Meet The Millionaire Class That Really Runs America

Ed Elson is joined by Owen Zidar and Eric Zwick to unpack their research on the “Everywhere Millionaire”. They explain how pass-through businesses work, why the tax code disproportionately benefits their owners, and how policymakers could close some of these loopholes. They also explore how AI is changing entrepreneurship in America and what it all means for the future of the American dream. Owen Zidar is a Professor of Economics and Public Affairs at Princeton University. Eric Zwick is the Joel F. Gemunder Professor of Economics and Finance at the University of Chicago Booth School of Business. Their book, The Everywhere Millionaire: Who Is Really Rich in America and How They Got There, is available now. Subscribe to the Prof G Markets Youtube Channel Follow Prof G Markets here: Instagram: instagram.com/profgmarkets X: x.com/ProfGMarkets TikTok: tiktok.com/@profgmarkets Threads: threads.com/@profgmarkets Follow Ed on Instagram, X and Substack Follow Scott on Instagram Send us your questions or comments by emailing [email protected] Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 1:50Speaker 04

  Welcome to Prof G Markets. We talk a lot about how billionaires have an outsized influence over our society. They help shape elections, they own major media outlets, and they have enormous sway over the stock market. But there is another class of wealthy Americans who rarely get the same attention. And our next guests argue that they may have an even greater influence over the economy and public policy. They call them everywhere millionaires. They're the owners of businesses you might not think of as the domain of the ultra wealthy, businesses like dental practices and HVAC companies. These businesses are structured as pass-through entities, where profits and losses flow directly to the owner's personal tax returns, rather than being taxed at the corporate level.

• 2:35Speaker 04

  And our guests argue that the tax code has been structured in ways that disproportionately benefit this group. But there is a lot for aspiring entrepreneurs to learn from this group. It includes a man who turned a hot dog stand into a goldmine, and a couple who started their business in the back of a station wagon and turned it into the nation's largest food redistributor. So today, we're going to explore who these millionaires are, how they made fortunes building mundane but necessary businesses, and how the tax system helps them to build and to preserve their wealth. Here is our conversation with Owen Zidar and Eric Zwick, authors of The Everywhere Millionaire. Owen and Eric, thank you so much for joining me.

• 3:18Speaker 04

  So I want to just start with your guys' story. You actually started your careers at the US Treasury's Office of Tax Analysis. And it sounds like that's sort of where your interest in this topic really began. So one or both of you, take us back to the beginning. How did this all start?

• 3:39Speaker 05

  We have been working for nearly 15 years on tax policy research. So we started out newly minted PhDs in the basement of the Treasury Department, working with career nonpartisan staff economists in the US government, trying to assemble data so they could answer basic questions like, how much tax do the different types of businesses in the economy pay? And it turns out the data were stored in such a way that, you know, I used my background as a software developer to try and help cobble it together so we could answer and scale some of those questions. But we discovered that in putting together this data, where you have the millions of businesses in the economy for the first time linked to their owners and workers, all anonymized, but you could see a lot of the characteristics of those businesses, how big were they?

• 4:24Speaker 05

  What industries were they in? Where were they located roughly geographically? And it turned out that this was painting a new picture for us of income, wealth, and prosperity in the country that we felt was deeply missing. And so it's a series of research papers we built with this data. It's kind of the foundation for then the stories we tell in the book.

• 4:42Speaker 04

  So Owen, tell us a little bit about what you found about these everywhere millionaires. Who are they? And how important are they in our economy?

• 4:52Speaker 06

  So everywhere millionaires are ordinary Americans who've gotten extraordinarily wealthy from running private businesses. There are over 3 million of them who have at least $5 million in net worth. Their average wealth is $25 million. If you look at the rise of the top 1%, it's about half of the rise in the top 1% of the past few decades are accounted for by these private business owners. And, you know, if you add up all of their wealth, it's an order of magnitude more wealth than the richest 400 people in America. So there's just a ton of attention on celebrity billionaires. And what we're trying to do in the book is broaden the aperture to say, there's way more abundant wealth that's closer to home. You don't have to be a moon man like Elon Musk

• 5:35Speaker 06

  or Jeff Bezos to be extraordinarily wealthy. Just look around and go to a local golf course, go to a nice vacation town, and like a lake or something, and say, who owns that $3 million vacation house? And often, it's the type of people we're talking about.

• 5:52Speaker 04

  My reaction when I hear that is that actually, that is a good thing. You know, when I look at the concentration of wealth and concentration of power that has been accumulated by a billionaire class, to me, that is a problem because it's like, I mean, why do you need $1 billion? Why do you need $5 billion? What more can that buy you in life? But if we're learning that actually, the power is accruing to a larger group of people who don't have billions of dollars, but they have millions of dollars. Yes, they live probably very, very nice lives. But it's at least, you know, something that is maybe more akin to what people think about when they think of the American dream

• 6:37Speaker 04

  versus like literally controlling the universe. To me, right, my reaction is like, that is maybe a good thing. What is your view of what this actually means? I'll give it to Eric.

• 6:50Speaker 05

  Yeah, so we do try and explore this question of whether the American dream is dead or alive? And what is, you know, the existence of this class? Their rise, their stories? And we tell a lot of stories to try and paint some nuanced pictures of the good, the bad, and the ugly among them. But, you know, the takeaway, the first piece, I think, is really that the American dream is more alive than you think, but it's not necessarily where you're looking. So we think this is a pretty undertold story in terms of what the paths to wealth in America really are. You have this standard credentialed labor market story. Go to school, sit still, get really good grades, go to a really good college, work for a big company, you know, move up the ranks there.

• 7:33Speaker 05

  And that is a successful path up to, you know, the top 5%, 3%. But there's this totally different pathway that people take, running a business, where maybe they work in a trade, they work in a less glamorous industry, learning some skills, learning some customers, learning about problems that real people have in the world that need to be solved. And then they go start a business later in their career. And those businesses can become quite profitable and quite lucrative. And so then you have all of these deca and centimillionaires even in these unglamorous businesses that have built businesses over several decades that have achieved the American dream, coming from relatively low-income backgrounds. In a lot of cases, the typical folks in the top 1%

• 8:16Speaker 05

  that are business owners didn't inherit their business. They either started or bought a business and grew it. And that's a story that we don't hear that often in today's, you know, conversation about income and opportunity. And we're not saying that all is well and everything is fair, and you have an equal shot no matter where you're born. That's definitely not borne out in the data. But it's not all gloom and doom there in the data.

• 8:40Speaker 04

  What are some of these businesses? Like, what are some examples of businesses run by an everywhere millionaire?

• 8:48Speaker 06

  One that I think you mentioned briefly was the story of Dick Portillo, which is one of my favorite stories in the book. When we talked to him, you know, he grew up in the Chicago Cabrini-Green's housing project, and he's the son of Mexican and Greek immigrants. He went to the Marines, didn't go to college, tried to figure out what was going on, and finally said, you know, I see a lot of people buying hot dogs in the city of Chicago, but not many in the suburbs. I'm going to... Invest in my $1,000 into this trailer with no running water and start hustling and put little coupons in everybody's windows of the cars around and try to get people to

• 9:32Speaker 06

  buy some and I'm going to wash the dishes by hand in my home bathtub. And many decades later, he sold it for a billion dollars. And so when, you know, you asked a question earlier about billionaires, I think it's quite different if you're thinking about people like that who've spent decades accumulating wealth selling hot dogs in a highly competitive industry that's very different than some of the other images people have of a lot of market power, big tech CEOs. And, you know, one of the things that we're trying to do is just paint the, a true portrait of wealth in America. And there's a lot of different niches in the economy. Not all of them become billionaires, but many of them have hundreds of millions of dollars or tens of millions of dollars. And it can

• 10:11Speaker 06

  be super mundane things like shoveling snow at an airport, selling concessions at a hockey stadium. If you have a big contract for selling concessions, you're going to make a lot of money. It could be storing paper. It could be fixing garage doors. You know, recently someone just sold a garage door servicing business for $2 billion. And there's just a lot of these that fly under the radar, but are really important for your understanding how you actually get rich and what's the blueprint for doing it in America today.

• 10:40Speaker 04

  You also point out that our tax code has been structured to really benefit these kinds of companies. You talk about pass through businesses. What are pass through businesses? And how does our tax code relate to the success of some of these people, Eric?

• 10:58Speaker 05

  Yeah. So pass through businesses, unlike traditional corporations. So if you look at the stock market, these are public companies. They're traditional corporations or subchapter C corporations for the Internal Revenue Code category that taxes them. They pay tax at the firm level and then the owners pay tax on dividends that they receive. Pass throughs in contrast, don't pay tax at the firm level. The income passes through them to the owners who then pay tax at the individual level, subject to the individual income tax. And in the 1980s, there was a massive tax reform, a bipartisan reform with Reagan and the White House and Democrats in Congress that brought the personal income tax rate down below the corporate rate, if you include both the first layer and the second layer of dividend tax

• 11:43Speaker 05

  for the first time in the history of the income tax. This triggered a rapid growth in the number of pass through businesses. So a bunch of firms immediately decided they would switch. And then new businesses, as they entered, elected this form because they were getting a better tax deal by organizing that way. And fast forward 40 years, you've had individual income tax cuts under Bush. 2017 did another round of tax cuts that favored these businesses again. 2025 codified amid permanent those tax cuts. You have more than half of the business income in the economy is in pass through businesses. You have almost half the workers working in pass through businesses. These are private businesses

• 12:23Speaker 05

  that don't have listed tickers on the stock exchange. And most businesses in the economy actually are pass through. So often when we talk to professional podcasters, they reveal that they are organized as pass throughs for, you know, tax reasons. And in some cases, they don't know it because the accountant does whatever they tell them to. But it turns out they're all over the economy, even where you're not even thinking to look.

• 12:47Speaker 04

  As experts in tax policy, is this a good policy? Is it a good thing that the tax code has been structured this way? I'm sort of of two minds because on the one hand, I'm like, okay, good. This promotes entrepreneurship. And on the other hand, I also do see the widening of inequality. And sure, it's not billionaires who are, well, it is billionaires, but it's not just billionaires who are accumulating vast amounts of wealth. It's also decamillionaires, centimillionaires. That is the subject of your book. And it seems like the tax policy has been designed to protect their wealth, preserve their wealth, yes, expand access,

• 13:29Speaker 04

  but make it easier to get to that point. And we have seen this widening of inequality. So I guess, Owen, what do you make of the tax breaks that we have, that we have made for this group of people?

• 13:40Speaker 06

  I think one common thing that you see is that there are a lot of provisions that are sold to be on the benefit of small business, which is the venerated institution in America that many people really respect to expanding to very large and extremely big private businesses that are still trying to enjoy the same benefits. And so, for example, if you look at the estate tax, which is one way that the tax on capital has gone down very materially in recent decades, that was largely argued, you know, from the perspective of, oh, look at this small business. There's this guy named Charles Thigpen, who testified before Congress, who is the grandson of slaves and was a farmer. And he wouldn't even have been facing the estate tax. And

• 14:25Speaker 06

  that was when it was about a million dollars for a couple. And now it's $30 million that's exempt. So it's way, way, way smaller in terms of its, how much money it's actually bringing in. And then on other provisions, I think my general view is it's important to have a results based fiscal policy where you actually look at what happens to real activity when you do a various tax change. So there are some tax policies that are very good at stimulating investment. And we've written papers on those, but there are others that are quite prevalent in this everywhere millionaire category that really don't do very much for employment and investment, but are very good at accelerating the accumulation

• 15:07Speaker 06

  of gains for these owners. So a concrete example is in 2025, there's about a trillion dollars of this large pass through deduction that basically said, if you're a qualified pass through owner, instead of paying the 37% top rate, you get to pay less than 30%. And that really has very little impact on employment and investment, and it was hugely expensive. And I feel like that's the type of thing that really should be first on the chopping block when you think about tax reform.

• 15:37Speaker 04

  It sounds like we had this idea of small businesses and we designed all of these policies with like this story in mind of the guy, the little guy who comes up and builds his business and achieves the American dream. But now we are sort of mischaracterizing certain incumbents as entrants or people who are kind of new to the game. And one thing that you guys point out is that there is a pervasive problem of legally protected local monopolies in various industries like auto dealerships, beer distributors, which sounds to me like an expression of that problem that you bring up. So could you expand on that, Eric? How do we come to this, arrive at this place of protecting monopolies in

• 16:21Speaker 04

  industries that a lot of us don't really think about that much?

• 16:25Speaker 05

  One place we, as Owen mentioned, we saw the fingerprints of these everywhere millionaires in our public policy in ways that we were surprised to find how much power they really do have to affect these things was tax. But another place is local market regulation. And basically, you know, they get to pole position in the lead in particular industries and they set up barriers to enter. In some cases, these are historical artifacts of provisions intended to protect the little guy from a very big guy. So we go through a series of industrial vignettes in the book where we try and explore this idea of market power. That's not the national big platform of market power that I think we hear a lot about in

• 17:06Speaker 05

  the press, but more like local, regional market power that pervades many industries. So in the case of the car dealers, you have a historical desire to protect small distributors of auto vehicles from large manufacturers like Henry Ford, who were exerting a lot of influence, forcing inventory on them they didn't want, shutting them down. And so the car dealers enshrine protections, franchise laws at the state level across most of the country that protect their position. You can't, as a manufacturer, sell directly to consumers. And you also can't shut down or allow a different car dealer to enter in that turf and provide those Toyotas. Like, why do we have Toyota as like a place next

• 17:48Speaker 05

  to, you know, Ford, next to, and they all have the same person's name under it, as opposed to sedan shop? It's like a legacy of these auto dealer protections. And as the economy's grown, manufacturing become more competitive, the dealers still control that pipe. And so they get really rich. And so they end up being just like an incredibly central character in this sort of top 1% income share. They're the third highest industry in terms of total dollars of pass through business income that comes from these privately held businesses, which is kind of shocking because you don't think of it as a particularly innovative industry. And it's not an industry where folks are that rich, I think, in lots of other countries. It's a legacy of these little protections. Other industries where

• 18:31Speaker 05

  we kind of see these everywhere millionaires setting up kind of barriers to enter, the beer distributors, we talk about the realtors, which have a different way of protecting their turf, using either control of the MLS or using the contact track structure to protect them. We talked about doctors and dentists as well, these professional guilds that use occupational licensing restrictions to prevent other people from coming in, providing some of those services at lower costs, to prevent foreigners from moving in and practicing without going through the residency system. All of these things serve to restrict consumers' options, to make more opaque the costs, to sort of raise prices and sort of reduce competition that makes these people richer than maybe they otherwise would be.

• 19:19Speaker 04

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• 22:59Speaker 04

  We're back with Prof G Markets. It sounds like one of the learnings is that, and correct me if I'm wrong, but it sounds like the learning is that it was a great thing to be an entrepreneur. And we're watching an entire generation of Americans who are now reaping those benefits of making that bet on themselves, on building their small business and building it up. But maybe it's not so easy anymore because maybe they have accumulated a level of power, they have sort of entrenched that power, built in these guardrails, and maybe you don't get the same upside of pursuing entrepreneurship today as you might have done if you did it in, say, the 80s.

• 23:42Speaker 04

  And now you're kind of 40 years on and you're, you're living the life that you always dreamed of. Is that a correct characterization of the findings of your work, Owen?

• 23:51Speaker 06

  I think it depends on the industry. So if you look at where we started with hot dogs, for example, and food options, like we have more recent examples of entrepreneurs who've done extraordinarily well. So it's not just what happened in 1980. So Dave's Hot Chicken, for example, has been enormously successful because they can make fantastic chicken sandwiches. And there's also Raising Canes. He couldn't get very much funding. I think he got like a C or something in an LSU as a college student trying to pitch this business idea of just selling chicken fingers. And he took really risky jobs.

• 24:33Speaker 06

  I think he went to Alaska to raise a bunch of money for himself in dangerous conditions to pay for this chicken finger business that he sold to LSU students when they came back from the bar. And now it's this massively successful business. So I don't think that it's dead. I do think that one thing that we caution people about is in some industries, there's a lot of tendency to pull up the drawbridge and say, hey, we're not going to make it easy for other people to enter. So that's not the case for food, but it is more the case for beverage distribution, which was much easier back in the day. We tell a story where if you had a pickup truck with some ice, you could be a beverage distributor.

• 25:15Speaker 06

  And then by the time you got to the 1970s, you had thousands of people applying for one slot to be a beverage distributor. And so, so I think it really is industry by industry.

• 25:26Speaker 05

  And you've talked, Ed, you've talked about the inheritocracy and the threat that that poses to like the dynamics of capitalism. And we have a take on this, which is kind of about sort of this proverb that the son founds, the father builds, the grandson inherits, and the great grandson begs, basically, where you inherit a business, but you're not really as hungry or as aggressive to build it, to face new competitive threats, to evolve that business. And that presents opportunities for entrants to take your lunch. And we see that in a lot of the stories where sort of somebody was really productive

• 26:07Speaker 05

  working within a family business, but hit that ceiling where the person wanted, the founder wanted the kids to take over. And so instead of promoting the person who was most equipped to grow that business, that person left and started a competing business and grew into a massive empire. In some industries, there are barriers that prevent that from happening, but a lot of cases, you can still kind of make it that way. And so the incumbents get sleepy, and then the entrants can take over.

• 26:34Speaker 04

  Yeah. And to be clear, my view is that's okay, so long as we have an ecosystem where you're punished for being sleepy. So if we decide, okay, we're just going to hand this business to my kids and they're not going to have the passion or to have done their homework to run this properly, and then someone else wins, that's great. That's market competition. I think my concern, and it sounds like this is, as you say, an industry by industry problem, is that there are ways in which the winners, the incumbents, can use their power, use their influence to influence the system, change the regulatory frameworks such that they can still win despite being lazy, despite not offering better products

• 27:16Speaker 04

  and not offering more of a communal good for their communities. So I guess my next question here is, why is it that industries differ on this question? Why is it that in the food industry, for example, it was possible for these scrappy upstarts to go in and become these roaring successes with Raising Canes and Dave's Hot Chicken? But in the beer industry, as an example, that wasn't possible. What was the difference maker?

• 27:44Speaker 06

  I think part of it is the prevalence of these protections. And it's just pretty hard to have strong protections in food. It's a super competitive thing. You have Chipotle and all these more, like these healthier options come in, and there's a ton of very wealthy franchise owners who own McDonald's or somebody owns 50 Windies. And for being a beverage distributor, it's basically a monopoly that you can't access in many states, and there's just a certain number of paths in. And even for some restaurants like in, I live in Princeton, there are only a small handful of liquor licenses. So you can't enter and serve alcohol and have a lot of competition on the existing

• 28:29Speaker 06

  holders because there's a scarcity. Same thing with doctors. If we're not letting more people in, it's very hard to have real competition unless you have doctors move within the country to make a specific market more competitive. But then that's going to make the place they left less competitive. So I think some of it is just about the ease of entry and in some industries, it's easier to regulate than others.

• 28:50Speaker 05

  I think one element of this that we haven't touched on is how over time, who represents us increasingly resembles this class of everywhere millionaires. So a lot of the policies that protect these specific industries are not federal policy. They're state and local policy. And the folks that are making those policy are part-time elected officials, mayors, state legislators, and so on. They're paid very little. Who ends up representing us in a lot of these positions? They end up being these business owners who are later in their careers, they can afford to run for office, and they have kind of a vested interest in doing so because they're familiar with some of these regulations. They want to, in a lot of cases, shape the regulations to their benefit. Over time, the cost of running for office has increased and the opportunity cost of

• 29:35Speaker 05

  being elected official has increased as well, I think. And so you have a situation where we think a quarter of the tax writing committee of Congress was business owners, private business owners. But if you go to the mayors of the country outside of the major cities, it's more like 30 to 40%. And if you look at state and local officials, these business owners are far more represented than their share of the population. In some cases, it's because they're very popular, they're stalwarts in the community, they sponsored the Little League team. And that institution of the mom and pop business is very popular. It's easy to run for office on being a successful person who can manage people well. But in other cases, it means that their worldview is going to be the worldview of

• 30:19Speaker 05

  the people making the rules. And I think that's created some of these institutions that then prevent entry. And that's where the decay of local media to hold these people accountable also makes it easier for them to pass these kinds of rules in darkness, under the radar, because there's nobody there to cover those things. They don't make national media in the same way.

• 30:40Speaker 04

  Yeah, you had a data point that I found really interesting. You point out that DCA millionaires hold 12% of congressional seats. They represent, of course, less than 1% of the US population. So they are significantly overrepresented, as you say, in local communities, but also in Congress. To what extent do you think that the everywhere millionaire is, one, controlling our politics, but two, specifically creating policies that protect their own interests as opposed to the rest of America?

• 31:20Speaker 06

  And if you look at tax policy, one of the biggest controversial things in 2025 in the one big beautiful bill act was getting rid of, or making cuts to Medicaid and SNAP. That was about a trillion dollars over 10 years and basically paid for this 20% deduction where these business owners get to pay less than 30% instead of 37. That's huge. And that's very direct. So some of it is the quarter of Congress that owns a business that Eric was talking about. But some of it is, when you talk to staffers, like who plays golf with the senator, who can raise money for people in the district?

• 32:04Speaker 06

  There's an everywhere millionaire in every congressional district. And if you look at auto dealers, they provide a lot of sales tax revenue, they employ a lot of people, and they are powerful constituents. So it's either like direct representatives or these constituents who really get listened to. And I feel like there's an outsized impact on what actually happens. And you can see there's like email trails in 2025 and 2017 that we point to in the book about how some of this happens, where constituents who run a successful private business will email the senator and the senator will say, hey, like, I'm going to send this to the head of the tax writing committee. And like, this is a really important view. We have to protect pass-throughs.

• 32:45Speaker 06

  And it's pretty clear, like, not every citizen's email gets forwarded to the head of the tax writing committee.

• 32:51Speaker 04

  I think we could all agree that's probably not a good thing. Maybe the everywhere millionaires themselves will say, no, it's great for them. But I think we'd all agree that it's probably not a good thing. Has this gotten worse over time? I mean, rewinding the clock 50 years ago, did American policy look the same? Or has this specific group acquired significantly more power over time, Eric?

• 33:25Speaker 05

  So if you think about income inequality and trying to understand the trends in that, more than half of the rise in the top 1% income share comes from pass-through business income. So not only have these folks always been there at the top, they've gotten richer as a share of sort of total activity and total income over the last 30 or 40 years. And I think we can see that rise then parallel in terms of rising political power influencing the cost of running for office, influencing who wins office, influencing the tax cuts, such that we're at a place where neither party really wants to touch the taxes for most people except a small number of billionaires. They're essentially off limits.

• 34:10Speaker 05

  It was not the case that they were off limits in the late 1990s. Even, you know, you had Bill Clinton, George Bush raised taxes on this group of people to help balance the budget. And we're just so far from that being close to a touchable talking point. It's a third rail. And if everything's a third rail, then we end up with 6% or 7% structural deficit. So I do think it looks a little different. It's true that there have always been sort of private businesses and business owners in the 50s and 60s. They weren't pass-throughs because the tax code didn't want them to be. And so they were traditional corporations consuming through the firm with the company car and spousal travel and insurance and so on.

• 34:53Speaker 05

  But as the economy evolved away from heavy manufacturing, that tended to favor the large public companies towards sort of smaller service companies, these distribution companies like we're talking about, skilled services is another category of everywhere millionaires that are quite influential in the law, consulting, accounting, doctors, dentists, that have become very rich over time. They've become more powerful than they were 30, 40 years ago.

• 35:16Speaker 04

  When you think about what to do about this from a policy perspective, I think you both would agree that a lot of the recent policy proposals have been very billionaire-centric. I mean, literally a billionaire wealth tax that targets billionaires. What do you make of the billionaire wealth tax? What do you make of the overall tax conversation in America? Do you believe that we're focusing on the wrong thing?

• 35:44Speaker 06

  No, I don't think we're necessarily focusing on the wrong thing. It's just we need to have a much broader conversation if we want to raise some real revenue. So I think that it's fundamentally unfair that billionaires pay a lower effective tax rate than many of their employees. And that, I think, is a reasonable thing to try to fix. The issue is that we have an order of magnitude more money among everywhere millionaires than billionaires. And we can't present an idea that just because sometimes they act like clowns and are easy to vilify, that these are the only people that we need to tax and everything's going to be fine. We have serious fiscal needs and we've had massive cuts.

• 36:28Speaker 06

  Even if you just do basic things like roll back the tax code to 1997, you could raise trillions of dollars over a 10-year period, and it's largely from this group that we're talking about. And that was a period when we still had a lot of economic growth. We still had, we had a much healthier environment for the fiscal picture. And I think it's important to not vilify everyone when you're thinking about tax policy. Taxes are not just about punishment. It's about saying, we have some things that we want to pay for collectively as a country. We care about the future and growth. We want to pay for science, we want to pay for education, we want to pay for infrastructure,

• 37:11Speaker 06

  we want to pay to protect the elderly and the sick. And you can't do that if you just tax a small handful of people.

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• 39:02Speaker 04

  We're back with Prof G Markets. One of the things that a lot of people push back on when we talk about raising taxes or increasing taxes is they point out that the top 1% pays the largest share of taxes by far. And then the pushback to that pushback is, well, you're talking specifically about income earners right there. I think the statistic is that the top 1% pays around 40% of the taxes. But that's based on on income. And the problem is that there is a lot of wealth that is being created, not through income, but through the appreciation of assets. And we're not properly taxing those through capital gains. One, because capital gains tax is significantly lower than income tax,

• 39:45Speaker 04

  but also because there are a lot of loopholes that allow for assets to go untaxed. And that really often focuses on the billionaires. Now, a lot of people would say that that millionaires are paying taxes more so than billionaires, because I think a lot of people would assume that millionaires are making their money off of income. Maybe they're dentists, maybe they're lawyers, they're white collar professionals. And, you know, why are we going to increase taxes on them? It sounds like you have a different view that actually they are not necessarily the the earners, but a lot of them are the owners. And maybe they're also getting some of the benefits that the billionaires are getting. Could you just expand on that?

• 40:29Speaker 04

  On the difference between the earners and the owners and the extent to which the top 1% actually identify with each of those groups?

• 40:36Speaker 05

  Yeah, so if you're one of these private business owners that we've talked about, you might still be, you might be working really hard, but most of the income that you receive from that business is going to come out not in the form of wages, but in the form of profits. And that is because the tax code prefers that income. You don't pay payroll tax on that. You don't pay ACA surcharge, you don't pay NIT on that income. There are all these taxes that apply to other categories of income that you can avoid through these loopholes in the tax code. And so over time, we've seen people that have the flexibility reduce the amount of salary they take out of the firm, subject to the limits, the rules. But they get a, you know, high paid accountant and lawyer to help them navigate that so it can be defensible.

• 41:20Speaker 05

  And then they pay lower effective tax rates than a salaried person who is doing the exact same thing in a slightly different corporate form or corporate structure, working for a big company. And that seems just fundamentally unfair. So that's really not a question of owning versus earning. That's a question of making it look like in the tax code you own something where the primary factor is still your labor, your human capital, you're contributing. On top of that, if you then sort of reinvest the profits and the proceeds and build up a business and sell it like Portillo or something like that, you get sort of this accumulated tax preferred setup, which the tax code encourages folks to do so to grow these businesses. And maybe that's good for economic growth.

• 42:04Speaker 05

  When they sell it, they pay much lower rates because of capital gains taxes. Or if they pass it on to the next generation through strategic trusts, through valuation gains, you can completely avoid estate tax, you could step up of basis. So when it, you know, passes to the next generation, there's no capital gains owed ever. And so you can pay much, even much lower effective rate than that salaried earner. And so there are these additional benefits that layer on top. There are a bunch that are very prevalent in Silicon Valley that, you know, are not really the purview of this book that are quite relevant for thinking about just fairness of tax rates across different types of forms, like qualified small business stock or carried interest compensation for venture capitalists, private equity fund managers.

• 42:47Speaker 05

  This is labor income again, deferred labor income, but it's being taxed and treated like it's passive capital income and getting a much lower rate. And that just basically undermines a sense of fairness that people have in the system. There are all these buckets of income. Everybody thinks everybody else is getting a better deal. And so nobody wants to pay more tax because they think they're the one getting left with the bag. And that's a real problem with faith in the system. And we have to really kind of harmonize these rates. Then we can choose what level of rate makes sense to pay for the things we've chosen to buy.

• 43:20Speaker 04

  So what is the solution from a policy perspective? How do we fix this, Owen?

• 43:25Speaker 06

  You know, one of the things we do in the book is try not to make it a policy book. We try to describe the world as it is. But, you know, we end end the book with a little bit on a couple of policies. But I think, you know, addressing some of these loopholes that we talked about in a way that, you know, keeps an eye on incentives to invest and productivity and making sure that we, you know, want to have an economy that has more millionaires and has more people that have a shot at being a millionaire, I think is an important thing to keep in mind. And I think there's a lot of low hanging fruit for loopholes that don't really help that much in that direction, but also can raise material amounts of money. So I think that's one bucket.

• 44:06Speaker 06

  A second bucket is addressing some of these regulatory barriers to competition at the state and local level to to increase competitiveness and try to do a number of things to make life more affordable for Americans. So that means, you know, trying to address the 6% that only in America do realtors get. When you try to buy a house in other countries, you don't really get as much of that money going to realtors. If you were to do that, it's not going to be as expensive to buy a house. And that's going to help more people move forward. Same thing with cars, you know, it's very expensive to buy a new car. Some of that is because of the auto dealer protections we were talking about.

• 44:50Speaker 06

  And then for healthcare, you know, I think we need more supply of doctors and medical professionals. That means having nurses do more potentially with AI. That means having immigrant doctors who are qualified to come here, training more doctors domestically. And I think that would help with some of the cost pressures. And so that's a number of things on the tax front and regulatory front and affordability front that I think we could do to to make life better in America.

• 45:18Speaker 04

  Eric, do you co-sign? And just a quick follow up. How do we address loopholes? Because to me, that is one of those things that I feel like everyone agrees on conceptually. Loopholes are bad, but how do we fix that?

• 45:33Speaker 05

  I definitely co-sign Owen's suggestions. And we have also some ideas in the book where we talk about, you know, workers getting more, you know, as a share of the growth in this category and sort of like understanding what policies have not kept up with the growth of this group, thinking about the minimum wage, thinking about the proliferation of non competes and low skilled workers in some of these restaurant businesses, for instance, doesn't really make a lot of sense. And so that's another place where regulation labor market seems to be sort of benefiting the ever more millionaires at the expense of low skilled work.

• 46:14Speaker 05

  But I think we need to take a hard look at the political system. The path to getting into elected office requires more money than is probably necessary. We need to understand why that is and whether all of the reasons that has become so expensive are really worth it. Like, should we have unregulated pricing for political ads? As an example, I have like in my mind, the idea to look at the ever more millionaires who own those local TV stations that jack up rates around elections, because it's sort of like a really interesting microcosm of how the ever more millionaires are kind of taking advantage of a strong position

• 46:52Speaker 05

  to maybe affect the political system in a way that we don't really realize. And then, you know, if we have more, you know, better representation of those kinds of other interests in society, the consumers and the workers and the political system, then we might see some of those loopholes close or at least some compromises occur.

• 47:08Speaker 04

  Immediately Citizens United comes to mind. Seems like one of the greatest mistakes we haven't made.

• 47:15Speaker 04

  But it does seem also that a lot of the problem that you're addressing is

• 47:21Speaker 04

  This idea of our system and our policy sort of misidentifying people. Like, it all started from this idea of there are these small business owners in America, and we need to protect them. And I agree with that. I think that that's a good thing. Like, I think we should promote entrepreneurship. I think we should promote small business ownership. But at what point does a small business become a medium business and then a large business and then a gigantic business? I mean, we can probably agree that giant corporations are not no longer small businesses. But I'm sure there are a lot of people who would argue differently. I'm sure that the the founders of OpenAI and Anthropic would say, we're the scrappy startups

• 48:06Speaker 04

  who are trying to compete and trying to get our feet in the door. But meanwhile, they're worth $2 trillion. I'm sure that the same thing is a problem when it comes to earning an income versus seeing your assets appreciate. That's another example of labeling in the system, creating different rules for what is essentially the same thing, which is money. How do we fix this labeling problem? And I guess, do you agree with me that that seems to be the source of our troubles? That we try to put different people and different businesses in different boxes? We create different rules for different people, and ultimately, that creates misalignment down the road.

• 48:46Speaker 06

  I mean, one natural step is to harmonize rates to be closer together so that these labels won't move your taxes as much. And, you know, the the pushback on that, there are some things that you do want to make more attractive. Like, investing is an attractive thing that has broader spillovers and helps economic growth. And so there are some things that we do want to pay for and have a loophole for. But I think it's really being much more judicious about what's involved. And so I feel like that's more feasible if you do a large-scale overhaul to say, look, you know, a lot of people have different loopholes, but if we're going to collectively

• 49:25Speaker 06

  make this a lot better, you can end up with everybody or close to everybody thinking that what comes out is better than what we had before. And we've done that before. And so I think there is some hope, if you look at history. 1986 was the last time we did this, and, you know, we cleaned up a lot of stuff. You need to do it again.

• 49:45Speaker 05

  Yeah, I think even just a more basic level, just, you know, seeing, you know, these people for who who they are and trying to understand the diversity and meet a lot of them. That's kind of why with the book, we spent so much time talking to them and having them tell their stories so people can see them. You know, you can claim you're a small business and get that preferential tax rate, or you can spend $60 million on your daughter's wedding. But I'm not really sure you should be allowed to do both. You could probably spend that money on the wedding and get pay the same tax rate that everybody else pays. And, you know, that's sort of like by sort of telling that true story, maybe we can like may move the conversation away from the fictional world of succession in Jane

• 50:26Speaker 05

  Austen and the sort of insane moon man world of Elon towards sort of like this broader class of people that we think are quite important. And just like, it's a big story that hasn't been told at all.

• 50:37Speaker 04

  So as we start to wrap up here, it sounds like both of you learned a lot about entrepreneurship in America and how these people achieve success. We talk a lot about policy on this show, but we also talk a lot about business and careers and how to become everywhere millionaires ourselves. What did you learn about how these people achieve success? And to what extent do you think young people can still do that today?

• 51:06Speaker 06

  There are several things. The first headline is it's better to own rather than earn. You know, it's pretty hard to get really rich getting a W2. The second thing is that, you know, most people, many young people especially, have this sense that you can create an app or get rich really quickly. But when you look at the stories that we tell in the book, that's not the model. The the main model is to kind of roll up your sleeves, get some real experience, learn how a business works, and then be in a position, maybe the owner's going to retire and they need somebody else to run it, and they're not going to give it to their kids. And, you know, find yourself in a position to be an owner.

• 51:46Speaker 06

  But it takes decades, and it takes a lot of, it's a slow process where most of these people are in their 60s by the time we see them as everywhere millionaires. And so it's not a get rich quick scheme, I think, is the the second takeaway.

• 52:01Speaker 04

  It seems like probably a lot of young people today are like, okay, how do I use AI to immediately become an everywhere millionaire? I think AI is probably a big part of that get rich quick conversation. It was certainly true of crypto, but we'll just put that to the side for a moment. Eric, AI, to what extent is that actually impacting entrepreneurship in America right now?

• 52:24Speaker 05

  So two takes on AI. I mean, our book is like a lot of these tactile, unglamorous businesses that are out in the world, people interacting with people, doing things with their hands in a lot of cases. AI is going to take a while to fully disrupt and replace that work, if it ever does. I think there's a lot of debate about it. Like, it's very good at writing code. It's very good at find and replace. And it's increasingly good at like more sophisticated, but not tactile things. So, you know, some of these industries, I could see AI being a really useful complement to doing some of the accidental work that needs to be done in starting a business, like managing customer list, filing licenses, sending marketing messages, being organized with, you know, your spreadsheet stuff and your bookkeeping and so on.

• 53:06Speaker 05

  So the business owner can focus on the essential problems of the business, which is finding a solution to the problem in the world and delivering it to customers face to face in a lot of cases. There are certain industries like these skilled services where I see more disruption because a lot of the day to day job is the kind of thing that AI is really good. And I'm very intrigued to follow, say, how the legal profession adapts to the proliferation of AI tools that do some of that stuff at a fraction of the cost. I see law firms changing quite dramatically in how they allocate talent, what they do with the young people that come to work for those law firms. And so I think in those industries where there's tons of profits, there's more room for AI disruptors, and I'm pretty intrigued to see them.

• 53:51Speaker 05

  But those are everywhere millionaires that are either going to adopt AI and stay ahead, or these sleepy incumbents like the inheritocracy we talked about, who are going to get wiped out. And it'll be very interesting to see how they get wiped out, what the new new model is.

• 54:06Speaker 04

  I think one of the new phenomena in the everywhere millionaire story is the entry of private equity firms who are buying up a lot of these businesses that you have studied. That, you know, we've all heard the story about the PE firm that's rolling up HVAC companies or dental practices or veterinarian clinics, like all of these kinds of businesses that you described. To me, private equity kind of goes hand in hand. To what extent has private equity disrupted this model? And to what extent has it made it more difficult, perhaps, for young people to become rich building these businesses on their own today?

• 54:46Speaker 06

  I think it's a good exit option. And, you know, the way that I think that interacts is that if private equity comes in and, say, finds some opportunities to cut costs and maybe make the quality of the product less less favorable. So we tell an example of a restaurant where instead of providing high quality cheese, they, you know, substitute in a cheaper, crappier cheese, then entrance might come in and say, hey, you know, this restaurant isn't what it was before. Or like for my kid's pediatrician, it was bought by private equity, and you can't see your doctor as much. And so you can imagine young doctors saying, hey, you know, we don't want that. We want to provide more services.

• 55:28Speaker 06

  And so I think there are some entry opportunities if private equity isn't doing well. But I think generally, for young people, there's a tremendous opportunity to look at this older generation of baby boomers that runs businesses, and they want to retire. And some of them have private equity stigmatized, and they don't want to sell the private equity for all the reasons that people are worried about. And so they would much rather have somebody follow in their footsteps for a few years, learn the business, and sell it to them and have the confidence that that business is going to be around for another couple of generations. And they'll do well by their employees. And so I think that is a real opportunity right now because there's a lot of people retiring or wanting to retire who have really good cash flowing businesses.

• 56:12Speaker 04

  Final question. I think this book is a lot about the American dream. I think it tells stories about people who did achieve it with a lot of asterisks and a lot of caveats. Did this book, did your work make you feel more or less optimistic in the American dream? And what is the future of the American dream?

• 56:36Speaker 05

  We are in a unique time in history where it seems like it's both provocative, it's provocative to be optimistic about the future because there's so much pessimism. And so the thing that we think has really been resonant with audiences has been this view that, oh, well, maybe it's not all hope is lost, but maybe there is room for the American dream. And I do find in these stories, Portillo's story, or Karen Bentlich's story, who started the tanning salon and then pivoted to waxing salons and built this franchise operation business, not only making herself and her husband rich, but also bringing on a lot of those general managers to be owners themselves

• 57:18Speaker 05

  and get rich that she mentored. Very inspiring. And also, what they're doing is more incremental, less innovative, but solving a real market need that maybe was missing, that is kind of replicable for somebody who wants to roll up their sleeves and do that today. It'll be in a different market because there are different consumer needs today than there were 20 years or 30 years ago when those founders started their businesses. Elon's story is kind of insane. It's sort of hard to read that story, you know, and imagine, oh, I could do what he's doing or want to do that because of the personality and the other things that come along with him. But some of these stories look a little bit more achievable in terms of their nature. They're a little bit less esoteric. They

• 58:02Speaker 05

  don't require some insane technology. And so that makes me optimistic that there will be a lot of opportunities for folks going forward in these mundane corners of the economy. And so we just want to make sure that people do have a chance. And we want to pay attention to some of the gaps that we've identified and try and figure out how to close those gaps so that there are good opportunities because it's not perfect, the system, and there are, there are risks if we don't move on them. But I'm still kind of optimistic. And I think we're sort of natural optimists about, about the American dream at this point.

• 58:34Speaker 04

  Owen Zidara is a professor of economics and public affairs at Princeton University. Eric Zwick is the Joel F. Gammender Professor of Economics and Finance at the University of Chicago Booth School of Business. Their book, The Everywhere Millionaire: Who Is Really Rich in America and How They Got There, is available now. Eric and Owen, thank you so much for your time.

• 58:55Speaker 05

  Thanks for having us.

• 58:55Speaker 06

  Thank you so much.

• 58:59Speaker 04

  This episode was produced by Claire Miller and Alison Weiss and engineered by Benjamin Spencer. Our video editor is Jorge Carti. Our research team is Dan Shalon, Kristin Adonahue, and Mia Silverio. Jake McPherson is our social producer. Drew Burrows is our technical director and Catherine Dillon is our executive producer. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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