Hidden Wealth: How 3 Million Small Business Owners Outweigh Billionaires

Key points

• Approximately 3 million U.S. households, representing about 4% of the population, have a net worth exceeding $5 million.
• The average wealth of these 'Main Street Millionaires' is $25 million per household, totaling roughly $65 trillion in collective assets.
• This group holds more than 13 times the wealth of the Forbes 400 billionaires, according to NPR and National Review.
• Most of these wealthy individuals own pass-through businesses in sectors like auto dealerships, HVAC, and dentistry, rather than tech or finance.
• Pass-through entities pay an average federal tax rate of about 20%, compared to nearly 32% for traditional C-corporations, a disparity traced to the 1986 Tax Reform Act.

Background

Recent economic research by Piketty and Saez highlighted rising income inequality, but lacked detailed data on private business owners. This new study fills that gap by linking IRS data to identify specific industries driving wealth accumulation, moving beyond the focus on public company CEOs and tech founders.

How outlets are covering it

Matthew Yglesias of Slow Boring argues that the rise of pass-through entities creates a 'tax nightmare' because it bypasses the progressive corporate tax structure, allowing owners to pay lower rates on business profits. He notes that while this path to wealth is accessible, it complicates political and fiscal policy. Conversely, Michael R. Strain of National Review dismisses the surprise, arguing that it is obvious millionaires are often engaged in unglamorous activities like car sales or construction, and that coastal elites are merely shocked by the banality of the sources. NPR’s Planet Money frames these individuals as 'stealthy wealthy' or 'middlegarchs,' emphasizing their significant but overlooked political influence compared to the visible 'oligarchs' of Silicon Valley and Wall Street. The ProMarket source, while largely obscured by technical code in the provided text, suggests a focus on how wealth translates to political power, implying that public attention is misdirected away from this larger, more influential class.

Why it matters

Understanding the distribution of wealth among small business owners is crucial for designing effective tax policies and addressing inequality. If the majority of new wealth is generated through pass-through entities in local industries, current tax structures may be failing to capture a fair share of that income, potentially exacerbating economic disparities and influencing political outcomes in ways that are not currently visible to the public.

What to watch

Policymakers may face increased pressure to reform tax codes regarding pass-through entities to ensure fairer revenue collection. Public discourse may shift to include these 'Main Street Millionaires' in debates about economic power and inequality, challenging the narrative that focuses solely on tech billionaires and corporate executives.