A recent report from Informa Connect Academy predicts that Elon Musk is on track to become the world’s first trillionaire by 2027. Musk’s wealth has been steadily increasing, and at the start of 2020, he was worth about $28.5 billion. By the end of the year, his net worth had grown to around $167 billion, and as of September, it was valued at roughly $265 billion. The main driver of Musk’s wealth has been Tesla stock, which saw a significant increase in value during the Covid-19 pandemic, with the stock surging from $30 per share in January 2020 to almost $300 per share in January 2021.
According to economic policy analyst James Pethokoukis, the key to becoming super-rich like Musk or Jeff Bezos is starting and growing a successful company that produces something valuable that people want. This leads to wealthier individuals having a larger portion of their assets invested in the stock market, while middle-income households typically have more of their wealth tied up in real estate. As of mid-2024, the wealthiest 1% of Americans own nearly 50% of all U.S. stocks, while the bottom 50% of Americans hold only about 1% of all stocks. About 58% of families owned stock in 2022, either directly or indirectly through passive investments such as retirement accounts.
John Sabelhaus, a fellow at the Brookings Institution, notes that wealth inequality is largely driven by the prices of different types of assets, with one of the factors contributing to wealth concentration being the stock market. However, there is debate surrounding the role of taxation in exacerbating wealth inequality. While some argue that large compensation packages are the result of creating successful companies, others point to loopholes in the tax system that allow the wealthy to avoid paying their fair share of taxes. Changes in tax policy over the past quarter century have made it increasingly difficult to tax the rich, with more exclusions and ways to evade taxes.
The majority of Americans earn their income through traditional means, such as trading their time and skills for a paycheck, which is taxed based on their earnings. However, the income of the ultrawealthy, like Musk, is often not as clear-cut. Sabelhaus explains that while Musk has a large compensation package, only a fraction of it shows up as taxable income, as much of it is in bonuses and other forms of payment that make it easier to avoid taxation. This disparity in how income is earned and taxed between the ultrawealthy and the average American contributes to growing wealth inequality in the United States.
Ultimately, the increasing concentration of wealth among the richest Americans has implications for the broader economy. As the rich continue to accumulate wealth at a faster rate than the rest of the population, it raises questions about fairness, equity, and the overall health of the U.S. economy. With debates ongoing about the role of taxation and loopholes that benefit the wealthy, the issue of wealth inequality remains a complex and contentious topic that will likely continue to be scrutinized in the years to come.
