AI Summary
5 min readIn 2014, two economists were commissioned by the U.S. Treasury Department to do something the government itself could not: link tax records for businesses to their owners. The IRS had the forms, but the data was a mess—different identifiers, no cross-references, and codebooks so opaque that the only person who truly understood the system was a retired architect living in Utah who agreed to explain it over a burger and a beer. That conversation unlocked a dataset that would eventually upend the standard story of who gets rich in America and how.
The Hidden Wealth of Pass-Through Businesses
The key to understanding America’s millionaire class lies in a tax structure most people tune out: pass-through entities. Unlike a traditional C-corporation like General Motors, which pays the corporate tax on profits and then taxes dividends again, a pass-through business (an S-corp, LLC, or partnership) sends all profits directly to the owners, who pay only individual income tax. After the 1986 Reagan tax cuts made individual rates lower than corporate rates, the pass-through form exploded. Today, the vast majority of U.S. businesses are pass-throughs, and they account for about half of all business profits.
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What you'll learn
- 1 (02:02) **Why "Pass-Throughs" Matter for the U.S. Tax Debate** - Hosts Tracy Alloway and Joe Weisenthal introduce the topic of pass-through entities, framing them as a misunderstood but massive source of wealth and tax breaks.
- 2 (06:26) **Introducing the Guests and the Book's Origin** - The hosts bring on the authors of "The Everywhere Millionaire," Owen Zidar and Eric Zwick, who explain how their project started with a messy government data problem.
- 3 (12:51) **What is a Pass-Through Entity?** - A clear, concise explanation of the core concept: how pass-through businesses differ from traditional C-corporations.
- 4 (14:05) **Key Finding: Pass-Through Income is Highly Concentrated** - The authors reveal their first major statistical finding about the nature of this income.
- 5 (15:06) **The ABCs of Getting Rich: Auto Dealers, Beverage Distributors, and Contractors** - The authors introduce their mnemonic for the types of businesses that generate this wealth, starting with the most surprising example.
- 6 (22:16) **How Do Car Dealers Get So Rich? Skill vs. Protection** - The authors break down the two contrasting paths to wealth in the auto dealership industry.
- 7 (27:08) **Beer Distributors: Another Protected Middle Tier** - The discussion moves to another industry with similar, post-Prohibition-era protections.
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Show Notes
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.
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