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Who is rich in America, and how did they get there?
That's the central question of an eye-opening new book, The Everywhere Millionaire, by two economists who have spent more than a decade researching the wealthiest Americans. Their answer challenges the popular narrative that America is in a new Gilded Age dominated by a small number of spectacularly rich billionaires.
Look beyond Silicon Valley. Look beyond Wall Street. There's a much larger class of wealthy Americans hiding in plain sight. They're all around the country. And, often, they got rich in mundane ways. They own car dealerships. They sell hot dogs and frozen mini-quiches. They run waxing salons. They supply fabricated metal and urinal cakes. They are dentists.
Collectively, these "Main Street millionaires" control much more wealth than the billionaire lightning rods who launch rockets into space, appear on manosphere podcasts, and have Hollywood movies made about them. Many of these millionaires have also grown rich enough to afford superyachts, 10,000-square-foot homes, and pet tigers. And the book suggests that, as a group, their political power can rival that of the billionaire "oligarchs."
At the center of their story is a quiet revolution in the American economy: the rise of a particular kind of private business. A few decades ago, these businesses collectively made far less money than Corporate America. But by 2011, they were generating more income than all traditional U.S. corporations combined — and accounting for most of the rise in the share of income flowing to the top "one percent."
The book estimates that there are about three million of these private business owners in the United States. And they're each, on average, worth around $25 million.
The Everywhere Millionaire paints a complicated picture of these millions of Main Street millionaires. Some embody the American Dream: self-made entrepreneurs who rose from rags to riches by offering consumers better products and services.
But there's also a darker side to the story. The book shows how many Main Street millionaires have used their clout to shape public policy in their favor. They've triumphed in major battles to lower their tax bills. And, in many industries, they've fought for — and often won — rules and regulations that can protect their profits and raise costs for consumers.
These multimillionaires are central to the story of inequality and political power in America. Yet they've been largely missing from the national conversation. Which is why the book's authors, Eric Zwick and Owen Zidar, sometimes call them the "stealthy wealthy." It helps that it rhymes.
The book spends a lot of time making this wealthy group less stealthy with statistics and stories. But Zidar and Zwick are more interested in understanding them than in portraying them as heroes or villains.
" They are the protagonists, but some of them are protagonists in the same way Tony Soprano is a protagonist," Zwick says.
Attack of the Tax Ninjas
The story of The Everywhere Millionaire begins back in 2014, when three young economists were toiling away in the basement of the U.S. Treasury Department. Their older colleagues called them "the Three Amigos," probably a reference to the 1986 movie starring Steve Martin, Chevy Chase, and Martin Short.
But, being Millennials who grew up on Teenage Mutant Ninja Turtles and — this is a deep cut — the movie 3 Ninjas, they privately adopted a much sillier name for themselves: "the Tax Ninjas."
These three Tax Ninjas were Danny Yagan, Owen Zidar, and Eric Zwick. They have since karate-chopped their way into the upper echelons of academic economics: Yagan is now a professor at UC Berkeley, Zidar is at Princeton, and Zwick is at the University of Chicago.
Back in 2014, they were fresh out of grad school and, in between playing pickup games of basketball, they were serving as basically glorified interns — or "unpaid experts" — at the U.S. Treasury Department. Leaders at the Treasury wanted to know how much private businesses were paying in taxes, and they recruited these young brainiacs to help.
The Tax Ninjas had a formidable enemy in their quest: the state of data and technology at the Internal Revenue Service (IRS). The IRS computers were old and slow. The tax data was a mess. Data from individual taxpayers was one dataset. Data on businesses was another.
Economists, tax analysts, and policymakers couldn't get a complete picture of how the rich were making their money. If they could comprehensively link the tax records of private businesses to their individual owners, the Ninjas could get compelling answers to fundamental economic questions. Like, what kinds of businesses were propelling people into the top of the income distribution? In which industries were they making fortunes? How important are they to the success of their enterprises? And how much were their businesses really paying in taxes?
The Ninjas embarked on a treacherous journey, flipping and slashing through data and linking millions of private businesses to the millions of individual taxpayers who owned them.
Before they created this dataset, we had surprisingly limited information about who was rich in America and how they made their money. One important source was the Federal Reserve's Survey of Consumer Finances. Once every three years, the Fed surveys somewhere around 5,000 American families about their finances. That's a small sample size compared to the massive administrative datasets that tend to dazzle today's econ nerds. And the Fed's surveyors literally get financial information by interviewing people in person, on the phone, and on Zoom.
"Interviewers often struggle to convince rich people to respond," Zidar and Zwick write. "Only one in ten who are contacted cooperate with the survey, and they volunteer only the information they're willing to share. One interviewer told us that former Federal Reserve Chairman Alan Greenspan personally intervened and persuaded a wealthy interviewee to participate."
There was also the Forbes 400, an annual list of the 400 richest Americans and their families. But the list relies heavily on publicly available information, not private tax records, and it looks only at the tippy-tippy top of rich America.
Finally — and this work was really making a big splash back in 2014 — there was the influential research by French economist Thomas Piketty and a slew of his co-authors, including Emmanuel Saez. Piketty and Saez had used decades of individual tax returns to show that the share of income going to the top "one percent" had more than doubled since the 1970s. It was their research that inspired the slogans at the "Occupy Wall Street" protests at a small park in lower Manhattan.
But while the individual tax-return data Piketty and his collaborators used could show how much more income was flowing to the top, those returns weren't linked to detailed records about the businesses generating much of that income. As a result, they could offer only a fuzzy picture of what the richest Americans were actually doing to make their money.
The Tax Ninjas would help provide a much clearer picture. The dataset they built would ultimately connect more than 11 million businesses to more than 22 million business owners.
The millionaires next door
After a bunch of what I can only imagine to be pretty tedious work, the Tax Ninjas infiltrated the dark lair of information about rich Americans. Armed with a massive new dataset and statistical nunchucks, they began knocking loose some surprising secrets.
By linking millions of private businesses to the people who owned them, the Ninjas could suddenly peer into a part of the economy that had long remained in the shadows: the private businesses generating income for some of America's richest people. The Ninjas' biggest discoveries centered on a particular kind of private business known as a "pass-through."
Think like a lawyer who owns their own law firm, or someone who owns a chain of Jersey Mike's restaurant franchises. The profits of these businesses "pass through" to them, and they pay taxes on these profits through their personal income tax returns. That's different from a traditional "C" corporation, where the company itself pays taxes on its profits.
Pass-through businesses come in all shapes and sizes. They include sole proprietorships, partnerships, and "S corporations." Most are privately held, which has historically made them much harder to study than publicly traded corporations. Politicians sometimes refer to them as "small businesses," but, as the economists discovered, many of these businesses are very big indeed.
Over the previous few decades, this sort of private business had — quite privately — taken over the American business world. In 1980, pass-through businesses generated about one-fifth of all U.S. business income. By 2011, they generated more than half. Move over, Corporate America. Hello, Pass-Through America!
But as the Ninjas kicked and sliced through millions of tax records, they discovered an even bigger bombshell: pass-through businesses were crucial to understanding the rise of inequality in America.
In fact, Zwick says, since the 1980s, pass-through businesses have accounted for more than half of the rise in the top one percent's share of income. The same goes for the top 0.1 percent.
Who are these millionaires?
Having realized that the rise of pass-through businesses was crucial to understanding why more and more of income was flowing to the top, the Ninjas next asked: where were all of these profits coming from? What kinds of industries were blasting these business owners into the financial stratosphere?
Zwick says they expected to find the rich were making money in ways reminiscent of the Gilded Age, when men with flamboyant moustaches and monocles made vast fortunes from the most innovative and most capital-intensive industries in the economy. Industries like the railroads, finance, steel, coal, and oil. Zwick imagined they'd find a 21st-century version of these tycoons — in industries like tech, finance, and energy — dominating the list.
" And what we see is like doctors and dentists, car dealers, lawyers — all of these skilled services," Zwick says.
Zidar and Zwick ranked the kinds of pass-through businesses that were generating the most money for people in the top one percent. The top two aren't very surprising: legal services and financial services. But then the list gets more interesting. Number 3? Auto dealers. Number 4? Consultants. Number 9 is restaurants. Number 10: Accountants. Number 13 is fabricated metal and miscellaneous manufacturing. Number 21? Dentists.
This data challenged a familiar story about rising inequality. It looked less like a 19th-century Marxist cartoon of fat-cat capitalists owning "the means of production," such as sprawling factories or power plants, and exploiting workers to make a fortune. Finance is high on this list. But, overall, this didn't seem to be primarily a story of rich capitalists investing money and then sitting on their keisters while their capital generated returns for them.
A lot of these businesses, in contrast, were dependent on the skilled labor of their owners. For example, a surgeon who owns a private practice. What makes that business valuable isn't just its capital — the money, equipment, and other assets that allow the business to run. It's the surgeon his or herself — their skills, know-how, and reputation — what economists call "human capital."
In one of their early papers crunching their formidable new dataset, "Capitalists in the Twenty-First Century," the Tax Ninjas, together with U.S. Treasury economist Matthew Smith, were able to follow businesses and owners over time. And they found striking evidence on just how important owners were to their businesses: when an owner retired or died, profits from their pass-through businesses tended to plummet by three-quarters. It strongly suggested that the real engine of these businesses' profits was the owners themselves — their human capital, not their financial capital.
Okay, so the owners themselves are often crucial to generating their businesses' profits. But that still doesn't explain why their incomes exploded, helping the top one percent pull away from everyone else.
Part of the answer lies with the much-talked-about market forces in the story of rising inequality: like how globalization and the computer revolution made many skilled professionals more productive, helped them sell to bigger markets, and enriched them. The rising prosperity of many Americans and their businesses also juiced demand for expensive services, from corporate law to management consulting to plastic surgery. But those same sorts of forces were boosting profits across Corporate America as well.
There was another crucial factor behind the skyrocketing income of pass-through businesses and their millionaire owners: tax policy. It was a change the Ninjas traced back to the same year that The Karate Kid Part II was conquering the box office.
The rise of pass-throughs
Zidar and Zwick trace much of the dramatic rise of pass-through businesses back to the Tax Reform Act of 1986. We asked Zwick to explain it to us in the least boring way possible. He did a pretty good job.
"So you've got a movie star who's the president," Zwick says, referring to President Ronald Reagan. "And you've got a professional basketball player, who's now retired, who's a senator, Bill Bradley [a Democrat]. And both had the experience, when they were making a lot of money, of paying very high individual tax rates."
One of the crucial things that the 1986 tax reform did was lower individual tax rates below the corporate tax rate. But that created what amounted to an unintended loophole: now business owners could structure their business as a pass-through, skip the higher corporate tax rate, and boom, their profits were taxed at the lower individual rate.
In a 2016 paper crunching their new dataset, the Tax Ninjas put numbers on just how consequential the shift had become: they estimated that in 2011, pass-through business income faced an average federal income tax rate of just about 20 percent — dramatically lower than the nearly 32 percent average rate faced by traditional corporations.
Even today, after significant changes to the tax code, earning income through a pass-through business can carry considerable tax advantages over earning it through other types of businesses — or as an employee. The economists suggest the tax rules are arbitrary and unfair. For example, Zwick says, a doctor who owns a practice may pay a significantly lower tax rate than one employed by a hospital — even when they're essentially doing the same work.
Meet the Main Street Millionaires
In their book, The Everywhere Millionaire, when Zidar and Zwick talk about
