Other than Donald Trump — who is himself worth ten figures — billionaires are perhaps the most common foil for Democrats running for office this year. Whether they’re trying to win a safe blue seat or a competitive red one, Democrats invoke billionaires as the root cause of the country’s political and economic malaise. “The American dream has become an American nightmare,” James Talarico, the Democratic Senate candidate in Texas, told a crowd last month. “People are working hard, every day they’re playing by the rules, but those rules of today weren’t written for us. They were written for billionaires,” he added.
It’s hard to dispute this political logic. Several of the world’s wealthiest people have aligned themselves with Mr. Trump, at times literally: Mark Zuckerberg and Jeff Bezos were among those seated close behind the president at his inauguration. Elon Musk — briefly the world’s first trillionaire — was a fixture in the Oval Office for a few months last year. Billionaires are astronomically rich, arguably lightly taxed, often allied with Republicans and, in a gift to speechwriters, provide a unified theory of societal decline.
When it comes to turning this animosity into policy, the solution is usually tax increases. Several Democratic candidates, including Troy Jackson in Maine and Abdul El-Sayed in Michigan, have pledged to, one way or another, raise taxes on them. In California, voters this fall will decide whether to impose a one-time, 5 percent tax on the net worth of the state’s billionaires. Senator Bernie Sanders, a Vermont independent, has said this first-of-its-kind wealth tax would check the power of tech titans who now resemble “the oligarchs of the 18th and 19th centuries, the kings and the queens and the czars.”
But the potent symbolism of taking on “the billionaire class,” as Mr. Sanders puts it, risks eclipsing a broader set of policy proposals for taxing the rich. The responsibility for problems often blamed solely on billionaires, whether that’s wealth inequality or the budget deficit, also lies with a much larger, more dispersed set of rich people. Addressing those issues requires first having a more complete understanding of their source.
That’s the argument in a new book by the economists Owen Zidar of Princeton University and Eric Zwick of the University of Chicago. “The Everywhere Millionaire: Who Is Really Rich in America and How They Got There” looks beyond the billionaires often invited to the White House and explores the country’s wider world of wealth. Drawing on labyrinthine Internal Revenue Service records, the pair study a group of rich business owners that looks more like a suburban chamber of commerce than an oligarchy: car dealers, dentists and a leading supplier of hamburger buns. What they find is tremendous wealth and power.
This group of roughly three million “Main Street Millionaires,” as the authors call them, have an average net worth of $25 million, and as a group, they commanded $54.8 trillion in 2022, the most recent year cited in the book. That’s more than 13 times the collective wealth that year of the billionaires on the Forbes 400 list, which includes household names like Mr. Musk and Mr. Bezos. The multimillionaires of Main Street are getting richer even faster than the famous Forbes 400, propelled by tax breaks largely created by Republicans and local regulatory advantages.
Addressing those policy handouts, to the authors, should be at least as urgent as passing a wealth tax. In an interview, Mr. Zwick called a wealth tax a “sideshow” that may not be as effective as its proponents promise, though he and Mr. Zidar acknowledged that it is not necessarily an either-or question. Congress could, after all, pass legislation that includes both a wealth tax, or something like it, as well as a host of less sexy changes to how noncorporate business income is taxed.
But the authors have good reason to worry that the path to raising taxes is only getting narrower. As Mr. Zidar and Mr. Zwick describe, these millionaires are everywhere, serving in Congress, forming lobbying groups and presenting themselves as the sympathetic, familiar small businesses in your city or town. Raising taxes on a small, world-shaping set of billionaires may be politically easier than revoking a deduction for the nation’s manufacturers of garage doors and electric toothbrushes. The rhetorical preoccupation could become a substantive one, which would, at the very least, leave lots of tax revenue on the table.
In 2020, when Mr. Sanders last ran for president, he proposed a wealth tax that would apply to people with at least $32 million in assets, with even wealthier Americans owing a larger tax. This spring, he and Representative Ro Khanna, a California Democrat and potential presidential candidate, released a new wealth tax plan. It would apply only to people worth at least $1 billion.
Who is ‘Capital’?
For much of the past decade, there has been a conventional wisdom about the ultrawealthy. Thomas Piketty, in his 2013 “Capital in the Twenty-First Century,” the against-the-odds best seller, described accelerating inequality in capitalist countries, driven by returns on capital that outpace the overall rate of economic growth. In that book, as well as follow-up studies with the fellow French economists Emmanuel Saez and Gabriel Zucman, Mr. Piketty depicts an elite that grows richer primarily through financial investments in stocks and bonds. It’s a rentier style of wealth that, he writes, presages a return to the aristocratic societies of the 19th century.
Mr. Zidar and Mr. Zwick want to fill in what they see as the gaps in this theory. Through a painstaking examination of tax records and a series of entertaining anecdotal portraits, they present a very different profile of the 21st-century American capitalist.
Rather than inheriting wealth and passively collecting checks, the rich they examine are more likely to have worked fiendishly hard to build a flourishing business. This can still lead to dizzying wealth; some of the book’s subjects are, in fact, billionaires, and among its data sources are registries of private planes and yachts. Overall, the book outlines a somewhat meritocratic path to riches. While people born rich are much more likely to start their own successful business, most rich entrepreneurs were born middle or lower class and did not inherit their company.
Beyond these demographic findings, though, the key characteristic of these “stealthy wealthy,” another moniker the authors use for this group, is how they structure their businesses and pay their taxes. The largest, most powerful companies, like Walmart or Exxon Mobil, are generally structured as corporations, legal entities that owe the corporate income tax and distribute profits to shareholders through dividends.
Not the legion of prosaic companies at the center of “The Everywhere Millionaire.” These businesses — commercial aluminum heat-treating firms and food redistributors — are often set up as a limited liability company, a partnership or an S-corporation. Despite the name of this last type, these companies do not owe the corporate income tax. Instead, business earnings show up on an owner’s tax returns and are subject to the individual income tax.
Among tax nerds, these companies are called “pass-throughs,” because the firm’s profits pass onto an individual return. Pass-throughs have relatively few owners, compared with the millions who can buy and sell shares in a publicly traded corporation. But, as the book details, this type of company is deeply intertwined with the growing wealth of the ultrarich. Since the 1980s, pass-through businesses have been responsible for more than half of the additional share of income claimed by the top 0.1 percent.
Mr. Piketty, in “Capital,” called for the creation of a global wealth tax; Mr. Saez and Mr. Zucman, two of his protégés, are now involved in the push for the California billionaires’ tax. In recent research, Mr. Saez and Mr. Zucman focus on the Californians who helped start — and now own large shares of stock in — major, publicly traded companies like Google. Using public security filings, they detail the astronomical wealth of figures like Sergey Brin, Google’s co-founder, who is worth more than $250 billion and has spent more than $100 million fighting the California billionaire tax. The Frenchmen argue that a wealth tax on even a handful of these people could generate substantial revenue for the state.
For Mr. Zidar and Mr. Zwick, that’s a limited approach. “It’s not like the handful of billionaires aren’t influential; they clearly are,” Mr. Zidar said in an interview. “But just look at the tax base. Do some counting. There’s just a lot more people. They’re in every congressional district. There’s a lot more collective money.”
‘The Little Guy’
In 2017, during Mr. Trump’s first term, Mr. Zidar and Mr. Zwick were among a group of economists called to Washington to meet with the Republicans who were preparing a generational rework of the tax code. At that point, the pair were already considered the foremost experts on pass-through businesses, and lawmakers were getting ready to create a generous new write-off for the owners of these companies.
Mr. Zidar and Mr. Zwick told Republicans not to do it, since the benefits would overwhelmingly accrue to the wealthy. But the G.O.P. plowed ahead. The party was already committed to cutting taxes for large corporations, and members of Congress told the economists that they needed to include a tax cut for “the little guy.”
“When we noted that many of these ‘small’ businesses actually are not small, no one wanted to talk about it,” the authors write, pointing out that several members of the tax-writing committee in the House are themselves business owners.
The result was a deduction for pass-through business profits that, in effect, lowered the top marginal income tax rate these “Main Street Millionaires” have to pay by seven percentage points. At first only a temporary tax cut, Republicans last year voted to make it a feature of the code indefinitely, at a cost of roughly $800 billion in lost tax revenue over a decade. That’s nearly as much money as Republicans cut from Medicaid.
Mr. Zidar and Mr. Zwick’s list of problematic tax benefits for these business owners goes on. Republicans have not only repeatedly narrowed the number of people who, theoretically, owe the estate tax, but legal maneuvering has also made the tax largely optional. Business owners can classify their earnings as profits, rather than a salary, to avoid paying the tax that funds Medicare. While a highly paid executive at a major corporation has his pay automatically reported to the I.R.S., pass-through company owners often report only a fraction of their profits to the tax collector.
Democratic policy experts are familiar with these issues and, indeed, many have spent years trying to address them. But it’s not easy. Approving these changes would require lawmakers to confront powerful lobbying groups, as well as their donors, golfing partners and, in some cases, their colleagues in Congress. And as Mr. Zidar and Mr. Zwick detail, many of these business owners are self-made, local figures. Their ambitions are to expand their business into a neighboring region or state, not colonize a new planet.
It is because these firms seem “small” compared with multinational behemoths that Democrats have instead cast their attacks on a tiny number of tycoons. For all their power, billionaires can’t easily present themselves as the owners of a good-old-American-company-who just-needs-a-break-from-Washington. The hope is that focusing fire on billionaires and large corporations helps build support for — rather than crowding out — a more comprehensive tax agenda, said Michael Linden, a former budget official in the Biden administration.
“I would be nervous if we started using the focus on billionaires as a license to ignore the many other ways the tax code preferences the wealthy and high income over everyone else,” he said. “But I don’t think that’s really happening.”
The last time Democrats had control of Washington, much of their tax-the-rich agenda collapsed in the 50-50 Senate. The tax increases that survived targeted large corporations — and left pass-through businesses alone. (They also approved a surge in funding for the I.R.S. that would have helped audit business owners, but Republicans canceled most of it.) Democrats may soon find themselves with power again in Congress, and the presidential primary will begin not too long after next month’s midterm elections. Mr. Zidar and Mr. Zwick don’t want policymakers to again overlook the qualified business income deduction for pass-through earnings, even if it doesn’t roll off the tongue quite like a billionaires’ tax.
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