The passage of Donald Trump’s One Big Beautiful Bill Act (OBBBA), which includes over $5 trillion in tax reductions along with significant cuts to essential programmes like food stamps and Medicaid, has ignited a fierce debate about its real beneficiaries. While House Speaker Mike Johnson claims that these tax breaks are aimed at small business owners, analysis reveals that the overwhelming advantages are skewed towards millionaires and billionaires, raising serious questions about equity in the American tax system.
A Closer Examination of Tax Cuts
Following the House’s approval of the OBBBA last year, Speaker Johnson presented an optimistic view, asserting that the legislation was designed to support “small business owners” who are the backbone of American employment. This narrative, however, glosses over a crucial reality: the tax benefits from this bill predominantly enrich the wealthiest individuals, particularly those operating “pass-through” businesses.
Pass-through entities, which comprise about 95% of American businesses, allow owners to avoid the corporate tax rate. Instead, profits are taxed at the individual level, often resulting in lower tax liabilities for the wealthiest. This strategic design has resulted in billions in savings for millionaires while depriving the government of essential revenue needed for public services.
The Disproportionate Gains of the Wealthy
The financial implications of these tax policies are staggering. In 2022, approximately 57% of the $1.3 trillion in pass-through income was allocated to the top 1% of earners, according to data from the Urban-Brookings Tax Policy Center. A study from several esteemed economic institutions revealed that 35% of the deductions following the 2017 tax cuts, amounting to $54 billion, benefitted taxpayers earning over $1 million annually.
This pattern raises eyebrows, especially when considering that many proponents of these tax cuts, including Senator Ron Johnson, have personal stakes in pass-through businesses. Johnson, who sold a stake in a plastics company for millions, exemplifies how the tax code favours affluent individuals while presenting a facade of support for small businesses.
The Rise of the ‘Everywhere Millionaires’
In a forthcoming study, economists Owen Zidar and Eric Zwick will shed light on the so-called “everywhere millionaires”—ordinary professionals like dentists, lawyers, and real estate developers—who collectively hold significant wealth. Their findings suggest that for every billionaire, there are over 4,000 millionaires with fortunes exceeding £10 million, collectively amassing a staggering net worth of £46.7 trillion.
This demographic wields substantial influence within the political landscape, often overlooked in discussions about wealth inequality. Political action committees associated with industries represented by these millionaires, such as real estate and automotive, rank among the top contributors in political donations, showcasing their vested interest in maintaining favourable tax structures.
Beyond Tax Breaks: The Broader Implications
While tax reductions for the affluent are concerning, the implications extend far deeper. The manipulation of regulations to protect profit margins has led to systemic issues across various sectors. For instance, the restriction on the number of medical residency slots has resulted in a shortage of healthcare professionals, exacerbating the healthcare crisis in the United States, where 26% of doctors belong to the top 1%.
Moreover, legislative protections for car dealerships and real estate brokers prevent competition, further entrenching the financial advantages enjoyed by this wealthy class. Such policies not only enrich the elite but also stifle opportunities for those not within their ranks, creating an uneven playing field.
Why it Matters
The consequences of Trump’s One Big Beautiful Bill extend beyond mere tax cuts; they reflect and reinforce a broader economic landscape that favours the wealthy while neglecting the needs of average Americans. This legislative approach not only deepens income inequality but also undermines the principles of fair competition and social mobility. As the rich continue to benefit from policies designed to protect their interests, the foundational tenets of American democracy and capitalism are at risk, leaving many to wonder what future lies ahead for the American middle class.
