There's a Mind-Boggling Number of Rich People in America
Economists Owen Zader and Eric Zwick discuss their research on America's "everywhere millionaires"—millions of wealthy private business owners in unsexy industries like car dealerships, dental practices, and beverage distribution. They reveal that pass-through business income has become the primary driver of income inequality, with 70% of such income flowing to the top 1%, and explain how tax code structures incentivize this wealth concentration.
Summary
The episode explores the origins and findings of "The Everywhere Millionaire," a book based on a Treasury Department-commissioned project to analyze IRS data linking businesses to their owners and workers. The authors struggled initially with fragmented government databases where separate tax forms weren't designed to be linked electronically, eventually tracking down the original architect of the XML filing system in Utah to understand how to connect the data properly.
The research reveals a previously invisible class of wealthy Americans: millions of private business owners in mid-market, regional industries rather than the billionaire tech founders or Wall Street executives typically associated with wealth. Auto dealers rank as the top pass-through industry by profit, followed by doctors' offices, dentists, and beverage distributors. The authors illustrate this through specific examples: the Brockway family, third-generation Florida Mercedes dealers, spent $60 million on their daughter's 2023 wedding after selling their dealership; Larry Miller built a Utah auto empire from a single dealership job; Dick Portillo grew from washing hot dog dishes to billionaire status through sheer perseverance and reinvestment.
The book contrasts with Piketty and Saez's "Capital in the Twenty-First Century" by showing that modern inequality is driven not primarily by passive capital accumulation but by actively-managed private businesses. Pass-through entities now capture the majority of business profits in America—roughly 50% of all business profits—compared to negligible amounts in the 1980s. This shift occurred after Reagan-era tax reforms made pass-throughs more attractive than C corporations by taxing individual income lower than corporate profits.
The authors detail how regulatory protections and market structures enable wealth concentration. Auto dealership franchise laws, originally designed to protect small dealers from large manufacturers, now create barriers to entry that allow existing dealers to capture outsized profits through ancillary services like warranties, financing, and repairs. Similarly, beer distribution relies on state franchise protections that require products to flow through licensed distributors, creating a middle tier of extraordinarily wealthy distributors who simply sit between manufacturers and retailers.
On taxation, the research shows stark disparities: an anesthesiologist in private practice running an S-Corp pays substantially less tax than a salaried hospital colleague earning identical income, avoiding payroll taxes and Medicare surcharges on profits while the salaried worker bears the full burden. The 2017 tax cuts further reduced pass-through rates to below 30% (compared to the top individual rate of 37%), though guardrails supposedly prevented doctors and skilled professionals from accessing these benefits—yet strategies exist to shift ancillary service income into lower-taxed categories.
The authors note that roughly 25% of federal elected officials are pass-through business owners themselves, creating structural resistance to tax reform despite the fact that only 20% of pass-through income actually comes from small businesses by Treasury definitions. They propose limiting pass-through deductions by income level as a more realistic reform path than attempting elimination.
The research also examines private equity's role in transferring these businesses to a new generation of operators through search funds, where young entrepreneurs spend years identifying undervalued mid-market businesses (HVAC companies, pest control, drug treatment facilities) too small for traditional PE but still highly profitable. The data shows children of business owners are substantially more likely to start businesses themselves, and regional clustering effects matter significantly—people growing up in Salt Lake City are three times more likely to start successful businesses than those in Mississippi.
Finally, the analysis quantifies income distribution: between 2001 and 2021, value-added per worker in pass-through businesses grew from $34,000 to $52,000 (an $18,000 increase), yet owners captured $15,000 of that growth while workers received only $3,000. This 5-to-1 split illustrates how the pie is both growing and being sliced in increasingly unequal ways.
About this episode
<p>In 2014, the economists Owen Zidar and Eric Zwick were asked by the Treasury to conduct a study on the tax burden of private business owners. It was tricky to figure out how much these sorts of business owners — auto dealers, contractors, the like — actually owed in taxes: After Reagan's 1986 tax reforms, pass-through businesses and other accounting tricks became widespread enough to obscure this class of wealthy Americans hiding in plain sight. The research they conducted led to their new book The Everywhere Millionaire: Who Is Really Rich in America and How They Got There, and one of their central findings is that there are about three million private business owners who have an average wealth of around $25 million. They call this group “Main Street Millionaires” and their influence on the economy and politics in the US is considerable. We speak with Zidar and Zwick today about how they measured the actual number of rich people in America by sifting through reams of tax forms, why income inequality started to rise in tandem with the growing number of pass-through businesses, and how it's possible that the collective revenue of the nation's dentists far exceeds that of the NFL.</p> <p>Read more:<br /><a href="https://www.bloomberg.com/news/articles/2026-09-11/tech-s-nouveau-riche-suffer-sudden-wealth-syndrome-as-ai-pay-explodes?utm_medium=referral&utm_source=podcast&utm_campaign=odd_lots&utm_content=article">Tech’s New Rich Are Suffering From ‘Sudden Wealth Syndrome’</a><br /><a href="https://www.bloomberg.com/news/features/2026-09-17/san-francisco-s-ai-wealth-boom-skirts-engineers-as-openai-anthropic-ipos-near?utm_medium=referral&utm_source=podcast&utm_campaign=odd_lots&utm_content=article">Jobless Tech Workers Are Being Left Out of San Francisco’s AI Boom</a></p> <p>Only <a href="http://Bloomberg.com">http://Bloomberg.com</a> subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at <a href="https://www.bloomberg.com/subscriptions/oddlots?in_source=oddlotspodcast">bloomberg.com/subscriptions/oddlots</a></p> <p><a href="http://bloomberg.com/subscriptions/oddlots">Subscribe to the Odd Lots Newsletter</a><br /><strong>Join the conversation:</strong> <a href="https://discord.gg/oddlots">discord.gg/oddlots</a></p><p>See <a href="https://omnystudio.com/listener">omnystudio.com/listener</a> for privacy information.</p>
Key Insights
- 70% of all pass-through business income flows to the top 1%, and more than half of income inequality growth since the 1980s comes from pass-through business income rather than traditional corporate or financial wealth.
- The authors argue that modern inequality is driven primarily by millions of actively-managed regional private businesses rather than passive capital accumulation or billionaire tech founders, fundamentally changing how we should understand wealth concentration.
- Tax code structures create a two-tier system where an anesthesiologist running their own S-Corp can pay substantially less total tax than a salaried hospital anesthesiologist earning identical income through avoiding payroll taxes and Medicare surcharges.
- Regulatory protections originally designed to protect small businesses—such as auto dealership franchise laws and beer distribution requirements—have instead created barriers to entry that allow existing mid-market businesses to capture outsized profits worth hundreds of millions or billions.
- About 25% of federal elected officials are pass-through business owners themselves, creating structural political opposition to tax reforms that would affect this group, despite evidence that only 20% of pass-through income actually comes from small businesses.
- Growth trajectories differ dramatically by geography: people born in Salt Lake City are three times more likely to start a successful business than those in Mississippi, suggesting entrepreneurial ecosystems and networks have significant multiplicative effects.
- Between 2001 and 2021, workers in pass-through businesses received only about 20% of productivity gains per worker ($3,000 out of $18,000 growth), while owners captured 80%, illustrating that growing business income disproportionately benefits owners over employees.
- The original IRS data infrastructure treating tax forms as separate, unlinked databases made it impossible to understand pass-through business structures until researchers tracked down the XML system architect to decode variable naming conventions and reconnect fragmented records.
Topics
Transcript
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