They used strategies that are entirely legal, specifically designed for people who earn from ownership rather than work. The strategies were written into law. By people. On purpose.

If the system rewards hard work, why does the hardest-working person in Jeff Bezos's warehouse pay a higher percentage in taxes than Jeff Bezos?

The Number Nobody Taught You in School

Two hundred years of tax records across twenty countries point to the same thing: when the rate of return on capital outpaces the rate of economic growth, wealth concentrates in the hands of whoever already owns capital. (Piketty, Capital in the Twenty-First Century, 2013)

Written as an equation: r > g.

r is the annual return on capital — the percentage a stock portfolio or property portfolio grows each year, on average. Historically: around 4–5%.

g is the rate of economic growth — how fast the whole economy expands. Wages, GDP, productivity. Historically: around 1–2%.

When r > g, capital compounds faster than wages grow. Every year, the gap widens. Not because rich people worked harder that year. Just because they own capital and capital returns outpace everything else.

This was true for most of the past 300 years. The single exception was roughly 1945 to 1975 — when wars had destroyed a huge portion of inherited wealth, unions were strong, and top marginal tax rates in the United States reached 91%. During those thirty years, inequality actually fell. Then came Reagan and Thatcher. Top tax rates fell. Unions were broken. And we went straight back to r > g.

What Is Capital, Exactly?

Capital isn't just money sitting in a savings account. It's any asset that generates returns over time:

Stocks — ownership shares in companies that pay dividends and appreciate in value. You own a piece of Apple. Apple earns money. You get a cut, proportional to your ownership, without working at Apple.

Property — earns rent and appreciates. You own a house in London. Someone pays you rent every month. The house also becomes more valuable every year. Two income streams from one asset, neither requiring your labor.

Bonds and financial instruments — pay interest. You lend money to a government or corporation. They pay you back more than you lent. Money earns money.

Patents and intellectual property — earn licensing fees. You own the patent on a drug. Every time a hospital buys it, you get a cut, decades after the research was done.

The critical thing: capital earns while you sleep. You don't have to do anything. The clock ticks, the percentage compounds. When you sell your time for wages, you get paid for exactly and only the time you sell. Stop working, stop earning.

This is the fundamental gap. Not who worked harder. Who owns capital.

The Tax System Was Built to Widen the Gap

Here's where “the system is broken” isn't quite right. The system is working perfectly — just not for you.

In the United States, income from labor — your paycheck, your freelance earnings, your salary — is taxed at up to 37% at the top bracket. Income from capital — stock dividends, property appreciation, investment returns — is taxed at a maximum of 20%, and often 15% or 0%. This is called the capital gains tax. It's roughly half the rate on wages.

Then there's inheritance. In the US, the first $13.6 million of an inherited estate is completely tax-free. Most heirs never pay a penny. The estate tax — what opponents call the “death tax” — covers fewer than 0.1% of estates. Inherited wealth transfers across generations almost entirely tax-free.

And then there's the strategy of “Buy, Borrow, Die.” You hold stocks. They appreciate. You never sell, so you never pay capital gains. Instead you borrow against them at low interest rates — loans aren't taxable income. You live off the loan. When you die, your heirs inherit the stock at its current market value. The decades of appreciation are never taxed. Ever.

Warren Buffett Said It Himself

In 2011, Warren Buffett published an op-ed in the New York Times titled “Stop Coddling the Super-Rich.”

“My friends and I have been coddled long enough by a billionaire-friendly Congress. While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.”

His secretary paid a higher percentage of her income in taxes than he did. He wasn't bragging. He was embarrassed. He asked Congress to fix it.

Congress didn't fix it. Fifteen years later, the gap is wider. Buffett's effective tax rate is still a fraction of his secretary's. She earns from labor. He earns from capital. The tax code was written accordingly.

COVID Proved It Wasn't an Accident

March 2020. The economy locked down. Millions lost jobs. Millions couldn't pay rent. Food banks had lines stretching around the block.

Between March and September 2020, US billionaire wealth increased by $845 billion. While 54 million Americans filed for unemployment.

The Federal Reserve — the US central bank — created roughly $4 trillion and pushed it into financial markets. Asset prices (stocks, bonds, property) went up. The government gave individuals stimulus checks of $1,200 — roughly two weeks of median rent in most US cities.

Economists started calling this the K-shaped recovery. Draw a K. The upper arm goes up — that's people who own assets. The lower arm goes down — that's people who earn from wages. The divergence tracked almost perfectly with who owned capital and who didn't.

When new money is created, where does it go? Banks create it and direct 80% of it into property and financial markets — the same assets that already generate returns for capital owners. New money inflates the assets. Asset owners get wealthier. Wage earners see prices rise without wages rising to match.

It's the same mechanism every time. The direction of new money determines who gets richer. And the direction of new money is decided by who controls credit.

This Isn't a Bug in the System

Here's the distinction that matters: a broken system fails to do what it was designed to do. A rigged system does exactly what it was designed to do — just for someone else.

Capital gains tax at 15% instead of 37% didn't happen by accident. It required legislation. Legislation requires votes. Votes require campaigns. Campaigns require money. The top 1% donate roughly 40% of all political donations in the US.

The 2017 Tax Cuts and Jobs Act cut the corporate tax rate from 35% to 21% and further reduced capital taxation. The people who drafted it came from the lobbying firms representing the corporations that benefited. After leaving office, many went back to those lobbying firms.

This is not bribery — it doesn't need to be. The people who write the tax code come from the lobbying firms that represent the companies that benefit from the tax code. When they leave government, they go back to those firms. The people who vote on capital gains rates receive campaign money from people whose entire income is capital gains. No dark room required. No explicit deal. Just: the same people, moving between the same institutions, making decisions that reliably benefit the same class of owners.

The wealth gap didn't widen simply because r > g plays out in some abstract mathematical sense. It happened because the people who own capital used that capital to shape the tax code, the lending rules, the zoning laws — all the legal structures that determine where money flows.

The same pattern runs through housing. Planning restrictions, the mortgage interest deduction, the financialization of property — each required specific policy choices. Each was made by people who owned property. Each made property more valuable. The pattern is the same across every asset class.

The One Time It Was Different — and What Ended It

The data shows one period when the gap narrowed: 1945 to 1975. Three things were different.

First: the wars had physically destroyed a huge portion of inherited wealth across Europe. The starting position was less concentrated than it had ever been.

Second: unions. By 1950, roughly 35% of American workers were in unions. When workers are organized and can credibly threaten to stop working, wages go up. The unions pushed wages up faster than capital returns during that period.

Third: tax rates that actually bit. The top marginal income tax rate in the United States under Eisenhower — a Republican — was 91%. Estate taxes were high. Capital gains were taxed at ordinary income rates. The people who held wealth paid taxes on it.

It worked. For thirty years the gap narrowed. Then Reagan cut the top rate to 28%. Thatcher broke the unions. Capital gains taxes were reduced. Estate taxes were loosened. Reagan fired 11,000 striking air traffic controllers in 1981 — making clear that organizing workers would be met with the full force of the government. Union membership fell from 35% to under 10%. And r > g came back.

What changed things was not a policy paper. It was countervailing power: unions strong enough to push wages, tax rates enforced by political will, and wealth concentrated enough by the wars that the starting position was temporarily different. What ended it was organized dismantling of each of those conditions, by specific people who benefited from their removal.

The distribution of wealth is a political choice. Right now, the people making that choice are the people who benefit most from the current distribution.

Common Questions