The recent passage of Donald Trump’s One Big Beautiful Bill Act (OBBBA) has ignited a fierce debate about the implications of tax policy in the United States, particularly its disproportionate benefits for the wealthiest citizens. While House Speaker Mike Johnson asserts that the legislation primarily aids small business owners, a closer examination reveals that the act is a significant boon for millionaires and billionaires, perpetuating an economic system that favours the affluent at the expense of broader fiscal health.
Tax Cuts for the Wealthy: The OBBBA Overview
The OBBBA, which features over $5 trillion in tax reductions coupled with approximately $1 trillion in cuts to essential social programmes like food assistance and Medicaid, has been hailed by its proponents as a necessary measure to stimulate job creation. However, the reality is that the bulk of these tax cuts predominantly flows to the richest Americans, undermining the very fabric of equitable economic growth.
Johnson’s rhetoric, which paints a picture of the “small business owner” as the quintessential American job creator, glosses over the fact that around 95% of U.S. businesses operate as pass-through entities. These businesses, which include a vast array of professions from law to real estate, allow owners to bypass corporate taxes altogether. Instead, their profits are taxed at individual rates, often significantly lower than corporate tax rates, leading to a loss of substantial revenue for the government.
The Pass-Through Advantage: A Closer Look
The implications of the pass-through business structure cannot be overstated. In 2022, a staggering 57% of the $1.3 trillion in pass-through income was claimed by just 890,000 individuals within the wealthiest 1% of the population, according to data from the Urban-Brookings Tax Policy Center. A study by academics from the Treasury Department, the Federal Reserve Bank of Minneapolis, and Dartmouth College revealed that approximately 35% of tax deductions following the 2017 tax reform benefitted earners with incomes exceeding $1 million, translating to a staggering $54 billion in tax savings for this elite group.
Moreover, the 20% tax deduction on pass-through profits established in the OBBBA allows affluent owners to enjoy a top effective income tax rate of just 29.6%, far below the 37% rate applicable to wage earners. This disparity has profound implications for income inequality and the overall economic landscape.
The Political Influence of ‘Everywhere Millionaires’
As the upcoming research by economists Owen Zidar and Eric Zwick reveals, there exists a substantial cohort of “everywhere millionaires” — individuals such as dentists, car dealers, and real estate developers who often operate under the radar of public scrutiny. For every billionaire listed in the Forbes 400, there are over 4,000 individuals worth at least $10 million. Collectively, their wealth totals approximately $46.7 trillion, dwarfing that of the billionaire class.
These Main Street millionaires exert considerable influence over economic policy, often through political action committees associated with their industries. Notable examples include representatives from the National Association of Realtors and the National Automobile Dealers Association, both of which have been pivotal in shaping legislation that favours their financial interests. This political clout extends to the very heart of tax legislation, where the interests of these millionaires are frequently prioritised over the needs of average Americans.
Economic Consequences of Tax Policy
The ramifications of such tax policies extend beyond mere fiscal imbalances. For instance, regulations that limit the number of new doctors entering the medical field have resulted in a shortage of healthcare professionals, contributing to the alarming statistic that 26% of American doctors belong to the wealthiest 1%. In contrast, countries like Sweden boast a significantly lower percentage of wealthy doctors, reflecting a more equitable distribution of economic power and access to healthcare.
Furthermore, entrenched interests among various industries have led to monopolistic practices that stifle competition and innovation. From car dealerships benefitting from franchise laws that protect their market share to real estate agents capitalising on privileged access to listing information, the existing framework favours wealth concentration rather than fostering a dynamic economy.
Why it Matters
The economic landscape shaped by Trump’s One Big Beautiful Bill Act underscores a critical paradox within American society: while the narrative of meritocracy prevails, the reality is a tax system that disproportionately favours the wealthy under the guise of promoting small business growth. Addressing these disparities is not only essential for achieving fair economic policy but also for ensuring that the American Dream remains attainable for future generations. The urgency of this issue cannot be underestimated, as the ongoing entrenchment of wealth among a select few risks destabilising the very foundations of democracy and economic opportunity in the United States.
