Wealth Concentration and Trump's Tax Policy: How Regressive Cuts Reshape Investment Landscapes

The 2017 Tax Cuts and Jobs Act (TCJA), a cornerstone of Donald Trump's economic agenda, has left an indelible mark on the U.S. financial landscape. While framed as a stimulus for broad-based economic growth, its regressive design has disproportionately amplified wealth concentration, reshaped asset allocation strategies, and distorted long-term investment outcomes. By privileging high-income households and corporations, these policies have entrenched systemic inequities while creating fiscal headwinds that ripple through markets and public finances.

Regressive Tax Cuts and the Acceleration of Wealth Inequality

The TCJA's most glaring consequence is its exacerbation of wealth inequality. According to the Center on Budget and Policy Priorities (CBPP), households in the top 1 percent received an average tax cut of $61,500 in 2018, while those in the bottom quintile saw a mere $100. This disparity is not merely numerical but structural: the Institute on Taxation and Economic Policy (ITEP) found that white households, comprising 67 percent of U.S. households, captured 80 percent of the tax cuts in 2018, with Black and Hispanic households receiving just 1 percent each. Such racialized wealth gaps are further compounded by the TCJA's pass-through business deduction and corporate tax cuts, which disproportionately benefit high-income earners and corporations.

The regressive nature of these cuts is compounded by the capital gains tax regime. A 2024 analysis by Inequality.org highlights how the effective tax rate on long-term capital gains declines sharply over time. For instance, an investment growing at 25 percent annually over 40 years would face an effective annual tax rate as low as 3.39 percent, despite a nominal 23.8 percent tax on gains. This mechanism allows the ultra-wealthy to compound wealth with minimal tax drag, as seen in the portfolios of figures like Jeff Bezos and Warren Buffett.

The 2017 Tax Cuts and Jobs Act (TCJA) also reshaped how wealth is accumulated and passed on through generations. By offering substantial reductions on capital gains and inheritances, it has enabled the wealthiest families to preserve and grow their assets at a rate far exceeding the broader population.

Asset allocation strategies have been directly influenced by these tax incentives, steering capital toward sectors and structures that benefit the wealthy. The 20 percent pass-through business deduction (Section 199A) disproportionately favored high-income individuals, with over 90 percent of its benefits going to White taxpayers despite their representing only 67 percent of the population. Similarly, the TCJA's 100 percent bonus depreciation for equipment and real estate spurred investment in capital-intensive industries like semiconductors and AI data centers, sectors where returns are concentrated among institutional and high-net-worth investors.

Real estate and pass-through entities have also become more attractive under the TCJA. Morgan Stanley's 2025 analysis notes that the permanent extension of the 20 percent pass-through deduction under the One Big Beautiful Bill Act (OBBBA) reduced taxes for high-income business owners by an average of $27,000 in 2026, with over 45 percent of net tax cuts under the OBBBA directed to the top 1 percent. These policies have incentivized asset shifts toward real estate and private equity, where appreciation and tax-deferred gains further concentrate wealth.

The TCJA's regressive design has not only skewed wealth distribution but also created fiscal and macroeconomic risks. The Congressional Budget Office (CBO) estimates that extending TCJA provisions through 2026 will cost $288.5 billion, with $44.1 billion of that going to the top 1 percent. Combined with the OBBBA's $4 trillion deficit increase over a decade, these policies have pushed the U.S. deficit-to-GDP ratio to over 7 percent by 2026-more than double the pre-2008 crisis average.

Rising deficits have implications for asset allocation. As government borrowing expands, bond yields and interest rates are likely to rise, increasing borrowing costs for corporations and consumers. This "higher-for-longer" rate environment could dampen equity valuations, particularly for growth stocks reliant on low discount rates. Meanwhile, the wealthy, who hold disproportionate shares of stocks and real estate, are better positioned to weather these shifts, further entrenching wealth concentration.

The Racial and Economic Equity Angle

Racial disparities in wealth accumulation have been exacerbated by these policies. The Brookings Institution notes that the TCJA's benefits disproportionately flow to white households, which already hold 90 percent of the nation's wealth. By reducing taxes on capital gains and inheritances, the TCJA and its extensions have preserved and expanded intergenerational wealth gaps. For example, the OBBBA's expanded estate tax exemption allows the ultra-wealthy to transfer assets with minimal tax consequences, deepening racial wealth disparities.

Conclusion: A Call for Rebalancing

Trump's tax policies have created a feedback loop: regressive cuts concentrate wealth, which in turn fuels further political and economic influence to protect and expand those gains. For investors, this means navigating a landscape where asset allocation is increasingly skewed toward structures that benefit the privileged. For policymakers, it underscores the need to rebalance the tax code to ensure equitable growth.

The data is clear: without structural reforms, the U.S. will continue to see a concentration of wealth and power that undermines long-term economic stability. Investors must weigh not only returns but also the systemic risks posed by a tax code that rewards inequality.