There's a Mind-Boggling Number of Rich People in America

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. Read more: Tech’s New Rich Are Suffering From ‘Sudden Wealth Syndrome’ 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 Jobless Tech Workers Are Being Left Out of San Francisco’s AI Boom 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 Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlots https://www.bloomberg.com/subscriptions/oddlots?in_source=oddlotspodcast Subscribe to the Odd Lots Newsletter http://bloomberg.com/subscriptions/oddlots Join the conversation: discord.gg/oddlots https://discord.gg/oddlots See omnystudio.com/listener https://omnystudio.com/listener for privacy information.

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• 0:00Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 0:25Speaker 01

  Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs, and scattered information that you have to grind through to turn into something useful, can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting Work Mode, available on Plus and Pro Plans.

• 1:07Speaker 02

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• 1:46Speaker 03

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:02Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:06Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:08Tracy Alloway?

  Joe, I have a very exciting episode for you today.

• 2:10Joe Weisenthal?

  Go on.

• 2:11Tracy Alloway?

  We are going to be talking about pass-throughs, S corps, and the US tax code.

• 2:17Joe Weisenthal?

  This is so great. I'm so excited about this because I remember during some of those tax cut negotiations, and you'd have, who is that? I think it was a senator from Wisconsin, Ron Johnson. And he was like, I don't know which one it was, but he was like, oh, we really need to preserve some pass-through. And I didn't learn about it. And then I was like, well, you know, whatever. And then I missed it. And I was like, great. So finally, here in 2026, I can learn about something that I really should have learned in December of 2017.

• 2:46Tracy Alloway?

  Well, actually, I'm glad you said that because this is sort of the thrust of what this entire conversation is going to be, which is when we talk about tax breaks for the wealthy, we normally talk about, or we think about Jeff Bezos paying like 0% income tax or something like that. But actually, a lot of the tax cuts that we've seen, I guess, since the 1980s, and now most recently under the Trump administration, have been for S corps, for these pass-through entities, which generally get framed as small businesses.

• 3:17Joe Weisenthal?

  That's right.

• 3:17Tracy Alloway?

  But as it turns out, a lot of these businesses are actually phenomenally large and very, very wealthy.

• 3:23Joe Weisenthal?

  Yeah, there's a few things that I think are really interesting here. So obviously, people just like love the sound of small business, right? Like, small business makes people feel good, whatever it is. People like, it's sort of, it's something aesthetically nice about.

• 3:38Tracy Alloway?

  Something very American as well. Like, you think about Talkville and his big impression of America was, oh, it's this nation of entrepreneurs.

• 3:45Joe Weisenthal?

  Yeah. So there's something about small business that feels good, et cetera. The other thing that I'm really interested in, and I've brought this up a couple of times on the podcast. You know, I think when a lot of people think about the United States or the American economy and the sort of distribution of wealth and income and so forth, there is an incredible, you know, people talk about inequality, and then they think, okay, there's like a 1% or a 0.1% that's insanely wealthy. You mentioned Jeff Bezos and a handful of others like that. And then people are aware of the fact that for a country as rich as ours, there's probably unacceptably high levels of like poverty. And people perceive there, correctly, to be a lot of people who are financially struggling, et cetera.

• 4:29Joe Weisenthal?

  But I always think that like the missing thing is like that fat layer of rich people. And the thing that I'm always reminded by, you know, we're recording this September 9th. I think by the time people listen to this, we'll have already been there. But whenever we go to Southern California.

• 4:46Tracy Alloway?

  Orange County, Huntington Beach.

• 4:49Joe Weisenthal?

  And you just see like all these people with boats. And you see all these people, you go to like a steakhouse or something, and they have their own private like wine locker at the steakhouse. And it's like, there's a lot of rich people. And they're not all like the tech billionaires.

• 5:05Tracy Alloway?

  They're not all on the Forbes 400 or whatever.

• 5:08Joe Weisenthal?

  Fat layer of like just really rich people. And they're not people who made some great invention, et cetera, necessarily, or some great, huge breakthrough, but like whether it's like real estate or cars or just some sort of simple business, a lot of really rich people in this country.

• 5:27Tracy Alloway?

  Yeah, and we should talk about them, try to figure out who they are, how many of them there actually are. And the one other thing I would also add that makes this sort of a very Odd Lots-y episode is we talk a lot about the private markets, right? Private credit, private markets, private equity. And often, when we are talking about those specific businesses, we are talking about these types of businesses. So, you know, a private equity firm, you think of it as this Wall Street entity, but it owns a portfolio of, I don't know, HVAC companies in Missouri or something.

• 5:56Joe Weisenthal?

  And the last thing I'll say, and I don't know how much we'll get into this part per se, but like if you think about, I don't know, if like the dark matter of American politics, et cetera, you know, like privately owned companies are often, or the owners of privately owned companies, some regional beverage distributor or something like that, are often very important figures in regional politics, et cetera. If you want to get your handle on that, should sort of know who these people are and how they got there.

• 6:24Tracy Alloway?

  We'll get into that, definitely. So I'm happy to say we do in fact have the perfect guest. We're going to be speaking with the authors of the new book, The Everywhere Millionaire, Who Is Really Rich in America and How They Got There. And the authors are Owen Zidar, Professor of Economics at Princeton, and Eric Zwick, Professor of Economics and Finance at Chicago Booth. So thank you both so much for being here.

• 6:46Speaker 05

  Thanks for having us.

• 6:47Speaker 06

  It's great to be here.

• 6:48Tracy Alloway?

  It's a great book. Legitimately, I really enjoyed it. When I was reading it, I was thinking it's sort of like a stud, like an upscale studs circle. You know, you have all these stories of millionaires and how they actually got there. But the origin story of this book is something I wanted to ask you about because it also sits squarely within Odd Lots territory when we talk about, I guess, what a mess government data and technology tends to be. Because this book started with a project, a commission by the Treasury Department, to try to sift through IRS data to figure out who these people actually were and how many of them there are. Talk to us about what you found when you started that project.

• 7:29Speaker 05

  Yes, so we started more than a decade ago, commissioned by the Treasury to go into the bowels of the Treasury and work with tax data to try and link all the businesses to their owners and workers because they didn't have the ability to do that and they needed it to do tax policy. To sort of think about, what if we change the tax code? How much tax these pass-through businesses pay? They didn't have the capacity to do that because the data weren't connected. And so that was the original kind of sin of our project. That was the foundation of our project was to sort of build this data that as we continued to expand it, add years, add different types of layers on it by looking at just the entrepreneurs, for instance, we could start to see, oh, there's actually a picture of income,

• 8:12Speaker 05

  wealth, entrepreneurship, prosperity in the American economy that is very different than the picture that we were getting from the media, than the picture we were getting from the Capital Book and so on. And so that's sort of the beginning, was that kind of nerdy tax data project. The computers, the databases, the XML and so on, which we can talk more about, but that's where we started.

• 8:33Tracy Alloway?

  Well, I wanted to ask about the databases, actually, because it just sounded like a nightmare, the way you described it. And then there's this funny moment in the book where you basically like randomly find the guy who kind of built these systems and understood them and was able to help you wrap your head around them. How difficult was this?

• 8:50Speaker 06

  I mean, so the underlying data are basically everything on a tax form. So, you know, you can have information about the business. You can have investors in the business who get money going to them. They're not made to be linked, and many of them aren't electronically filed.

• 9:07Joe Weisenthal?

  When you say they're not made to be linked, can you, what's not?

• 9:09Tracy Alloway?

  They're separate databases.

• 9:10Speaker 06

  So they're just different forms, you know, so when you say Joe and Tracy had an S corp and you own it 50/50, you can file the businesses form. And then, you know, you have to file an investor form that says, all right, half the profits are going to Joe, half the profits are going to Tracy. And the way they set up the identifiers aren't made where you're supposed to be able to add up all the things from investors, and that should add up everything from the business. And so the story about how we figured out how to do this, we're going through old codebooks, like things were called different variable names. And Eric, I don't know if you want to tell the story about going to an obscure part of Utah.

• 9:52Speaker 05

  Yeah, so I'm like giving a talk at Utah State. And I knew that one of the guys who designed the XML system, that when people electronically file their tax returns, it's sort of like the formula for converting those tax returns into rows and columns that then get processed, lived on the way from the airport to the lecture I was giving. So I was like, can I come and just ask you some questions? And so I met him for lunch. We had burgers.

• 10:20Tracy Alloway?

  What were you thinking?

• 10:21Speaker 05

  I was imagining like in The Matrix, you know, like you go see the oracle. And it's like this old lady, you know, who's like, the spoon is bending, you know?

• 10:27Joe Weisenthal?

  I was imagining like some guy who like, like kind of a hermit, like someone knocking at his door. It's like, why are you here? What do you want? And he's like, that's not me. And then finally, after, no, but keep going.

• 10:37Speaker 05

  He was a super reasonable, he was kind of wearing like a flannel shirt, as everybody in Utah seems to do. He wanted to have a beer at lunch, and I was happy to join him. And I had my like list of 25 questions that are like very intricate questions about the structure of this database. We had to rearrange columns in order to create the links to match like the business forms to the individuals. And we didn't know what any of these columns were necessarily.

• 11:02Joe Weisenthal?

  What year is this, by the way? Like, how long?

• 11:03Speaker 05

  This is like 2014, 15. So, yeah, so you can't ask Claude to read the manual and read the code. There's no way to do that. There's no documentation. There's just like this knowledge in people's brains that you have to find to try and do this link. And there were other people who kind of knew some of these details, but we couldn't really get to the bottom of it until having a burger and beer with the architect.

• 11:29Joe Weisenthal?

  This is sort of a diversion, but I feel like I've read so many NBER working papers, which include the line, "We exploit a novel data set." How much of economics is like finding a novel data set? Like, you know, we think of it as like, oh, maybe we're going to apply some econometrics or theory or whatever. How much of just, you know, as professional economists, is it about finding that data?

• 11:52Speaker 06

  I think it's an important part, but it's also, you need to ask an important question. And like, if you are thinking about how do people get rich? And you only see a small sliver of how it actually works? And then suddenly you can say, you know, there's 1,000 private business owners that have $25 million for every large public company CEO. Like, we've missed all of these people. And now, for the first time, you can trace back, like, where did these people come from? Like, what are they doing? How did they do it? That, I think, opens it up and opens up a lot of work. Where, I think you're right, like, there's one of our, one of Eric's advisors, Andre Schleifer, teaches a class at Harvard, and he basically gives the college students the assignment, like, "Find me a cool data set." And like, that's how you write the paper. It's like, "Show me something I haven't seen before."

• 12:36Speaker 06

  So there's certainly something to find a novel thing, to get a hook on something we care about.

• 12:41Speaker 05

  Yeah, but figuring out the question to ask with that data is kind of the trick. Like, the data's sitting there, like, "Oh, we can use this to understand inequality."

• 12:48Joe Weisenthal?

  Okay, maybe this is like jumping forward, but just finally relieve me. What does pass-through mean? Like, I'm finally, like, I'm just going to ask it. When we talk about, like, oh, this center really wants to preserve or expand a pass-through induction, what do we talk about here?

• 13:04Speaker 06

  So, pass-through businesses are different than traditional corporations. So if you look at like a typical public company like GM, they're a C corporation. They face the corporate tax. So when they make profits, they have to pay the corporate tax. And then if they want to send money to individual investors, they have to pay dividends. Pass-throughs are a different part of the tax code where you don't have to face the corporate tax, because the profits and losses go directly to the owners. And they weren't that big of a deal in the 80s. The lion's share of profits and activity were in traditional corporations. And then after Reagan cut taxes in 1986 on individuals lower than corporations, that suddenly became the most attractive way to organize yourself.

• 13:49Speaker 06

  And so we've seen this huge boom in pass-through entities, where that's the vast majority of businesses in America and like half of profits.

• 13:56Tracy Alloway?

  So, okay, once you figured out the IRS code and got the, I guess, IRS servers that seem to be run by hamsters spinning on wheels to actually work, what were your findings about wealth in America?

• 14:08Speaker 05

  So, this income is among the most concentrated, so pass-through business income. 70% of every dollar pass-through business income goes to the top 1%. And if you look at the rise of income inequality, so like the famous graph, top 1% share of income from Piketty and Sayas going back to the 1980s, more than half of the growth from that period of time to the, you know, 2021 is coming in the form of pass-through business income. So you want to understand what's driving income inequality and wealth inequality, because, you know, it's sort of a parallel story there. You really have to understand this pass-through business sector. Like, what is the nature of this activity? We knew it was pass-through business income. We didn't really know if this is like Monopoly Man, big business, you know, that you're just passively collecting the income.

• 14:53Speaker 05

  Or what we turned out to find, it was sort of these mid-market, regional businesses, of which there were just millions of them across the country. And that was kind of like the second huge finding about, you know, who these pass-through business owners were and what they're doing. Oh, and you want to tell them like our mnemonic from reading our kids' like little books?

• 15:14Speaker 06

  Yeah, so I have three young kids. Eric has one young kid. And we're half-jokingly thinking about writing a kid's book

• 15:20Joe Weisenthal?

  Please.

• 15:20Speaker 06

  of the ABCs of getting rich.

• 15:22Joe Weisenthal?

  Yes, yes.

• 15:23Speaker 06

  And you just go through and have a fun fact on each of them. And so A is for auto dealer, B is for beverage distribution business owner, and then C is for contractor, D is dent- you know, we could go through. We actually did it. We haven't made the book.

• 15:35Joe Weisenthal?

  You gotta do it. Can I just say, my son is obsessed with money and finding, no, he's like, right, it's really-

• 15:40Speaker 06

  Shocking.

• 15:40Tracy Alloway?

  Yeah, where does he get it from?

• 15:42Joe Weisenthal?

  No, it's like, he's always scheming. So he would love this book, so please write it.

• 15:47Speaker 05

  Okay, P is for podcaster.

• 15:49Joe Weisenthal?

  Oh, yeah.

• 16:06Tracy Alloway?

  There are some market stories where you want every detail. Joe and I have made quite a few podcasts on that basis. But sometimes you've only got 10 minutes and just want to know what's moving markets fast. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and Research get you up to speed on what's happening and what to watch next. Concise, focused, and brief. Search Barclays Brief wherever you get your podcasts.

• 16:31Speaker 01

  Some people treat ChatGPT like some kind of smart search engine, and some use it to get work done. ChatGPT Work is a new way of working in ChatGPT that can take action across your apps and files, stay with a project for hours if needed, and turn a goal into finished work. It's designed to help you move from a chaotic starting point to a reviewable first version. So all the source materials, briefs and scattered information that you have to grind through to turn into something useful, can just become something useful. Put ChatGPT to work on your most ambitious ideas and projects. Get started at chatgpt.com by selecting Work Mode, available on Plus and Pro Plans.

• 17:13Speaker 07

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• 17:43Tracy Alloway?

  All right, so give us an example that, like, let's dive into a specific one. And I'm just going to choose car dealerships, because this is an interesting one. I think everyone knows how a car dealership theoretically is supposed to work. And I don't think you normally think of used cars, or I shouldn't say used cars, but car dealers as super wealthy. And yet you have a lot of examples in the book of people who have accumulated millions, if not sometimes billions, from this business.

• 18:12Speaker 05

  So, the book opens with the wedding of the century, which is a wedding, Bob and Paul Brockway, Coral Gables, Florida. They sent their daughter to, first to the Amangiri for the bachelorette party. It was a four-day party where they dressed up like Marie Antoinette. But then they flew all the guests to Paris for a five-day wedding.

• 18:32Speaker 06

  On private jets, on private jets.

• 18:34Speaker 05

  On jets. They rented Versailles, not for the wedding, but just for like-

• 18:38Joe Weisenthal?

  What year are we talking about here?

• 18:39Speaker 06

  23.

• 18:40Speaker 05

  23, 23.

• 18:42Speaker 06

  24, yeah.

• 18:43Speaker 05

  This was 2023, 2024, a few years ago, and it was all over social media.

• 18:49Joe Weisenthal?

  I remember this.

• 18:49Speaker 05

  The wedding of the century. Adam Levine sang the first dance. You could see the Eiffel Tower illuminated in the distance. And they're car dealers, third-generation car dealers from Florida, the Mercedes dealer. And they had just sold the dealership for several hundred million dollars to actually a consortium that Nick Saban was a co-owner of. But they dropped $60 million on this wedding.

• 19:14Tracy Alloway?

  Wow.

• 19:14Speaker 05

  And, you know, they're not even close to the top of the list in terms of the most prodigious car dealers in the country. So when we like zoom out and look at the industries that generate the most pass-through business income, in the top 0.1%, the auto dealers were the number one bucket, which we were like, okay, this is not the Piketty story of like billionaire tech or finance. This is something different. What are these car dealers doing, or as an example, industry? And then we found them even more when we started looking in like yacht and jet registration data. They just own all these yachts and jets. And that's how we found them by name, because the tax data that we were talking about before, we couldn't identify people that way. So when we set out to write the book and tell a bunch of stories, okay, let's find other data sources.

• 19:58Speaker 05

  We know the rough signatures, we know where to look. But let's find the people by name, so we can tell a little bit more their background, their story and stuff.

• 20:05Tracy Alloway?

  I love that, looking at yacht registries to find rich people. It makes sense, but I'm guessing not many people have done it before.

• 20:11Speaker 05

  Yeah.

• 20:11Joe Weisenthal?

  I'm curious, like, from a pure like economics perspective, when we think about-

• 20:19Joe Weisenthal?

  Let's say someone's salary. It's like, okay, here is a really talented person. Maybe they're really great with computers. Maybe they have a lovely voice that sounds great on podcasts. And they're like, okay, this is maybe a rare skill, et cetera. So they're gonna get a lot of money. Or maybe we think about like, someone who makes a great invention or whatever. And then everyone wants to buy it and they get a slice of it. And so they make a lot of money. Let's just stick with car dealers, for example. How would you characterize what these very successful car dealers have brought to the table, such that the economy has rewarded them with such riches?

• 20:59Speaker 06

  So that's a great question. I think, let me tell two stories of car dealers that kind of give a flavor of the complexity, even within car dealers. So one of my favorite ones is a story we tell in the book is about Larry Miller. And Larry Miller is from Utah. He basically worked in the parts department at a Toyota. And he learned every single, almost like your Aldi guy. He like knew all the parts. And he turned it from the 961st best dealer of parts, of Toyota parts, to the first. And he's killing it. He really is good. He started managing a couple of different dealerships for the owner. And then he sits down at a Denny's and the owner is like, hey, you know,

• 21:41Speaker 06

  I know the plan was for you to run things, but it turns out that my sons need to run it. Sorry. And he like, you know, is on his heels. He eventually finds somebody else to buy one dealership. And that becomes two dealerships and eventually 40 something dealerships. And he buys the Utah Jazz. And so that is like, you know, the good story. He developed some skill. He really was-

• 22:03Joe Weisenthal?

  Wait, actually, on that last point, can you clarify? Okay, so he really gets to know the parts better than anyone else. Can you actually just operationalize that a little bit more? What he contributed to the market, so to speak, such that either at his first place of employment or at his own entrepreneurship, he goes, they go from 961 to one, or whatever it is?

• 22:26Speaker 06

  Yeah, so I think it's, you know, when you're dealing with customers, it's being really responsive, understanding what they need and just, you know, being hardworking and diligent and delivering and having a reputation for, okay, if I have some need, I'm gonna go to this guy. And it grew over time. And that's one broader lesson of the book is that it takes a long time. You know, in contrast to the Silicon Valley, move fast and break things. It's often move slow and make things. It takes decades often. So that's, that's kind of in my view, Larry Miller is the good case. But the more troublesome case where you have more regulatory capture are other auto dealers who are quite protected. And I can go into, we can go into the history of auto dealers if you want.

• 23:11Speaker 06

  But the short version is like, they have a bunch of legal protections that were meant to protect the little guy from big manufacturers of auto companies. You know, Ford or GM might put a bunch of cars on your lot and that was hurting the small guy. So over a series of decades, there are a bunch of franchise protections. And then if you go forward to say 2008, when we had a financial crisis, you know, the auto team had to deal with the situation where Chrysler, for example, had three times as many dealerships as Toyota, even though they sold the same number of cars. And so they had all these extra dealers. And why do they have them? It's because they have a bunch of protections where you have to pay them off. You have to pay three years of rent and a bunch of things that really don't make sense. And so there's a lot of protections from local competition.

• 23:56Speaker 06

  There are pretty sweet deals that were in the name of protecting the little guy that don't make a lot of economic sense. So I think some of it is rents. And both of those things are true. And that's partly why things are complex is that you can have stories like Larry Miller and you can have regional auto dealers that are getting more money than they probably would because they're getting paid a lot for warranties, for example, that are a little more than what the market would, would pay them otherwise.

• 24:20Speaker 05

  They have a local monopoly, sort of like you can, you know, you can't sell the Toyota within a geographic boundary of the existing dealership. And the manufacturer has very limited power to affect that competition anyway to introduce. So there's really barriers to entry. That's a big part of it. And then they sell these ancillary services in the dealership where the markups are much higher than on just the immediate sale of the car. So, you know, the warranty repair, the financing is a big source of profits, I think, for the dealers. And it's like, well, you know, are you gonna buy, you can get the loan at the dealer? You gonna go to a bank separately when you're buying the car there on the lot? So this like first mover advantage to sell all these ancillary services. And it's a huge part of like the margins and the profitability of these dealerships.

• 25:05Speaker 05

  And as the economy grows, you sell this like fixed entrant, you know? And like, you can't get a car through any other pipe, other than through that pipe. And so they just grab a chunk as it's passing through.

• 25:17Tracy Alloway?

  Yeah, this was really interesting to me in the book because we're used to thinking about antitrust or competition issues as these like big, national scale companies. But actually, you talk a lot about sort of regionalized competition problems, which was very interesting. I have a bunch of other questions, but I want to ask you one more just on sort of local regulatory protections and loopholes. Can you talk about beer distribution? Because that was a really interesting thing, one to me.

• 25:44Speaker 05

  We were very amused by the beer distributors. So one of the things for folks that are listening, if you're like walking, like I walked from my home to the office and passed by a truck that says Budweiser on the side. You know, Budweiser doesn't own that truck. A distributor does. You look on the door and there's the name of the distributor. You might see Reyes or somebody like that. These are incredibly wealthy businesses that sit between manufacturers and end users, like bars, restaurants, groceries, and so on. And depending on the state, it's similar to the auto dealers or these franchise protections. So you have to pass through the distributors and these way these contracts get protected. So then, you know, as demand for beer grows, the distributor is just sort of like in the middle. This middle tier was again, sort of protecting, you know,

• 26:27Speaker 05

  the little guy from the macro brewers. But over time, these little guys have become really big guys.

• 26:35Tracy Alloway?

  And the idea was you didn't want the big brewers to dominate distribution as well as the actual selling of the product.

• 26:42Speaker 05

  That's right. And it's sort of emerged post prohibition as this like sort of system, let's avoid the situation where the manufacturers have so much power over the rest of the system in terms of what is available. But then the distributors end up having just a ton of power and they get super rich. So they show up within the jet data a lot. And there was this like conference in San Antonio. And the mayor called the lobbyist who organized the conference was like, you know, this is amazing, I've never seen so many jets at the San Antonio airport as when the beer wholesalers were there.

• 27:15Joe Weisenthal?

  You mentioned a disagreement or a different interpretation than Capital, Piketty and size, et cetera. What is the essence of the conclusions or the things that you've discovered that you feel like someone coming at the wealth inequality question from their work, you would have a different interpretation of it? But we've never actually had either one of them on the show. So maybe we'll get them on soon because we should. But what is the sort of the crux of how you see things differently?

• 27:43Speaker 05

  So we joke that our book is kind of like Piketty with people. So if you happen to read Capital, which is a difficult read. I think we actually also joked that our book, we wrote so people could read it, not just collect it, because that book-

• 27:55Tracy Alloway?

  It's a really good read. I'm just gonna reiterate that.

• 27:57Speaker 05

  Yeah, so it's like, we're gonna have, you know, that book is like, the top 1% is this kind of nameless, faceless entity, this blob. And they're just generating capital income. And so you're kind of are meant to think about almost Gilded Age monopolists who have massive companies and are just collecting the rents or the capital income or the interest or whatever. And it's about this accumulation of massive troves of wealth that are generating this almost passive return. And we're saying, well, actually, when you look at the data, it's actually more this like, these millions of private business owners who are actively owning and operating businesses in a large case. Their concentrated portfolio is really, the business is kind of the main asset. And, and it's not really just financial capital.

• 28:41Speaker 05

  It's kind of like human capital is a pretty important part of it. Broadly defined, it's sort of like the networks, the experience. Maybe it's like having access to the contract or the special like market position. That's an important asset. But that's like sort of a different story about who's really rich. That's sort of this more active kind of human. And yeah, there's good, bad and ugly of the humans there. But that's kind of the distinction, I think, that we draw.

• 29:05Tracy Alloway?

  Since you talk to a lot of these people, I have a sort of anthropological question. But do they see themselves as wealthy? Because we touched on this in the beginning, but everything is sort of like shaded as small business ownership entrepreneurs. You talk to a lot of people who like did start from humble beginnings, but now have millions and millions of dollars. Do they, do they see themselves as the rich, as the 1%?

• 29:29Speaker 06

  Usually, they have a pretty good idea. Often, it's because it takes so long to get wealthy. They've gone through the life cycle. So, one of my favorite characters that we talked to in the book is Dick Portillo. And he started, he grew up in the projects of Chicago, the Cabrini-Greens. And he didn't know how to make a hot dog and then started a hot dog company and was washing the dishes by hand because there wasn't running water. And he ended up, over decades, selling a lot of hot dogs to become a billionaire. And I think it's a really useful example because it shows like, well, do you have to have market power to be a billionaire? No, you can actually sell hot dogs. It's a super competitive industry. And then, is he rich? Well, he has a really big penthouse.

• 30:14Speaker 06

  He's got a yacht called Top Dog, which is just a great name for the yacht.

• 30:18Joe Weisenthal?

  Yeah.

• 30:18Speaker 06

  And, you know, so it depends on when you're talking to him. I think when he's washing, you know, when you find him in his 30s washing stuff by hand, he does not feel rich. But when he's got a yacht and, you know, a huge IPO that they couldn't send him a check because his bank account wasn't sophisticated enough to take the check when he was just like, I'm getting on my yacht and leaving, like, I think he knew. The short answer is it depends on when in their lifetimes because it does really take a long time. Like, there's another woman who I talked to. She spent two decades making frozen quiche.

• 30:48Tracy Alloway?

  Oh, yeah, the quiche lady.

• 30:49Speaker 06

  Yeah. And she, you know, it was pretty tenuous for a long time before she got some big contracts to go through. And so, you know, I don't think she felt that wealthy from her business. Like, it seemed like it was losing money until it really wasn't.

• 31:03Joe Weisenthal?

  This is maybe more of like a sociological question than an economics question, but I think it kind of relates to who feels rich and who doesn't. When I think about like coastal rich, and by that I mean like San Francisco or New York City rich, I often think about heads of like really gigantic, heavily bureaucratic, layered hierarchical organizations. You know, I imagine someone like Jamie Dimon or the CEO, they're numerous layers. A, they're often like very educated. And there are also going to be just like numerous layers of the organization. And there will be people who work at JP Morgan or whatever who never interact ever with the CEO, et cetera.

• 31:48Joe Weisenthal?

  Whereas in my mind, the sort of everyday millionaires, the head of the beverage distributor and the car dealership, in my mind, I suspect these organizations are like, that CEO is probably much more in touch on some level, on a day-to-day basis, with the mass of like the workers at that organization, maybe on the floor with them in many cases, like at a dealership, et cetera. And I'm curious if that resonates and whether that's sort of like, you know, when we think about sort of, you know, someone who has a yacht is obviously mega-rich. But on the, that's unquestionable, but also that just on a day-to-day basis, I suspect

• 32:30Joe Weisenthal?

  they have a lot more connection and like interaction with capital W workers than many are sort of like the coastal rich do.

• 32:38Speaker 05

  Yeah, so like the Portillo, when he was growing the business, they didn't have offices for the managers because he wanted the people to be on the floor all the time. So there was a bit of a marine ethic that he kind of brought to running this business. And, you know, he was there for opening. He was like very detail-oriented. He had no investors. He owned all the real estate. He tried to take no debt, reinvested every dollar. You know, he had kids, but like, it was pretty clear when he was moving into his 80s, this is not a family business, this is Dick's business. And there's kind of a relentlessness to that character that I think we see in many of the stories. The first-generation founders look like that.

• 33:16Tracy Alloway?

  Yeah, one thing that stood out to me is like, all of these people don't seem to have hobbies.

• 33:21Speaker 05

  They hate hobbies.

• 33:22Tracy Alloway?

  Yeah.

• 33:22Speaker 05

  They hate hobbies. John Osher is so funny, the Dr. John, who's not a doctor, who started the $5 electric toothbrush and sold that business after having sold other businesses before and probably had enough money before starting that business. But he tried to take up golf from Florida. He's like so bored by it. Maybe not a great swing, I don't know. But went back and started this $5 toothbrush business in the dot-com era, which is exactly the kind of company you would think would make you hundreds of millions of dollars during the dot-com era, selling $5 electric toothbrushes. But that's what he did because he just like couldn't sit still. I mean, he was a, had a personality clearly because even as a kid, his first business was his parents.

• 34:05Tracy Alloway?

  Don't tell your son the story.

• 34:07Joe Weisenthal?

  No, I gotta, it's immediate.

• 34:08Tracy Alloway?

  No, no, no, not this one.

• 34:09Joe Weisenthal?

  Let's hear it.

• 34:10Speaker 05

  His first business, so his parents, he just took like one of those painting classes where you like have models come in and do the like the nude paintings. And they hid the paintings from like five, seven-year-old, I don't know, like in the attic. And he would charge a nickel to his friends to look at the paintings.

• 34:26Joe Weisenthal?

  Oh, my God, my son would love this.

• 34:28Speaker 05

  Yes. It's the best margins of any business he ever started.

• 34:32Joe Weisenthal?

  He can't, he can't, he can't listen to this episode.

• 34:37Speaker 06

  Stick to the children's book.

• 34:38Joe Weisenthal?

  Yeah, yeah, we're gonna.

• 34:39Speaker 05

  Maybe you just paint still lifes.

• 34:41Joe Weisenthal?

  We're gonna stick to the children. Can we talk a little bit about, you mentioned dentists. And I'm sort of curious whether dentists or doctors, what is their role in the story of the medical profession and how rich can they get?

• 34:53Speaker 06

  Yeah, no, that's a great question because there's the kind of the Dick Portillo's more tactile, blue-collar rich, and then there are the more white-collar ones. But if you own eight dental practices, you can be really rich. I mean, I think if you're just a normal dentist, you have a pretty good life. But if you own, you know, a few offices, you can have a great life. Dentists have some amazing stats. I think they're like number 21 on our list of top pass-through four-digit industries by profit. And if you add up all the revenue of dentists in America, it exceeds the revenue generated by the NFL, the NBA, MLB, basically all professional sports, and dentists are earning more.

• 35:36Speaker 06

  The joke we like to tell is that everybody's got teeth. And so if you own several of these, this is great. And then they also are in every congressional district. And so when, you know, you think about things like, oh, let's include dental services and Medicare, for example, they lobby against that to be like, well, we don't want price pressure from the government, we want to make sure we can protect. So there, there is a bit of regulatory might, and that's really the case more for doctors, too.

• 36:01Speaker 05

  Yeah, the doctors showed up in one of our early statistical breakdowns when we were trying to figure, okay, who are these people earning all this pass-through income? We said, what are the top four-digit industries and the top 1%? Doctors' offices was number one. So this is like, there are industry codes by the BEA. And so four-digit, there are about 300 industries in the four-digit system. So that's like a pretty refined, like, doctor's office is different from dentist's office is different from like a physical therapy-type industry, as an example, within services. Doctors were number one in terms of the number of, amount of profits. And they had just a ton of them.

• 36:38Joe Weisenthal?

  Is it true that like dentists, like, they're all really bored, so they get really like tempted to finance films? Isn't that like a big thing where it's like filmmakers like go to dentists, like, this would be more exciting than teeth, just put $100,000 into this film?

• 36:52Speaker 05

  They are, I think, sitting on pools of cash, and maybe they don't have so many ideas of what to do with it. And so they make for maybe easy targets. And because it's a big pool of cash, you know, there's a lot of fishing to be done in that pool.

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• 39:43Tracy Alloway?

  So, speaking of dentists and doctors, this reminds me, you have a working example in the book showing how the S corp pass-through tax benefits actually works for, I think it was for, an anesthesiologist. And the one who is in private practice, who has their own S corp, pays less tax than the one who's employed and earning income. What exactly are we incentivizing or supposed to be incentivizing through the tax code here? Because again, these are two people who are ostensibly doing the same jobs. One is paying a lot less tax than the other one by virtue of the pass-through arrangement.

• 40:21Speaker 05

  Yeah, so we are taxing salaries at a different rate than taxing business income. And so that anesthesiologist that runs most of the business through the S corp is not paying payroll tax, not paying like ACA sort of surcharge, which is uncapped Medicare tax on the profits that come through, which is maybe particularly galling because they're billing Medicare for so much services and they themselves on their mostly labor income aren't paying the Medicare tax on it. So, you know, there is a minimum level of compensation, which the IRS rules say you're supposed to pay yourself in wages, so you pay payroll tax on that.

• 41:02Speaker 05

  Everything above that reasonable compensation limit is kind of profit and just falls in this other bucket. And then, you know, in the 2017 reform, they brought down the pass-through rate even further from, say, the top rate of 37% to below 30%. They put in these guardrails for doctors and skilled service professions, so they couldn't get that rate. But there are strategies that certain ones take to try and move a bunch of the ancillary services again, or the surgery piece, or the, maybe they rent some real estate back. And so they can shift more and more of that income, I think, into forms that then get that below 30% rate. Whereas the surgeon that's working in the hospital system as a salaried worker is paying

• 41:43Speaker 05

  the top individual tax rate, 37%, the payroll tax, another 3%. You have all the state and local taxes. The cap on state local tax deductions applies to that salaried worker, but if you run all your income through the business, then the states have allowed them to basically take the deductions through the business instead and get that uncapped.

• 42:02Tracy Alloway?

  What's the thinking behind this? We just want lots of small businesses to be created, and so here are some tax benefits?

• 42:09Speaker 05

  I think it's kind of an unintended consequence of trying to simplify the tax code for the mom and pops in the small business.

• 42:16Tracy Alloway?

  Yeah.

• 42:16Speaker 05

  And then people sort of look at the rules and say, well, how do I minimize my tax, given the rules are what they are? And then, how do we protect those loopholes that sort of pop up over time? I like to think of the tax code like a house that sort of depreciates over time, and you kind of need to like invest in it, like repair windows, replace the floor, this kind of thing. These loopholes are like the depreciation that's applied to this house over time. The reason they've been so persistent, we haven't fixed them, is because it turns out that like a quarter of federal elected officials are also pass-through business owners.

• 42:51Tracy Alloway?

  Oh.

• 42:52Joe Weisenthal?

  Yeah, this is always, like, my impression is like, you know, I don't know, pick a state, Iowa or Ohio, and it's like, you know, like, get some politician who's worth $100 million. But I, and they often tend to do very well, and they like position themselves as like, you know, popular among the working-class voters. And they probably do connect well with them, in part because they like, this is what I was going back to, they're on the shop floor, they probably do connect with those voters better than like, you know, CEO of a big bank who's like completely disconnected from them. But on the tax question specifically, you know, when it comes to the prospect of raising revenue for the government or raising taxes, you there's, you get a litany of issues.

• 43:37Joe Weisenthal?

  So, A, no one likes paying higher taxes, period. Then there's you get say, well, you know, we don't want to disincentivize entrepreneurship or success or whatever, and taxes are bad for that reason. And then there's the third layer, it's like, well, even if we want, even if we want to have higher taxes, and even if we weren't worried about that, it would be impossible, and the rich always find a way, and so it'd be self-defeating, there's no way to like, actually, you can't do it, they'll find some loophole or whatever. And that third part, I'm really curious about. Is that real? Or in your research, like, if there were the political will to raise taxes, are there straightforward ways to do it?

• 44:19Speaker 06

  Yeah, so it's certainly real. I mean, we could start with the most recent, so first of all, you asked for about Iowa and Ohio. So, Ohio, the senator, one of the senators is Bernie Moreno, who's an auto dealer. So, that, that's a great, a great one. And he had a proposal with Elizabeth Warren to shore up Social Security. How did he want to do it? You put it on the payroll of all these salaried workers. There's no mention of these very wealthy business owners, like, it's all salaries. So, the anesthesiologist that you were talking about before, one of them is getting off, you know, scot-free, and the other one is paying a lot more. So, I think that's one very recent example. Now, it's interesting, we've been talking to folks on the Hill about, you know, what the prospect of raising taxes on the rich is.

• 45:04Speaker 06

  One natural place to start is this trillion-dollar tax cut that was part of the one big beautiful bill that no one likes to talk about. And even among Democratic staffers, there's a lot of reticence of like, oh, I don't know, small business. And you're like, this is not small. You know, if you take all pass-through income, only 20% of it is actually small business, according to an old Treasury study. The vast majority are big businesses that happen to be private. And, and so I think the most realistic thing, if you can't get rid of some of these loopholes, is to limit them by income. And, and that, to me, seems like one path.

• 45:40Joe Weisenthal?

  When you say limit them by income, explain that for us.

• 45:42Speaker 06

  So, you know, say, you cannot get a deduction that takes your rate from 37 to 30 if you have income in excess of $1 million or 400K. You pick, you know, the number that, I don't like these numbers, but, you know, that would be one mechanism for saying, okay, somebody has more than $1 million in business income, like, they're doing very well. You can't plausibly call them small.

• 46:04Tracy Alloway?

  This reminds me, actually, can we talk about the role of private equity in wealth creation? Because again, when we talk about a lot of these businesses, whether it's HVAC, or I don't know, veterinarian services, or dentist offices, a lot of the exits come in the form of a PE buyout.

• 46:21Speaker 05

  We love this line from your colleague, Matt Levine, who, you know, tells this joke, what am I doing after business school? Oh, I'm going to work for a prestigious private equity firm in San Francisco so I can run their plumbing company in Mississippi. And, and, you know, I teach private equity to MBA students, and I talk about these unglamorous deals. So, we're talking about founder-owned firms, and, you know, more than half of the deals, typical deals in the pipeline from private equity are going to be founder-generated firms that maybe there's no natural successor. So, private equity sort of take, comes in, so we can take the baton, and maybe we'll be willing to pay a pretty high price because we can see the growth trajectory for it. And so they're looking for these unglamorous businesses that are quite profitable, maybe

• 47:02Speaker 05

  they have some competitive advantage because of either a barrier to entry or established brand and customer network and so on. And they're going to go in and, you know, take it over for the founder who doesn't really want to give it to the kids, or doesn't have a kid that wants to take over the plumbing company. So, private equity portfolios, if you go below the glamorous New York job, where you go like where they're actually onsite, what are they looking at? It's a mid-market manufacturer making cabinets, or it's sort of the shade store or something like that. These regional businesses that they want to grow further, maybe consolidate a few of them. Maybe they can list it or break it up or whatever down the road. But it's transformed finance in a way because a lot of capital is flowing.

• 47:44Tracy Alloway?

  Yeah.

• 47:46Speaker 05

  And there's the endpoint.

• 47:47Joe Weisenthal?

  Are these search funds? Is that what they are called? Like, I've heard that term. And I'm curious, I've been like seeing the, you know, people on Twitter, but they like, oh, all this stuff, I'm rolling up cabinet makers or pool servicing providers or lawn mowers. Or like, I imagine like a pest repellent is a pretty big thing. But I've been reading about them for like, a long time now. Is there still more juice for the squeeze? Is there still a bunch of these boomer businesses where the kids don't want it? And in theory, you could take over the local lawn maintenance company and make more money? Or how much is left there?

• 48:24Speaker 05

  Well, we think about the great wealth transfer, right? This tens of trillions of dollars of wealth in the sort of silent generation or baby boomer generation, more than half of that is like in the form of business wealth. But there's a huge amount of business wealth that's coming. And there aren't necessarily kids or great, you know, people who want to run it from within those businesses. Some of them are too small to attract private equity interest. And so, yeah, so I see students, at first it was like a few students that knew about the search fund thing.

• 48:55Joe Weisenthal?

  And what year, when were you saying?

• 48:56Speaker 05

  I started in 2014 teaching, and I was talking about search funds. So this is like a student spends two years, usually have a partner, looking for one of these businesses that's kind of too small to attract private equity interest. So they can do a mini LBO. They can do a mini buyout if they find a good candidate. The investors that funded the search will do a second step. So there's optionality for the investors that makes it such that even the median return in search funds is negative. Most of them lose a little bit of money because the search doesn't work. But the average return is like, mm, low twenties, I think, in the sort of, data is a little hard to come by, but I think the people who are trying to do a good job of comprehensively measuring it. And it's rolling up pest control businesses.

• 49:40Speaker 05

  One of the most successful ones I talk about in class is drug treatment facilities in California. There was like a huge growth in demand for that, unfortunately. And these facilities, running them, running them well, doing the billing, doing the kind of, you know, they're, running those businesses is complicated, a lot of regulatory things you have to manage as well. But that person, that was like 100x investment for the investors. And for the founder, oh, I could go to banking and then maybe flip into PEE and then maybe get like junior partner and get up there in like a decade, 15 years or something. Or I could like start this business and run a business, get all this weird experience doing deals, industry learning, raising money, operating something, like kind of bootstrap

• 50:23Speaker 05

  my way into being a seasoned founder and an executive and own 20% of the company on the other end if it does well.

• 50:30Tracy Alloway?

  This also reminds me, in terms of just creating an environment that encourages entrepreneurs, you actually found some really interesting, or did some really interesting research showing that if you are in a place with a lot of entrepreneurs, you are more likely to be a business owner yourself.

• 50:49Speaker 06

  Yeah, so one of the cool data things, you know, to go back to the very beginning, when we built this data set that for the first time linked owners to businesses and their workers, we could track every single new firm in America since 2000. So we have the best data on entrepreneurs that has ever existed. And we can say, you know, how, how many people are going to start businesses if they're poor, if they grow up in Salt Lake City versus Mississippi? So Salt Lake, the probability you start a star business, meaning the top 10% of revenue or employment, is three times higher than if you grow up in Mississippi. And anecdotally, you know, it's not entirely clear what's going on. You know, there's the nickname, the Silicon Slopes at Salt Lake.

• 51:32Speaker 06

  But some of it might be that there's a large Mormon population and a common thing to do is to go on missionary work and bang on doors and have people tell you no, and you keep going, you get some resilience and grit. And like, there's no hard data and that's what's going on, but that seems kind of plausible to me. So that's, that's one thing. And you see it also for the children of business owners. They're way more likely to start a business themselves, even if you take all of the family firms out of the data. So it's like, you're not just inheriting, you know, your son is not inheriting the podcast, but it just hears all about money all the time.

• 52:05Joe Weisenthal?

  Wouldn't that be funny?

• 52:06Speaker 06

  Yeah, round two.

• 52:08Speaker 05

  Fourth generation podcast.

• 52:09Joe Weisenthal?

  Yeah.

• 52:10Speaker 06

  You know, you have to start the S corp first, so.

• 52:12Joe Weisenthal?

  You know, I'm sort of curious, it's just the search funds thing. You know, one of the things you hear is like, okay, some guy has a pool company. Well, maybe people like that guy. And maybe like some, then some guy from Wharton, it's like, we don't know you, we don't. And then, so I imagine that's tricky. And then also, I imagine, you know, the cost of labor has gone up and low end wages have risen a lot. And of course, immigration crackdowns, et cetera. Are people stepping on, do you see a lot of people stepping on rakes here and they're like, you know what, maybe this business idea to like, you know, power wash people's sidewalks was not quite the path to riches that I expected it to be.

• 52:57Speaker 05

  So there is risk in doing it, right? But you can take that experience as long as you don't do anything illegal.

• 53:04Joe Weisenthal?

  Okay.

• 53:04Speaker 05

  You actually have on your resume this experience. You learned a bunch of industries, you did a bunch of kind of deal M and A type work, basically analyzing industries, making pitch decks, this kind of thing, like leading up the search. So that actually is part of maybe the sales pitch if you decide to return to the workforce or do something else.

• 53:24Joe Weisenthal?

  Do people get SBA loans? Like, is there like publicly subsidized leverage for these buyers?

• 53:30Speaker 05

  It is possible. Most of the debt that's used in those deals is coming from banks.

• 53:34Joe Weisenthal?

  Okay.

• 53:35Speaker 05

  I mean, they're established businesses with a decent track record, most of the case. So like, you can really, you can leverage that. They're not leveraging like 80% leverage. They're more like 40, 50. The typical search fund deal is, there's a lot of equity there too. So I think there's more cushion than a typical larger LBO.

• 53:53Tracy Alloway?

  Just going back to the pickety part of this conversation and the idea of income inequality, what do we see when we look at the S corp data in terms of how much is actually accruing to owners versus workers?

• 54:07Speaker 05

  Yeah, so it is quite striking. There are different ways to think about growth of this group and their income. It's like, is the pie growing?

• 54:15Tracy Alloway?

  Yeah.

• 54:16Speaker 05

  Are they just capturing a bigger and bigger slice of a pie that's not growing? And we can sort of decompose the growth. So first of all, like, if you look at the growth of the business sector, more than half of it, like 60% of the growth over the last 25 years is coming in pass through form. So there's a lot of economic activity coming in pass through form. The pie is growing. The share that the owners are capturing of the pie has gone from like a third or 40% to like 50%. They're capturing a larger and larger slice.

• 54:45Tracy Alloway?

  Can I just ask, what's your explanation for that?

• 54:47Speaker 05

  I think some of it is, it's easy to think about in the skilled services. The demand for the skilled service at the top, that doctor's practice, is really driven by kind of the scarce factor being brought, which is the expertise, the reputation of those folks at the top of the business. So they could just raise the price, you know? I mean, it is the case that we have 30% fewer doctors in the OECD average. So the AMA is helping restrict the supply of doctors in a way that's quite useful, the American Medical Association. So as demand grows for that stuff, like it's, there's a lot of surplus, but you don't need to pay the nurses or the assistants in that medical practice. So there's a piece of it there.

• 55:30Speaker 05

  I don't know, like in some of the other industries that are more like competitive, maybe there's like a mixed, you know, productivity and invention and stuff, but I think that's an important part of it.

• 55:40Speaker 06

  Yeah, so, you know, we tell different examples. Like, we have a colleague, Kevin Murphy, who's one of my favorite economists, and he just, his first language is economics, not English. He can just go up to the board, just as a quick aside, I used to, as a first year faculty member, I went and sat in his class. It was the most amazing class. You sit there and he's like, what are you guys interested in? It's like, why is the labor share falling? And he just goes up to the board and derives like three or four equations and have the most coherent and beautiful, and he just does it.

• 56:10Joe Weisenthal?

  That's cool.

• 56:10Speaker 06

  So anyway, so Kevin, he does some econ consulting. And if Kevin makes a merger more likely to happen, say it's 5% more likely to happen, this is a billion dollar merger, that's a lot of value from the perspective of the people paying them to try to help the merger get through. And, and so, you know, mergers are increasingly valuable as the economy grows and Kevin's just doing his thing. And so I think that's also part of the story. So some of it is real skill and expertise. Sometimes it's induced scarcity from policy. And all of those things are kind of a blend. It depends on the complexities of what specifically is going on in that industry. But a material part is a bigger slice of the pie. And then also, another big chunk is growing the pie. And both of those things are true.

• 56:53Speaker 06

  And we have stories and examples where workers are brought up along the CEO. And then another examples where, you know, most of it is just going to the owner. And that's a big part of what's actually going on in the data for rising inequality. It's a bigger pie and a bigger slice. And it's like 50, 50 for the quantitative breakdown between those two.

• 57:14Speaker 05

  Profit sharing isn't the default motive, I think, for these folks, especially the first gen. They're not like, oh, how do I share more of the profits with the workers? It's like, well, I pay people for what they do and I incentivize them. And then, you know, if we have more money at the end of the day, I'm going to reinvest it in the business or I'm going to take it. And that's kind of like the mentality of this founder generation especially. We, this chemical importer exporter called Chemimpex, you know, really like sexy name.

• 57:43Tracy Alloway?

  There are a lot of unsexy names in this book, I must say.

• 57:45Speaker 05

  This is right. Glamorous, right? We like to talk about like the NBA player who made way more money running Wendy's franchises than being an NBA player, Junior Bridgman. So yeah, the whole franchise thing is a whole nother list of unsexy businesses to get really rich. But the Chemimpex, they, she talked about how they were able to offshore and have the middle of the business, sort of Indian people helping with the supply that, you know, through their family, they're able to connect to and hire. And so they're using the same kind of ways to offset sort of labor scarcity or, you know, to, to reduce labor demand, I think. And that then means that they can be more productive, but the workers are not, you know, capturing that, those proceeds.

• 58:28Speaker 06

  But let me just give you some numbers, because they really are striking. So I think if memory serves, in 2001, the value add per worker, so that's like add up profits and pay for, for people, was 34K a worker. And then that went up 18K to 52K in 2021. So there's 18K per worker of growth. Owners got 15 of that and workers got the rest. And so like the numbers are really striking in terms of how big owner, you know, that's part of why there's so much abundant wealth in America. That's why when you go to California or any nice mountain town or any nice lake, there's a lot of boats. Like I used to go to the Lake of the Ozarks when I was growing up and,

• 59:12Speaker 06

  you know, there's so many people with huge boats and you're like, what are these people doing? And it's pest control. It's all of these, you know, they're making the windows for drive-throughs, for example. Like there's so many stories you hear.

• 59:22Joe Weisenthal?

  Yeah.

• 59:23Speaker 06

  And one of our favorite things now is just to go ask people like, who was the richest person in your high school? Like, what did they do?

• 59:28Joe Weisenthal?

  Oh.

• 59:28Speaker 06

  And the stories you, I mean, we have a list of hundreds and hundreds of millionaires. We didn't even put in the book because there's too many good ones. It's a pretty fun game.

• 59:39Tracy Alloway?

  Invented Post-its. Does anyone get that reference?

• 59:43Joe Weisenthal?

  Oh, what's that from?

• 59:44Tracy Alloway?

  Romeo and Michelle's High School where you asked.

• 59:46Joe Weisenthal?

  Yes, I knew those, yeah.

• 59:48Tracy Alloway?

  All right, Eric and Owen, we're going to have to leave it there. But thank you so much for coming on Odd Lots. The book is The Everywhere Millionaire and it is very, very good. So, thank you so much.

• 59:58Speaker 05

  Thanks so much for having us.

• 1:00:00Speaker 06

  Yeah, thanks. This was a lot of fun.

• 1:00:01Joe Weisenthal?

  Thank you so much.

• 1:00:16Tracy Alloway?

  So Joe, I know I've been kind of gushing about this book.

• 1:00:18Joe Weisenthal?

  Yeah.

• 1:00:19Tracy Alloway?

  But I do genuinely think that this is a piece of research based on a novel dataset. To your point earlier, that has been missing from a lot of the discussion of the US economy and what it looks like. Now, when we talk about billionaires, when we talk about rich people, we are so used to thinking about public companies, CEOs, tech, venture capitalists, that sort of thing. And as Owen and Eric have pointed out, the field of millionaires across America is much more varied than that.

• 1:00:49Joe Weisenthal?

  No, I couldn't agree more. I think this is such an important conversation and it's so interesting. I do think the one, there is one part that I think is fairly understood. People know, A, that car owners are significant within their congressional districts. I think people have seen a lot of car owner politicians. They mentioned Bernie Moreno. I think people have intuition that car owners are often influential, particularly in the Republican side of the aisle, et cetera. But I think like, okay, this, oh, that's car owners. And I think the idea that there is this big swath of similarly structured businesses and across so many different industries.

• 1:01:34Tracy Alloway?

  With political influence.

• 1:01:36Joe Weisenthal?

  Is not sufficiently appreciated when people talk about inequality and when people think about the tax code. Because there is so much talk about like, you know, taxing wealth in California. And I do think that if we're going to have, you know, at any point, if we're going to meaningfully raise revenue for the federal government, if we're ever going to do something to ameliorate inequality, then like clearly tech wealth, et cetera, is part of it. But there is so much more than just public company equity wealth that constitutes wealth in America. That does, not only does it not really get talked about, but because people have this sort of impulsive love for small business, it's almost never on the table.

• 1:02:21Tracy Alloway?

  Right, and it is worth really asking what you're incentivizing through the S corps structure if the idea is like, oh, well, we want a bunch of small businesses, but in effect, you're protecting a bunch of companies that are generating like millions of dollars in revenue.

• 1:02:35Joe Weisenthal?

  Totally. And I like the characterization of the tax code as a house.

• 1:02:39Tracy Alloway?

  Yeah.

• 1:02:39Joe Weisenthal?

  The idea that like, the economy evolves. I mean, the economy evolves for structural reasons. There are new technologies, there are new things, so there are new types of businesses. And then, of course, tax optimization strategies evolve and people slowly discover there are different ways to structure their own work and business so that they can take advantage of lower rates, et cetera. And so the idea that like, we need to, I mean, it seems like mostly it's a one-way ratchet. Taxes just keep going lower. But the idea that like, no, like, we need to repair this, we need to fix this, we need to adjust it for the current conditions rather than just finding places to cut. I like the house analogy.

• 1:03:20Tracy Alloway?

  I think of the tax code as an amorphous blob that people are always poking with a stick.

• 1:03:25Joe Weisenthal?

  Can I just say something?

• 1:03:26Tracy Alloway?

  Yeah. No.

• 1:03:30Joe Weisenthal?

  People like us, who are like wage earners at companies, who just get like a normal W2 income. We are truly the most oppressed class in America. No, I don't believe that. But you know what, like all, like the only, the only like, the only sort of class of people that really does not have some like, very obvious way to minimize taxes is basically just workers at companies.

• 1:03:58Tracy Alloway?

  Poor us.

• 1:03:59Joe Weisenthal?

  Poor us.

• 1:03:59Tracy Alloway?

  All right, shall we leave it there?

• 1:04:01Joe Weisenthal?

  Let's leave it there.

• 1:04:02Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at TracyAlloway.

• 1:04:07Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at TheStalwart. Check out Eric and Owen's book, The Everywhere Millionaire. Follow our producers, Carmen Rodriguez at CarmenArmandDash, O'Bannon at DashBot, Cale Brooks at CaleBrooks, and Kevin Lozano at KevinLloydLozano. And for more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all these topics 24/7 in our Discord, discord.gg/oddlots.

• 1:04:33Tracy Alloway?

  And if you enjoyed this conversation, if you want us to do more episodes on the US tax code, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad-free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

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