OPINION:
We keep hearing from political pundits and economists that America has a K-shaped economy, with benefits mostly accruing to the wealthy at the expense of poor households. We have also been told that the middle class is shrinking and struggling.
This pessimism seems to be validated by polls showing that consumer confidence has plunged this year.
Despite these claims, consumer spending continues to grow, with inflation-adjusted personal consumption expenditures rising steadily and hitting an annualized $16.8 trillion in the second quarter.
In other words, if we pay attention to what people are doing rather than what they are telling pollsters, we get a different picture of the economy.
How can spending grow so much if middle-class incomes are falling?
We can explain this contrast in two ways. One is that, although median annual household income has fallen behind inflation by roughly $800 over the past several months, median real income rose by almost $3,000 in President Trump’s first 14 months in office.
So the typical family has roughly $2,000 more in inflation-adjusted dollars this year than at the end of the Biden presidency.
Thanks to 401(k) plans and other household savings flowing into the stock market, middle-income wealth has risen substantially in Mr. Trump’s second term.
Our chart shows that through the end of the second quarter of 2026, the average 401(k) plan was up by $23,800 after adjusting for inflation.
That has been a total reversal of what happened under President Biden, when the average 401(k) plan lost nearly $25,000 in real terms because cumulative inflation exceeded 20% and the bond market had its worst four-year run in a century.
That one-two punch more than offset gains in equities under Mr. Biden.
The middle class also fared much better in Mr. Trump’s first term, with the average 401(k) plan up more than $26,000 after adjusting for inflation.
It is true that credit card debt is near a worrisome all-time high of $1.26 trillion, according to the Federal Reserve Bank of New York.
Yet that debt is largely offset by the increase in household assets, including home equity and financial holdings. Household net wealth is up about $13 trillion since 2024, according to the Federal Reserve.
A booming stock market, a mad rush of investment capital lured by America’s technology dominance and lower business taxes, and the returns generated by the Trump tax cuts have created a virtuous cycle of higher incomes and more wealth for most American families.
Trump Accounts are also enabling millions of young Americans to participate in the market in ways never before possible, giving them a financial head start.
To sustain this cycle of rising real incomes along with rising returns on Americans’ lifelong savings, we need two policy commitments from Washington. First, Congress must end the unfair capital gains tax on inflation. Savers should not be further penalized for Mr. Biden’s 40-year-high inflation by having to pay tax on what are merely nominal gains.
Second, we need an ironclad commitment from the Fed to push inflation below 2% and ideally closer to zero. Fortunately, Kevin Warsh is already showing that he is the man to do just that.
• Stephen Moore is a co-founder of Unleash Prosperity and a senior fellow at the America First Policy Institute. E.J. Antoni is a senior fellow at Unleash Prosperity and chief economist at The Heritage Foundation.
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