When Ownership Outpaces Effort

Policy, demographics, and tax code broke the steady link between labor and wealth. Here's what happens if and when that regime shifts.

In This Article:

• Part 1: How tax policy, housing scarcity, and equity ownership widened the gap between capital and W-2 labor.
• Part 2: The structural limits of the current bull run in assets and why many voters and interest rates complicate the unwind.
• Part 3: Potential roadmaps for what happens when the asset party slows down, from market reversion to the "rolling squeeze."

For most of U.S. economic history, the primary path to financial freedom was relatively straightforward: acquire skills, get a productive job, and convert hard work into a rising wage. Today, however, that playbook feels increasingly outdated.

Now, we essentially have two unequal economies. On one side of the coin, you have those whose primary income and livelihood stem from their job; on the other are those who tied their wealth to owning as many productive assets as possible (stocks, real estate, closely held corporations, concentrated capital, etc.).

The share of wealth held by the asset-owners has grown significantly in recent years, while average workers’ slice of the pie shrinks. The fundamental question is no longer just how to accumulate assets, but how long an economy built on this stark divide can continue to prosper. The reality of our current framework is clear, and the consequences will be profound if and when its underlying mechanics reverse.

Part 1: The Asset Class Is Thriving

There are two primary ways to increase your wealth in this country. You can earn more from your job, or you can own something that appreciates.

For the majority of the last century, these two paths moved together closely enough that the distinction didn't matter much to your typical household. That's no longer true.

Labor's share of national income has fallen from about 58% in 1980 to roughly 51% today, while corporate profits' share of the economy has expanded from around 7% to nearly 12% over the same stretch.¹ While single-digit percentages sound subtle, on a macro scale this translates to trillions of dollars shifting annually from W-2 paychecks to corporate balance sheets and equity holders.

When productivity gains accrue primarily to capital rather than a paycheck, nonwage income (capital gains, qualified dividends, business distributions, and real estate appreciation) becomes the primary engine of wealth compounding. Wages may pay your bills, but ownership creates scale.

The Tax Arbitrage Engine

The structural shift in wealth creation toward asset-ownership is only amplified by tax policy. Nonwage income benefits that are unavailable to standard W-2 earnings:

• Section 199A: Allows eligible pass-through entities (S-corps, partnerships) a deduction of up to 20% on qualified business income.²
  
  
• Capital Gains Preferred Rates: Long-term capital gains top out at 20%, well below the 37% top marginal rate on wage income, before even accounting for payroll taxes that apply to wages but not investment income.³
  
  
• Step-Up in Basis & Borrowing: When someone dies holding appreciated assets, stocks, a business, real estate, their heirs inherit them at current market value, not at what was originally paid. Every dollar of unrealized gain built up over a lifetime simply disappears for tax purposes.
  
  ​Combine that with "buy, borrow, die," the strategy of borrowing against appreciated assets to fund spending rather than selling them, and you get a structure where large asset holders can spend against their wealth for decades, pay relatively little income tax while doing it, and then pass the whole position to heirs with the embedded gains erased.
  
  

The Retirement Generation & Demographic Wealth Concentration

The concentration of this asset explosion is heavily age-skewed. Data from the Federal Reserve's Survey of Consumer Finances (SCF) highlights that Americans aged 55 and older hold nearly 74% of total U.S. net worth, up from around 50% in 1989. Meanwhile, the under-40 cohort holds under 7%.⁴

The 70+ demographic, representing roughly 12% of the population, holds over 32% of total net worth. This comes as a direct result of the compounding output of a multi-decade tailwind in financial assets.⁴

I'm not saying that this set up is wrong or unusual (they've had the longest time-horizon for their investments after all), I'm merely just pointing out the concentration of wealth in this demographic.

The Business Owner's Edge

Public equities get a lot of the attention in the media, but there's still a huge share of economic activity in privately held assets. The Minneapolis Fed's research on nonwage income found that after capital gains, the largest component of nonwage income for the top 1% is S-corporation income, the profit that flows through a closely held business directly to its owner's tax return.⁵

Combine that with the permanent 20% Section 199A deduction described above, and business ownership functions as a great wealth-building engine that operates on a different set of rules than the wage system. A successful small or mid-sized business owner in 2026 is taxed more favorably on that income than an employee earning a comparable salary at the same company.

The Real Estate Premium

Housing has also contributed significantly to this divided economy -- driven by artificial scarcity, historical low borrowing costs, and tax policy. The median U.S. home now costs roughly five times median household income, up from about 3.5 times in 1984.⁶ While construction costs play a role, a meaningful share of that stretch reflects strict limits on new supply in high-demand areas. The legal right to occupy scarce land becomes more valuable every year supply fails to keep pace with demand.

Furthermore, millions of existing homeowners saw their home equity surge during the COVID era when mortgage rates dropped below 3%. Because selling means forfeiting those historic rates, existing inventory remains locked up.⁷ Combined with structural tax incentives for real estate owners, it is no surprise that prospective home owners face an unprecedented barrier to entry.

The Equity-Owning Employee
Even within the workforce, the divide persists between those receiving fixed compensation and those receiving equity. Research from Schwab Stock Plan Services found that employees with company stock hold an average of 29% of their net worth in employer shares, a figure that climbs as high as 42% for millennials specifically. Both Schwab and Fidelity generally flag any single position above 10% to 20% of a portfolio as a meaningful concentration risk, a threshold plenty of equity-compensated employees quietly exceed.⁸
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Comparing IBM in 1985 (then the market's most valuable company, employing ~400,000 workers) to modern megacap tech giants reveals the shift: today's market leaders generate exponentially higher market valuations with a fraction of the headcount.⁹ The wealth generated by these wildly successful corporations is concentrated among a much smaller group of equity-compensated employees.

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Part 2: How Long Can This Keep Up?

What History Says About Long Runs

The current bull run for asset-holders stands out against long-term historical norms. Historical stock market data shows that bull runs driven by valuation expansion rather than underlying earnings growth eventually face structural limits. When Shiller CAPE ratios sit well above long-term averages (~17x historical mean), future expected 10-year real returns drop significantly.¹⁰

Elevated valuations are not, on their own, a guarantee of an imminent crash. Market cycles have no fixed shelf life, and stretched multiples can persist far longer than rational models suggest. However, economic history is consistent on one point: a return to earth eventually arrives.

The question I want to know: how much stress will it actually take for this capex fueled market to finally tire out?

Debt Off the Books: The AI Capex Structure

A key driver of current valuation premiums is massive capital expenditure in technology and infrastructure. However, an increasing portion of this capex (like data center buildouts, specialized hardware leases, and private energy grid infrastructure) is being financed increasingly through off-balance-sheet vehicles, SPVs, and private credit leases.¹¹ Growth that relies on complex debt structures becomes much more sensitive to interest rate spikes.

Counterpoint: We All Know Who Controls the Wheel

One of the main reasons that the ownership class has done so well over the last decade is because the political economy is incentivized to defend asset values. Here’s what I mean:

1. Voter demographics: The median voter age sits around 52, and over half of major political donations originate from individuals aged 66+.¹²
   
   
2. Fiscal priorities skew older as well: According to Penn Wharton Budget Model analysis, federal outlays favor older cohorts significantly through entitlement programs (~11%+ of GDP projected trajectory for elderly spending) relative to younger generations.¹³
   
   
3. Homeowner self-interest: Roughly two-thirds of Americans own their home, and homeownership doesn't just predict how often someone votes, it also shapes how they vote. Research tracking two decades of voter records in Ohio and North Carolina found that buying a home substantially increases local election turnout, with the effect nearly doubling when zoning measures are on the ballot. Separately, homeowners now account for roughly 58% of voter registrations despite making up only about 41% of the voting-age population, giving a group with a direct stake in rising asset values outsized say over the very policies that keep those values rising.²⁰
   
   

Because asset-owning voters dominate the political landscape and participate at high rates, policymakers face immense political pressure to substantially protect asset prices through fiscal and monetary policy.
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This creates a counterintuitive interest-income loop. When the Federal Reserve raises interest rates to curb inflation, higher yields translate directly into billions in risk-free income for asset-rich people holding Treasuries, CDs, and money market accounts.

Rather than cooling demand, elevated rates expand the spending power of those with liquid capital and help sustain demand in travel, healthcare, and leisure services. Meanwhile, younger workers and asset-light households bear the full burden of high borrowing costs from mortgages to student loans, widening the wealth gap from both sides. 

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Part 3: What Happens When the Music Eventually Stops?

To be clear, I’m not predicting the current bull run in assets ends in flames, or in the near future, or really in any specific way at all. Rather, I'm giving an honest look at what's happened in the past when asset-driven growth has slowed or reversed.

If current trends can't compound indefinitely, how does the system adjust? Here are five potential scenarios that illustrate how the current asset-fueled regime might unwind or evolve:

Scenario One: Reversion (Valuation Normalization)

The classic story of market adjustment: equity valuations compress rapidly back toward historical averages. We saw it in the housing market in the 2008 crisis: households in the bottom 80% of the wealth distribution lost nearly 39% of their net worth between 2007 and 2010, compared to a 14% loss for the top 20%. Median household net worth fell 38.8% over roughly that same period, erasing nearly two decades of accumulated gains.¹⁴ Contrary to some young Americans' beliefs, a market crash does not fix inequality; it often consolidates assets into stronger hands.

Scenario Two: Policy Reversal

Since much of the current advantage for asset owners was built through the tax code, it can also be unbuilt through the tax code. Capital gains rates, the Section 199A deduction, and the new $15 million estate exemption are all legislative choices rather than economic laws.¹⁵ Albeit unlikely, a future Congress with a much different agenda could reverse any of them.

Scenario Three: The Sellers' Market

As baby-boomers transition fully into the decumulation stage of life, millions of retirees shift from net buyers of financial assets to net sellers to fund daily living and healthcare. If secondary market buyers (like younger domestic workers or international investment) lack the income to absorb this supply at current prices, assets may adjust downward to match buyer purchasing power.

Scenario Four: The Release Valve (The Great Wealth Transfer)

Not every version of "the music stops" is a full-blown crisis. Cerulli Associates projects that roughly $124 trillion in wealth will change hands in the U.S. through 2048, with about $105 trillion going to heirs and the rest to charity, and roughly 81% of that total originating from baby boomers and older generations.¹⁶ Annual transfer activity is projected to climb from around $4 trillion currently toward a peak near $6 trillion in the mid-2030s, as the largest boomer birth cohorts reach their late seventies.

It's worth noting this is a projected figure, not an exact science. A competing estimate from Visa puts the realistic inheritable total closer to $36 trillion, a difference that mostly reflects how much of boomer wealth actually survives retirement itself.¹⁷

Either way, a meaningful share of the current concentration gets redistributed across generations over the coming two decades whether or not any market correction happens at all.

Scenario Five: The Rolling Squeeze

This, in my opinion, would be the most uncomfortable of the five scenarios. By rolling squeeze, I mean a very long stretch of low real returns. Japan's lost decades, of course, being a prime example.

After its 1989 peak, the Nikkei 225 took 34 years and two months to reclaim that nominal high, finally doing so in February 2024.¹⁸ Combined with a multi-decade collapse in commercial land values, an entire generation experienced firsthand what happens when core risk assets fail to compound.¹⁹

​There's an important caveat, though: Japan's lost decades were driven by deflation, not inflation, which makes it an imperfect analogy for a U.S. economy currently dealing with the opposite problem. Still, the lesson applies.

The American version of this scenario wouldn't need a deflationary economic environment to feel similar. Instead, it would need asset prices to grow slowly enough, for long enough, that they stop outpacing the specific costs retirees actually face, healthcare and long-term care chief among them.
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This is less a scenario about markets crashing and more a scenario about markets going sideways in a way that erodes purchasing power for asset-holders. It's arguably the hardest of these five scenarios to plan around precisely because nothing about it would feel like an emergency while it's happening.

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Conclusion

There is growing conviction amongst the American public that asset ownership is the only reliable path to financial security, a takeaway that is driving more and more public frustration, especially for those who can’t participate in all the fun.

The reality is that our current economic system compounds wealth based on capital position rather than labor input. What makes the sustainability of this dynamic so compelling is not just the concentration of wealth today, but how the broader economy will respond if and when the structural incentives shift.

Public sentiment tends to follow incentives rather than the other way around, which means the fix for a lot of the unease people feel requires shifting economic motivation back in favor of hard work and wage accumulation as opposed to simply owning/holding assets (easier said than done, of course). The goal is not to punish capital or disincentivize asset ownership, which remains a premier facilitator of individual wealth creation, but to restore an equilibrium where wage-earners can actually reach that table. 

I believe that change will arrive eventually, whether legislated by voters, forced by market correction, or dictated by the plain demographic math of a generation decumulating its assets.

The asset boom has been an extraordinary time for those already seated at the ownership table, there's no denying that. But this country's prosperity was built on an economic promise that rewards a productive workforce alongside capital ownership. Bringing that balance back will require a shift in the incentives currently driving it.




​More Reading:
The Health and Wealth Equivalence: Why Knowing What to Do Is Never Enough
$500 Energy Bill: Non-Discretionary Inflation is Outrunning the American Household
The Bank of Mom and Dad: Supporting Adult Children Without Endangering Your Golden Years
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​References
1. Bureau of Economic Analysis, National Income and Product Accounts, labor share of gross domestic income and corporate profit share, 1980–present. 
2. Larry Brant and Steven Nofziger, "One Big Beautiful Bill Act, H.R. 1: Part IV, The Qualified Business Income Deduction / Code Section 199A," Foster Garvey, July 2025.
3. Internal Revenue Service, 2026 federal income tax brackets and long-term capital gains rate schedule.
4. Idrees Kahloon, "The Gerontocracy," The Atlantic. Underlying wealth-by-age data: Federal Reserve Survey of Consumer Finances.
5. Federal Reserve Bank of Minneapolis, "Beyond the Paycheck: The Rise of Nonwage Income," research note. 
6. Idrees Kahloon, "The Gerontocracy," The Atlantic.
7. Ross M. Batzer, Jonah R. Coste, William M. Doerner, and Michael J. Seiler, "The Lock-In Effect of Rising Mortgage Rates," FHFA Working Paper 24-03, 2024–2025; Federal Reserve Board, "Locked In: Mobility, Market Tightness, and House Prices," FEDS working paper.
8. Charles Schwab, "The Risk of Holding Too Much Company Stock," Schwab Stock Plan Services study; Fidelity, "Stock options: Managing risk and strategy," Fidelity Investments.
9. Greg Ip, The Wall Street Journal, IBM (1985) vs. modern megacap valuation/headcount comparison.
10. Robert Shiller, Online Data (Yale University), CAPE ratio dataset; GuruFocus, "S&P 500 Shiller CAPE Ratio," August 2026.
11. Bank for International Settlements, "Financing the AI Infrastructure Boom: On- and Off-Balance Sheet Borrowing," BIS Quarterly Review, March 2026; Carson Group, "The AI Buildout Needs a Lot of Money: Enter Debt (and Financial Engineering)," Wealth Management, 2026.
12. Idrees Kahloon, "The Gerontocracy," The Atlantic (median voter age and donor-age split).
13. Penn Wharton Budget Model, government benefit spending by age cohort.
14. Federal Reserve Board, "A Wealthless Recovery? Asset Ownership and the Uneven Recovery from the Great Recession," FEDS Notes, September 2018; Federal Reserve Survey of Consumer Finances, 2010.
15. Pierce Atwood, "The One Big Beautiful Bill Act and Estate Planning: What You Need to Know," 2025; Carr, Riggs & Ingram, "Estate Tax Planning After the OBBBA," 2026.
16. Cerulli Associates, "Cerulli Anticipates $124 Trillion in Wealth Will Transfer Through 2048," press release, 2024–2026 update.
17. Visa Business and Economic Insights, great wealth transfer estimate, reported via CNBC, July 2026.
18. Nippon.com, "Nikkei Index Sets First Record High Since 1989"; Bloomberg, "Japan's Nikkei Closes at All-Time High, Surging Past 1989 Record," February 2024.
19. Kunio Okina, Masaaki Shirakawa, and Shigenori Shiratsuka, "The Asset Price Bubble and Monetary Policy: Japan's Experience in the Late 1980s and the Lessons," Bank for International Settlements / Bank of Japan Institute for Monetary and Economic Studies, 2001.
20. U.S. Census Bureau, Housing Vacancies and Homeownership survey, 2026; Andrew B. Hall and Jesse Yoder, "Does Homeownership Influence Political Behavior? Evidence from Administrative Data," Stanford Graduate School of Business working paper.