In a landscape where economic disparity continues to deepen, the tax policies spawned from Donald Trump’s administration have raised eyebrows and concerns alike. The recently passed One Big Beautiful Bill Act (OBBBA), which includes a staggering $5 trillion tax cut and over $1 trillion in reductions to essential social services, has been marked by critics as a boon primarily for the wealthy, including both billionaires and millionaires, rather than the small business owners it claims to benefit.
The Myth of the Small Business Hero
House Speaker Mike Johnson attempted to frame the OBBBA as a lifeline for “small business owners,” who he claimed are the backbone of American employment. However, this narrative glosses over the realities of the tax code, which disproportionately favours a select group of affluent individuals. The speaker’s assertions about “pass-through” businesses—entities that avoid corporate tax rates by distributing untaxed profits to their owners—serve to perpetuate a misleading image of the typical American entrepreneur.
In fact, approximately 95% of US businesses operate as pass-throughs, accounting for half of all employment and generating over half of the nation’s business income. Yet, this structure primarily benefits those in the upper echelons of wealth. The reality is that around 57% of pass-through income in 2022 was funneled to just 890,000 individuals within the wealthiest 1% of the population, according to data from the Urban-Brookings Tax Policy Center.
The Financial Impact on Government Revenue
The implications of the OBBBA’s tax cuts are profound. The introduction of a permanent 20% deduction for pass-through business income is expected to cost the federal budget a staggering $820 billion over the next decade. This figure rivals the cuts made to crucial social programmes like Medicaid. It is essential to understand that these tax breaks are not merely financial adjustments; they represent a significant shift in how government revenues are generated and allocated.
Historically, Republicans have championed tax breaks for pass-through entities. For instance, Senator Ron Johnson of Wisconsin, who himself benefited from a pass-through business, pushed for increased deductions during the Trump Tax Cuts and Jobs Act in 2017. This political favouritism raises questions about the motives behind such legislative decisions, particularly when the wealthiest reap the largest rewards.
The Influence of “Main Street Millionaires”
While attention has often been focused on billionaires, a new report by economists Owen Zidar from Princeton and Eric Zwick from the University of Chicago highlights the growing influence of “Main Street millionaires.” These individuals, including professionals such as dentists, lawyers, and car dealers, often operate under pass-through structures and wield considerable political power.
Their wealth is substantial, with estimates suggesting that for every billionaire on the Forbes 400 list, there are more than 4,000 millionaires worth at least £10 million. Collectively, these millionaires hold a net worth nearly 12 times that of the wealthiest billionaires. Their political clout is evident, with various political action committees affiliated with these groups ranking among the highest in campaign contributions.
The Broader Consequences for Society
The ramifications of these tax policies extend beyond immediate financial gain for a select few. They foster an environment ripe for monopolistic practices and regulatory capture. For example, medical and auto dealership sectors have successfully lobbied for laws that protect their interests, stifling competition and limiting access to services. This has real consequences for everyday Americans, from a shortage of medical professionals to inflated car prices.
Moreover, as these powerful groups consolidate their influence, the gap between the wealthiest and the average citizen continues to widen, threatening the fabric of American democracy itself.
Why it Matters
The tax policies instituted under the Trump administration represent more than just financial adjustments; they reflect a broader trend of prioritising the interests of the affluent at the expense of essential public services and everyday citizens. As society grapples with mounting inequality, it is crucial to scrutinise how these policies shape our economy and influence political power dynamics. The OBBBA serves as a stark reminder that while the rich may continue to thrive, the middle and lower classes bear the brunt of the economic fallout.
