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In a striking move that has sparked debate, the House of Representatives recently passed Donald Trump’s “One Big Beautiful Bill Act” (OBBBA), which promises over $5 trillion in tax reductions. Critics argue that this legislation predominantly favours the affluent, with significant cuts to essential social services like food stamps and Medicaid, raising concerns about equity in America’s tax system.
Tax Cuts That Benefit the Wealthy
House Speaker Mike Johnson attempted to reframe the narrative surrounding the OBBBA, claiming that the bill primarily benefits “small business owners” rather than millionaires. He asserted that these entrepreneurs are the backbone of American job creation. However, this perspective glosses over the reality that many of these “small businesses” are indeed pass-through entities, which overwhelmingly serve the wealthiest individuals.
Approximately 95% of American businesses operate as pass-through entities, allowing owners to bypass the corporate income tax. Instead, profits flow directly to their owners, who are often taxed at lower individual rates. This structure has resulted in substantial savings for the wealthiest, with a staggering percentage of pass-through income accruing to the top 1% of earners.
The Financial Implications of Pass-Through Entities
The implications of this tax structure are significant. According to the Urban-Brookings Tax Policy Center, around 57% of the $1.3 trillion in pass-through income for 2022 was concentrated among just 890,000 individuals in the richest 1% of the population. Moreover, a study conducted by economists from the Department of the Treasury, the Federal Reserve Bank of Minneapolis, and Dartmouth University revealed that 35% of the tax deductions following the 2017 tax cuts—totalling around $54 billion—benefited those earning at least $1 million annually.
These figures underscore the extent to which the current tax system favours the wealthy. The permanent 20% deduction for pass-through profits introduced in last year’s tax cut could cost the budget up to $820 billion over a decade, almost equalling the cuts made to Medicaid.
The Influence of Main Street Millionaires
Interestingly, the narrative surrounding the ultra-rich often overshadows the influence of those who fall just beneath them—Main Street millionaires. Economists Owen Zidar and Eric Zwick are set to release a comprehensive study that highlights the prevalence of these affluent individuals, who include professionals such as dentists, lawyers, and real estate developers. They estimate that for every billionaire in the Forbes 400, there are over 4,000 millionaires worth at least £10 million, collectively amassing nearly £46.7 trillion in wealth.
These individuals have a prominent voice in politics, often leveraging their financial influence to secure favourable tax treatment. Political action committees associated with industries like real estate and automotive have emerged as major players in the financing of political campaigns, underscoring the significant impact of Main Street millionaires on policy-making.
The Broader Implications for American Society
While tax breaks are certainly a priority for the wealthy, the ramifications of such policies extend far beyond financial gains. For instance, the limited number of residency positions funded by Medicare—a decision driven by doctors—has contributed to a healthcare system that lags behind other developed nations in terms of doctor availability. This ultimately affects patient care and outcomes.
Additionally, various industries, including automotive and real estate, benefit from regulations that protect their market positions, stifling competition and innovation. These practices serve to entrench the privileges of the wealthy, creating barriers that limit opportunities for others.
Why it Matters
The passage of the One Big Beautiful Bill Act illustrates a troubling trend in American tax policy, where the interests of the wealthy are prioritised at the expense of broader societal welfare. As tax cuts disproportionately benefit the affluent, essential services are being undermined, raising critical questions about equity and the future of social mobility in the United States. If left unchallenged, such policies may entrench economic divides, limiting opportunities for the average American and exacerbating inequality.
