This article first appeared in the Planet Money newsletter.
America’s wealthy are not confined to Silicon Valley or Wall Street. A new book, The Everywhere Millionaire, by economists Eric Zwick and Owen Zidar, reveals a diverse group of millionaires who flourish across the country in unassuming ways.
The Rise of Main Street Millionaires
Beyond the glamorous billionaires, America hosts a substantial class of wealthy individuals better described as “Main Street millionaires.” These individuals own businesses like car dealerships, fast-food joints, waxing salons, and factories. Collectively, they possess considerable wealth, often enough to support lavish lifestyles akin to the ultra-rich.
These millionaires have also accumulated significant political power. The book argues they could challenge the billionaire “oligarchs” in influence due to their numbers and geographic distribution.
The Quiet Economic Revolution
Over recent decades, private businesses, particularly those classified as “pass-throughs,” have transformed the American economy. By 2011, these businesses generated more income than traditional corporations combined. There are about three million private business owners in the United States with an average worth of $25 million each, demonstrating a shift in wealth distribution dynamics.
Understanding Pass-Through Businesses
Unlike traditional corporations that pay taxes on profits directly, pass-through businesses allow profits to “pass through” to owners taxed at individual rates. This model includes sole proprietorships, partnerships, and “S corporations.” Although often labeled as “small businesses,” many are substantial enterprises driving substantial economic gains.
From 1980 to 2011, pass-through businesses expanded from generating one-fifth to more than half of all U.S. business income. The lower tax rates applicable to these businesses contribute significantly to the rise of inequality, as owners accrue considerable profit benefits.
The Tax Ninjas and Their Findings
The exploration into America’s wealth began with three economists, dubbed the “Tax Ninjas,” during their tenure at the U.S. Treasury. By constructing a dataset linking millions of businesses to their owners, they revealed the true scope of private business income’s impact.
Data showed that many top earners hailed from industries often perceived as mundane—doctors, dentists, car dealers, lawyers, and consultants. Insights debunked the notion that wealth mainly derives from capital investment, showing skilled labor as a key contributor to business success.
Influence of Tax Policy
Significant changes in tax policy, initiated by the 1986 Tax Reform Act, lowered individual tax rates below corporate rates, making pass-through entities a favored business structure. The reform created a tax advantage for private business owners, fostering significant wealth accumulation within this group.
The Political Power of Main Street Millionaires
Main Street millionaires are not simply wealthy; they often take on roles within political structures. Despite constituting a small percentage of the population, business owners are overrepresented in elected offices at both state and federal levels.
The convergence of business ownership and political activity can create conflicts of interest, yet many bring valuable expertise to governance.
New Questions and Findings
Zwick and Zidar’s work prompts a reevaluation of wealth dynamics in America. With Main Street millionaires wielding notable political and economic influence, their impact should be more closely studied.
The conversation continues as the authors investigate what predisposes individuals to become these prosperous business owners, hinting at further insights into entrepreneurial success.