In the wake of the House’s approval of Donald Trump’s One Big Beautiful Bill Act (OBBBA), which encompasses an extensive $5 trillion tax reduction alongside over $1 trillion in cuts to essential social services, a critical examination reveals that the legislation disproportionately favours the affluent. House Speaker Mike Johnson’s assertion that these tax cuts primarily benefit small business owners stands in stark contrast to the data indicating that the wealthiest individuals, particularly multimillionaires, are the principal beneficiaries of this fiscal overhaul.
The Myth of the Small Business Beneficiary
Johnson’s narrative paints a picture of small business owners as the backbone of the American economy, a notion that has gained traction over the years. However, a deeper analysis uncovers a more troubling reality: the majority of the tax benefits are channelled towards “pass-through” entities—business structures that allow owners to evade corporate taxation by claiming business income as personal income. This loophole significantly reduces their tax liabilities, allowing a disproportionate share of the benefits to flow to the wealthiest individuals.
Approximately 95% of American businesses operate as pass-throughs, employing half of the nation’s workforce and generating over 50% of the total business income. The absence of corporate tax obligations results in billions saved for their owners, who often enjoy lower individual tax rates. According to data from the Urban-Brookings Tax Policy Center, a staggering 57% of the $1.3 trillion in pass-through income reported in 2022 was accrued by just 890,000 individuals within the top 1% of earners.
Legislative Support for Wealthy Interests
Republican support for pass-through deductions has been unwavering, with pivotal figures like Senator Ron Johnson advocating for enhanced tax benefits for these businesses. During the 2017 Tax Cuts and Jobs Act negotiations, Johnson leveraged his position to increase the pass-through income deduction from 17% to 20%. This deduction, now embedded in the OBBBA, is estimated to cost the federal budget $820 billion over the next decade—almost equivalent to the cuts made to Medicaid.
The tax structure established by the OBBBA allows pass-through owners to pay a top income tax rate of merely 29.6%, significantly lower than the 37% rate imposed on wage earners. This disparity illustrates the regulatory mechanisms that perpetuate wealth concentration among the affluent, as multimillionaires leverage their political influence to shape tax policies in their favour.
The Rise of the ‘Everywhere Millionaires’
Upcoming research by economists Owen Zidar and Eric Zwick sheds light on a demographic often overlooked in discussions about wealth inequality: the “everywhere millionaires.” These individuals, ranging from dentists to car dealers, have amassed considerable wealth, with an estimated four thousand of them for every billionaire on the Forbes 400 list. Collectively, their net worth amounts to an astounding $46.7 trillion, dwarfing the wealth held by the nation’s billionaires.
This class of millionaires wields significant political power, as evidenced by their contributions to political action committees and their presence in key legislative committees. Figures like Don Beyer, Vern Buchanan, and Mike Kelly—wealthy car dealership owners—actively participate in shaping tax policy, undoubtedly favouring measures that enhance their financial standing, including the pass-through deductions.
The Broader Consequences of Tax Policy
Beyond immediate financial implications, the influence of affluent interest groups on policy-making poses broader risks to the socio-economic fabric of the United States. Historical precedents indicate that professional groups, such as doctors, have manipulated policy to restrict competition and maintain high earnings. For instance, regulations limiting the number of Medicare-funded residency positions have contributed to a shortage of doctors in the U.S., underscoring the detrimental effects of self-serving legislation.
Additionally, car dealerships benefit from franchise laws that prevent market competition, while real estate agents exploit monopolistic practices. These developments highlight a system that not only favours the wealthy but also stifles competition and innovation, further entrenching economic disparities.
Why it Matters
The implications of Trump’s One Big Beautiful Bill Act extend far beyond tax cuts for the wealthy; they encapsulate a broader trend of legislative capture by affluent individuals, which threatens the integrity of American capitalism. As tax policy increasingly favours the rich, the economic divide widens, undermining the very principles of competition and opportunity that underpin a flourishing economy. Understanding the intricacies of this legislation is crucial for fostering a fairer economic landscape that prioritises equity and inclusivity over the interests of a privileged few.
