Meet The Millionaire Class That Really Runs America

Owen Zidar · Princeton University

The 2025 pass-through deduction costs about $1 trillion with little effect on jobs or investment; it should be cut first.

The 2025 law gave qualifying pass-through owners a deduction that lets them pay under 30% instead of the 37% top rate. Zidar says it cost roughly $1 trillion. He argues this kind of provision is good at accelerating gains for owners but does little for employment and investment, so it is a poor use of revenue. He says it should be first on the chopping block in tax reform. He grounds the view in a results-based approach to fiscal policy, which asks what real activity a tax change produces.

“in 2025, there's about a trillion dollars of this large pass through deduction that basically said if you're a qualifying pass through owner, instead of paying the 37% top rate, you get to pay less than 30%. And that really has very little impact on employment and investment, and it was hugely expensive.”at 13:21

Eric Zwick · University of Chicago Booth School of Business

Tax code treats business owners' profits more favorably than wages, letting owners pay lower effective rates than salaried workers.

Owners of private businesses take most of their income as profits rather than wages. The tax code prefers that income: it avoids payroll tax, the ACA surcharge and income tax, so owners can shift salary down within the rules, with an accountant and lawyer making it defensible. Owners then pay lower effective rates than a salaried employee doing the same work in a big company. Reinvesting profits and selling the business taxes gains at lower capital gains rates, and passing the business to heirs through trusts and valuation strategies can avoid estate tax, with the basis step-up eliminating capital gains. He argues this is fundamentally unfair, because the income is still mostly labor, and it erodes public faith in the tax system.

“most of the income that you receive from that business is gonna come out not in the form of wages, but in the form of profits. And that is because the tax code prefers that income. You don't pay payroll tax on that.”at 40:44

Owen Zidar · Princeton University

Harmonizing income and capital gains tax rates would reduce tax-motivated relabeling; a large 1986-style overhaul is feasible.

Because people reclassify income to get lower rates, a natural step is to bring rates closer together so the labels stop moving taxes so much. Some preferences, such as investment incentives that have broader growth spillovers, are worth keeping, so the approach should be judicious. He argues a large-scale overhaul is more feasible than piecemeal changes, because most people can come to think the result is better than before, and cites the 1986 tax reform as a precedent that cleaned up many loopholes.

“one natural step is to harmonize rates to be closer together so that these labels won't move your taxes as much.”at 48:55

Eric Zwick · University of Chicago Booth School of Business

Occupational licensing for doctors and dentists limits competition and keeps prices high.

Zwick says doctors and dentists belong to professional guilds that use occupational licensing rules. These rules prevent others from providing services at lower cost, and they keep foreign doctors out unless they pass the residency system. The restrictions limit consumer options, make costs less transparent, and raise prices. He argues they make these professionals richer than they would otherwise be. The argument is part of a broader pattern he lists with car dealers, beer distributors and realtors.

“We talked about doctors and dentists as well. These professional guilds that use occupational licensing restrictions to prevent other people from coming and providing some of those services at lower costs”at 18:15

Owen Zidar · Princeton University

Adding doctor and nurse supply, including AI-assisted nurses and immigrant doctors, would ease healthcare cost pressures.

He argues US healthcare costs are under pressure because of a shortage of doctors and medical professionals. His proposed fixes are letting nurses do more, potentially with AI, admitting qualified immigrant doctors, and training more doctors domestically. He believes these supply increases would help with the cost pressures.

“I think we need more supply of doctors and medical professionals. That means having nurses do more potentially with AI. That means having immigrant doctors who are qualified to to come here”at 45:02

Eric Zwick · University of Chicago Booth School of Business

Tax cuts for the rich have made tax increases politically untouchable, leaving a 6-7% structural deficit.

Zwick says neither party wants to touch taxes for most people, except a small number of billionaires. That was not true in the late 1990s, when Clinton and Bush raised taxes on this group to balance the budget. Now the taxes are essentially off limits. He argues that when everything is a third rail, the result is a structural deficit of six or seven percent of GDP. He treats the political inability to raise revenue as the driver of the deficit.

“It's a third rail. And if everything's a third rail, then, you know, we end up with six or 7% structural deficit.”at 33:08

Owen Zidar · Princeton University

Rolling back the tax code to 1997 could raise trillions over ten years, mostly from high-earning private owners.

Zidar says the US has serious fiscal needs after major tax cuts. Rolling back the tax code to its 1997 state could raise trillions of dollars over a decade, mostly from the everywhere-millionaire group. That was a period of strong growth and a healthier fiscal picture. He also says it is fundamentally unfair that billionaires pay a lower effective tax rate than many of their employees, and that fixing this is reasonable. He argues that the focus must be broader than billionaires, because the owners of private businesses hold an order of magnitude more wealth. He also argues that taxes should fund science, education, infrastructure and care for the elderly and sick, and cannot do so by taxing a small handful of people.

“Even if you just do basic things like roll back the tax code to 1997, you could raise trillions of dollars over a ten year period, and it's largely from this group that we're talking about.”at 35:25

Eric Zwick · University of Chicago Booth School of Business

State and local rules, such as car-dealer franchise laws, protect local incumbents from competition.

Zwick argues that local, regional market power is a bigger problem than national platform power. Car dealers began as a protection for small distributors against manufacturers like Ford. Franchise laws now exist at the state level in most states. They bar manufacturers from selling direct and stop new dealers from entering a territory, even as manufacturing has become more competitive. Car dealers are the third-highest industry by pass-through business income. Beer distributors, realtors and MLS control show the same pattern. Zwick says the protections often began as safeguards for small players and now restrict consumer options and raise prices.

“And so the car dealers enshrine protections, franchise laws at the state level across most of the country that protect their position. You can't, as a manufacturer, sell directly to consumers.”at 16:06

Owen Zidar · Princeton University

Restaurants remain open to upstarts like Dave's Hot Chicken and Raising Cane's, unlike protected beverage distribution.

Zidar argues that barriers to entry are industry-specific. In food, the examples are Dave's Hot Chicken, which succeeded on the quality of its chicken sandwiches, and Raising Cane's, which started from a single chicken-finger idea funded through risky work. Food is intensely competitive, with healthier options and wealthy franchise owners. Beverage distribution is different: it was once easy to enter with a truck and ice, but by the 1970s thousands of applicants competed for one slot, and many states block access. Liquor licenses in some towns are scarce for the same reason. Entry is easy in some sectors and tightly restricted in others.

“So I don't think that it's dead. ... So Dave's Hot Chicken, for example, has been enormously successful because they can make fantastic chicken sandwiches.”at 23:34

Eric Zwick · University of Chicago Booth School of Business

Business owners are heavily overrepresented in elected office, especially in local and state government.

Zwick says part-time local and state offices pay very little, so business owners who are later in their careers can afford to run. They also have a stake in shaping the regulations they know well. About a quarter of the congressional tax-writing committee were private business owners. Among mayors outside major cities, the share is 30 to 40%. Business owners are far more represented in state and local government than their share of the population. He notes that the rising cost of campaigns is part of why this has happened, and that local media decline makes these rules easier to pass unnoticed.

“we think a quarter of the tax writing committee of congress was business owners, private business owners. But if you go to the, you know, mayors of the country outside of the major cities, it's like more like 30 to 40%.”at 28:40

Eric Zwick · University of Chicago Booth School of Business

Pass-through business income accounts for more than half the rise in the top 1% income share over 30-40 years.

Zwick cites the authors' research on the rise in the top 1% income share. More than half of that rise comes from pass-through business income. Business owners were already at the top, but over the last thirty to forty years they have grown richer as a share of total income. He links this to rising political power, through the cost of campaigns, who wins office, and tax cuts. He presents this as evidence that the concentration is structural and tied to the tax treatment of pass-throughs.

“over time... more than half of the rise in the top 1% income share comes from pass through business income. So not only have these folks always been there at the top, they've gotten richer as a share of sort of total activity and total income over the last thirty or forty years.”at 33:08

Owen Zidar · Princeton University

The roughly 6% realtor commission on US home purchases is unusually high and cutting it would make buying cheaper.

He notes that in America realtors take about 6% when someone buys a house, while other countries get much less of that money. He argues that reducing this regulatory barrier to competition, along with state and local barriers, would make houses less expensive to buy and help more people move forward financially.

“trying to address the 6% that only in America do realtors get when you try to buy a house. In other countries, you don't really get as much of that money going to.”at 44:29

Eric Zwick · University of Chicago Booth School of Business

AI will be slow to replace hands-on, face-to-face small business work, mainly complementing owners' admin tasks.

He says the businesses in the book are tactile, unglamorous and people-facing. AI is very good at coding, find-and-replace and some sophisticated tasks, but it is not good at tactile work, so it will take a while to fully disrupt and replace that work, if it ever does. He sees AI as a useful complement that handles admin such as customer lists, licenses, marketing messages and bookkeeping, so owners can focus on solving problems and delivering them face to face.

“AI is gonna take a while to fully disrupt and replace that work if it ever does.”at 52:44

Eric Zwick · University of Chicago Booth School of Business

AI will disrupt skilled services like law most, forcing law firms to change how they allocate talent.

He sees more AI disruption in skilled services because much of the day-to-day work is the kind of task AI handles well. He expects AI tools to do much of that work at a fraction of the cost, pushing law firms to change dramatically in how they allocate talent and what they do with junior staff. In industries with high profits there is more room for AI disruptors, and incumbents that fail to adapt could be wiped out.

“There are certain industries like these skilled services where I see more disruption because a lot of the day to day job is the kind of thing that AI is really good... I see law firms changing quite dramatically in how they allocate talent”at 53:27

Owen Zidar · Princeton University

PE cost-cutting that degrades service quality creates entry opportunities for new competitors and young operators.

Private equity buyers often look for cost cuts that can make a product worse. His examples are a restaurant that substituted cheaper cheese and a pediatrician practice bought by PE where patients can see the doctor less. These quality declines can open room for entrants who offer more service and quality. He also sees an opportunity in retiring baby-boomer owners who would rather sell to a successor who has worked in the business than to PE, which has a stigma, so the PE exit route is a real choice but has gaps for new operators.

“if private equity comes in and, say, find some opportunities to cut costs and maybe make the quality of the product less less favorable... And so I think there are some entry opportunities if private equity isn't doing well.”at 54:57