“Why would anyone be morally bound or wish to be morally bound to a civil society that does not share the goal that its citizens deserve a fair distribution of wealth, income and power? If the civil society is not dedicated to that end what else could it possibly be dedicated to? What is freedom to those without wealth, income, or power?”
Originally published June 5, 2012 — Updated for Trenz Pruca’s Journal, November 2025 (https://trenzpruca.wordpress.com/2012/06/05/did-tax-cuts-for-the-rich-create-the-great-divergence/)
Thirteen years ago, when this first appeared in Trenz Pruca’s Journal, the Great Divergence—the long, relentless widening of income and wealth inequality—was already a well-established trend. We were living in the long shadow of Reaganomics, the bipartisan romance with capital-friendly tax reforms, and the booming financialization of everything from pensions to housing.
What was not yet clear in 2012 was how permanent these shifts would become.
In 2025, alas, the permanence is no longer in question.
The American tax system now serves two masters:
Wealth, which it courts.
And work, which it tolerates.
And the actions of the newly-restored Trump Administration have made those priorities harder to ignore than ever.
I. Where the Tax System Stands Today
A brief refresher:
-
In 1980, the top marginal income-tax rate was 70%.
-
By 1988, thanks to the Reagan Revolution, it had collapsed to 28%.
-
Through Bush I, Clinton, Bush II, and Obama, the top rate oscillated between 31% and 39.6%.
-
The 2012 American Taxpayer Relief Act restored it to 39.6% in 2013.
-
The 2017 Tax Cuts and Jobs Act dropped it to 37%, where it remains in 2025.
These headline numbers matter less than they appear. For the very rich—who get most of their money from assets, not wages—the key figure is the effective tax rate. And that story is unambiguous:
-
The top 1% saw effective federal tax rates fall from 37% (1979) to roughly 30% (2019).
-
The bottom 20% saw effective taxes fall from 8% to about 1%, largely due to refundable credits.
(Source: Congressional Budget Office data)
What happened in the middle?
The usual: they got squeezed.
Inflation, stagnant real wages, and bracket creep have quietly raised the burden on middle-income Americans, who now pay a larger share of income and payroll taxes even as their real purchasing power stays flat or declines.
Meanwhile, the investor class—now admirably multiracial and global!—enjoys low rates on capital gains, preferential treatment of pass-through income, and the continued miracle of the stepped-up basis at death (a.k.a. the “Billionaire’s Resurrection Clause”).
II. Do Tax Cuts Cause Inequality? Yes—But Only in the Way Gravity Causes Falling.
Tax cuts for the wealthy don’t create inequality so much as remove the speed limit from an inequality machine that is already flooring the accelerator.
The true driver of the Great Divergence is the broader political–economic order:
-
Capital mobility
-
Globalization of supply chains
-
Decline of unions
-
Shareholder-value ideology
-
Financialization of housing, education, retirement
-
Monopolization and platform dominance
-
Corporate capture of political institutions
Tax policy sits at the intersection of all that—not the spark, but the oxygen.
Still, the evidence is clear:
Cut taxes on the rich and inequality grows.
Cut taxes on capital, and wealth inequality explodes.
Since the wealthy save more and invest more, slashing their tax burdens turbocharges the compounding of wealth across generations. This is not an ideological statement. It is simple arithmetic.
III. The Part Everyone Forgets: Public Spending Keeps Rising
Even as tax rates fell, federal spending rose:
-
Defense spending stayed high.
-
Health care costs exploded.
-
The aging baby-boom generation claimed its rightful Social Security and Medicare benefits.
-
And in the last decade, pandemics, climate events, and geopolitical shocks demanded repeated fiscal interventions.
How did we pay for it?
The American way: we borrowed.
The federal debt is now well over 100% of GDP, but the composition is what matters: the government borrows because the private sector generates enormous surpluses in the hands of the wealthy. High inequality doesn’t reduce spending; it merely increases the share of spending funded by debt rather than taxes.
As always, the bill arrives at the door of the middle class—through bracket creep, payroll taxes, fees, and shrinking public services.
IV. Special Analysis: The Trump Administration’s 2025 Tax Policy—and What It Portends
Here is the part that required an update.
The returned Trump Administration entered 2025 with three priorities:
-
Reward loyalists
-
Punish perceived enemies
-
Shift more public wealth into private hands, particularly the hands holding Trump’s political coalition together—wealthy donors, favored corporations, and the newly empowered “enforcement economy” around immigration sweeps and domestic security contractors.
1. The 2025 Tax Program: A Return to the 2017 Playbook—But Meaner
The Administration’s fiscal moves so far include:
-
Renewing and expanding the 2017 individual tax cuts, disproportionately benefiting high earners.
-
Seeking further reductions in capital-gains taxes, down to a proposed 15%.
-
Pushing for full expensing of capital investments, heavily favoring large firms and private-equity groups.
-
Exploring a “territorial tax holiday” for repatriating corporate profits held overseas.
In plain English:
More money flows upward, faster, and with fewer speed bumps.
Meanwhile, enforcement cuts at the IRS have gutted oversight of high-net-worth individuals and corporations, which effectively functions as a tax cut for the rich without ever being legislated.
2. The 2025 Fiscal Transfer to the “Enforcement Economy”
Perhaps the most novel piece of the Trump fiscal regime is the vast river of federal money flowing to:
-
private immigration-detention companies
-
security contractors
-
bounty-funded enforcement squads
-
state militias deputized under federal authority
-
policing and surveillance expansions
This is not merely law enforcement. It is a jobs program for loyalists, funded by the federal Treasury, with bonuses, overtime, and bounties creating a new class of “petty profiteers”—the regime’s version of a Praetorian Guard.
This, too, has tax implications:
money that might have been spent on public goods—health, infrastructure, climate mitigation—is now diverted to a coercive apparatus that reinforces political and economic inequality.
3. What the 2025 Actions Portend
In short: the Great Divergence is shifting into the Great Extraction.
Where the old inequality regime passively allowed wealth to accumulate at the top, the new regime actively transfers wealth upward through:
-
regressive tax cuts
-
defunding oversight
-
privatizing public functions
-
criminalizing immigrant labor
-
funneling federal funds to politically loyal enforcement industries
-
weakening worker power
-
undermining democratic checks and balances that might constrain any of the above
The outcome is predictable:
-
Inequality accelerates
-
The middle class contracts further
-
Political polarization deepens
-
Wealth becomes increasingly tied to state favor rather than market competition
-
The boundary between public revenue and private enrichment erodes
This is not Reaganomics redux.
This is state-managed plutocracy, where fiscal policy serves as both reward and weapon.
And unless reversed, it points toward a society in which taxes are increasingly optional for the powerful and increasingly compulsory for everyone else.
V. Final Thoughts: Empires Don’t Fall Because the Tax Rate Is Wrong—They Fall Because the Social Contract Breaks.
In 2012, the worry was that tax cuts were outpacing political will.
In 2025, the worry is more fundamental: that the tax system is becoming an instrument of factional power.
Taxes are never merely technical. They reflect who we believe deserves reward and who deserves responsibility.
Today’s tax regime answers clearly:
-
Wealth deserves reward.
-
Work deserves responsibility.
-
Loyalty deserves payment.
-
Dissent deserves punishment.
-
And democracy deserves to fend for itself.
The ancient lesson still applies:
A society can survive high taxes or low taxes.
What it cannot survive is a system that treats people as subjects rather than citizens.
And that is where the Great Divergence, now in its fifth decade, threatens to become something more dangerous: a Great Unraveling.
