Recent developments surrounding the One Big Beautiful Bill Act (OBBBA) have reignited debates about tax policy in the United States, particularly regarding its implications for income inequality. Following the House’s approval of this sweeping legislation, which rolled out over $5 trillion in tax cuts while simultaneously slashing over $1 trillion from vital social programmes, critics are questioning who truly benefits from such fiscal decisions.
The Narrative of the Small Business Owner
House Speaker Mike Johnson has made headlines by asserting that the OBBBA is not a windfall for the affluent but rather a lifeline for “small business owners” who he claims are the backbone of American communities. This narrative paints a picture of hardworking entrepreneurs struggling to make ends meet, yet it diverges significantly from the reality that many of the beneficiaries are wealthier individuals capitalising on advantageous tax structures.
At the heart of this discussion are “pass-through” businesses, which constitute about 95% of all American enterprises. These entities allow profits to bypass corporate taxation, with owners instead paying lower individual tax rates. As a result, this tax treatment leads to substantial savings for many wealthy individuals, allowing them to retain billions that would otherwise contribute to government revenue.
The Numbers Speak for Themselves
The economic realities of this tax system are stark. According to the Urban-Brookings Tax Policy Center, a staggering 57% of the $1.3 trillion in pass-through income generated in 2022 was claimed by just 890,000 individuals in the nation’s top 1%. Furthermore, a study conducted by researchers from the Department of the Treasury, the Federal Reserve Bank of Minneapolis, and Dartmouth University revealed that a remarkable 35% of the tax deductions following the 2017 tax cuts—totaling around $54 billion—benefited taxpayers earning $1 million or more.
It is important to note that proponents of these tax breaks, including Republican Senator Ron Johnson, often have personal stakes in this system. Johnson himself profited from a pass-through business, amassing significant wealth through these very channels. As the political elite continue to advocate for tax cuts benefiting small businesses, their financial interests hint at a deeper conflict of interest.
The Overlooked Influence of Main Street Millionaires
While much attention is focused on billionaires, a burgeoning class of “Main Street millionaires”—those with net worths exceeding £10 million—often operates under the radar. Economists Owen Zidar of Princeton and Eric Zwick of the University of Chicago are set to publish a comprehensive analysis of these individuals, highlighting their substantial influence in the political landscape. For every billionaire listed in Forbes, there are over 4,000 millionaires, collectively worth an astonishing £46.7 trillion.
Their political contributions are significant, with various Political Action Committees (PACs) representing real estate, automotive, and other sectors ranking among the top donors. This financial clout allows them to maintain and enhance their privileges, often at the expense of wider societal needs.
The Broader Implications of Tax Policy
The repercussions of such tax policies extend beyond immediate fiscal advantages for the wealthy. For instance, legislation from years past has limited the number of residency positions funded by Medicare, creating a bottleneck in the healthcare system that ultimately affects access to medical care for ordinary citizens. Similarly, franchise laws and restrictive practices in several industries shield established businesses from competition, thereby perpetuating systemic inequalities.
While it is easy to focus resentment on billionaires like Elon Musk, it is essential to recognise that the legislative framework often favours those further down the wealth spectrum. The OBBBA, which controversially eliminated subsidies for electric vehicles, exemplifies how legislation can disproportionately benefit car dealerships and other entrenched interests rather than fostering genuine competition or innovation.
Why it Matters
The implications of these tax cuts are profound, affecting not only the fiscal health of the nation but also perpetuating a cycle of inequality that stifles competition and innovation. As policymakers navigate the complex terrain of fiscal reform, it is crucial to scrutinise who truly benefits from their decisions. The OBBBA serves as a poignant reminder that tax policy can be as much about political patronage as it is about economic necessity, and understanding this dynamic is essential for creating a fairer system that benefits all Americans.
