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Reader Frank Huddleston from San Antonio asks: 

Why doesn't a rising tide raise all or most boats? That is: how does wealth manage to get "sequestered" with the wealthiest? [In theory], they don't put it in big money rooms like Scrooge McDuck: they invest it. And that investment makes businesses buy things and employ people, thus distributing the wealth and making it work for almost everyone. But obviously this doesn't work in practice, and I'm wondering why not?

Wealth inequality in the U.S. has worsened over the past three decades. 

Between 1989 and 2022, the top 1% of households gained at least 101 times more wealth than the median household and at least 987 times more wealth than the poorest 20%, according to a new report out from Oxfam America, an organization geared toward combatting poverty. 

The notion that a rising tide lifts all boats does not work in practice, said Shailendra Gajanan, an economics professor at the University of Pittsburgh. 

If it did, then we would not have “such dramatic inequalities,” he said.

By the end of 2024, there were more than 800 billionaires in the U.S. holding a collective $6.72 trillion in wealth. In 1982, there were just 13 U.S. billionaires. And Elon Musk, the owner of Tesla and X, is on the path to becoming the world’s first trillionaire, a title he’ll claim if Tesla hits certain performance targets over the next decade. 

Meanwhile, less than half of Americans have enough emergency savings to pay for three months of expenses, and a quarter have no emergency savings whatsoever, according to Bankate, a consumer financial services company.

The government shutdown has exacerbated financial difficulties for families — federal employees have to temporarily work without pay and funding has been halted for the Supplemental Nutrition Assistance Program, leaving millions of low-income Americans without aid. A federal judge ordered the Trump administration to restore full funding for SNAP, but families have been heading to food banks amid delayed payments. 

Proponents of trickle-down economics argue that if you create tax incentives for the rich, the effects on economic growth will be so large that they’ll improve the lives of those who are less advantaged, said Steven Durlauf, director of the University of Chicago’s Stone Center for Research on Wealth Inequality and Mobility. 

The thinking goes that tax cuts could lead the rich to spend more or invest more in businesses, which would lead to increased hiring. More people would have the ability to spend, stimulating the economy, experts told Marketplace. 

But Durlauf said the empirical literature doesn’t show that, pointing to a study of 18 countries from the London School of Economics on the effects of trickle-down economics. It found that tax cuts didn’t improve per capita gross domestic product and unemployment rates, and that the rich experienced faster income growth.  

Back in 2012, Kansas experimented with supply-side tax cuts to boost the economy by lowering the top income tax rate by about 30% and cutting the tax rate on certain business profits to zero. But the decline in tax revenue led the state to cut its education and infrastructure spending. 

The state also ended up underperforming in comparison to most of its neighbors when it came to private-sector job growth, and its bond rating was downgraded. 

The reason for why trickle-down economics doesn’t work? Well, Durlauf says there’s no reason “it ought to work.” The reasoning behind it assumes that the very wealthy have an enormous sensitivity to taxes and will change their behavior in response to tax changes, and there’s no reason to believe that, he explained. 

Gajanan said he thinks the wealthy are more interested in securing their wealth, and they’re doing that by holding it in offshore accounts to avoid taxes. 

“[Their wealth] is rather unaccounted for most of the time,” Gajanan said. 

While lowering taxes for the wealthy doesn’t help stimulate economic growth, reducing specific taxes and providing targeted subsidies can encourage economic investment and innovation, Durlauf said.

The expanded Child Tax Credit (which has now expired) and the Earned Income Tax Credit, for example, improved family incomes and reduced child poverty.