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US Tax Surge Fueled by Rising Inequality
25 Feb
Summary
- Individual income tax receipts increased by 10% in real terms.
- The federal deficit decreased to 5.4% of GDP in 2025.
- Bottom 40% wealth share declined since 2022.
The US economy is experiencing a surge in individual income tax receipts, driven by a widening income inequality. Adjusted for inflation, these receipts are up 10% year-over-year, significantly contributing to the federal deficit shrinking to 5.4% of GDP in 2025 from 6.9% in the prior year.
This trend is particularly evident at the top of the income distribution. In 2021, tax returns reporting $10 million or more accounted for 30% of the increase in individual income tax revenue. Similarly, the top 1.5% of earners, those with incomes over $500,000, contributed 68% of this growth.
Conversely, other economic indicators present a more concerning picture. The share of wealth held by the bottom 40% of income earners has been sliding since 2022. Furthermore, wage growth for the lowest-income workers, which was robust from 2015 to 2024, has now become the slowest.
While rising stock prices and innovation investments are associated with some of this inequality-driven tax revenue, the broader economic trends for lower and middle-income groups remain a point of concern. Preliminary data for 2023 and 2024 suggest a potential reversal in the trend of declining income share for the top 1%.
