On my tax return, by far the largest source of income comes from being a co-owner of a business whose profits “go” to me as an individual without being taxed separately at the corporate level.
These types of intermediary business entities are increasingly common in the United States and can be found in many areas. Of course, to reach a certain scale, you need to be able to recruit more investors, and it would no longer work to organize yourself in relays. But for small businesses, it’s a beneficial way to organize.
The result is that in the official balance sheet of the United States, I am an example of a person who earns a high income primarily because of my status as an owner of capital. Wealth begets wealth, and the worker gets screwed.
But of course, in the real world, I work at the company I own and my blogging work is our main product.
It’s an idiosyncratic industry, but it turns out to be a pretty typical Rich Guy scenario.
That’s the message of a great new book, “The millionaire everywhere“, by Owen Zidar and Eric Zwick. They look at the list of American households that have a net worth of more than $5 million – a nice round number that represents about 4 percent of the population, or about five million households. And of those five million, about three million are what the authors call Main Street millionaires: owners of private businesses rather than CEOs or investors in giant corporations.
The average wealth of these main street millionaires is $25 million per household, and because there are millions of them, they collectively hold far more wealth than the world’s billionaires. Forbes 400. Plus, in absolute terms, far more wealth has been added here than in the Forbes 400, since the wealth of Main Street millionaires started out so large and the cohort is growing instead of being capped.
Much of the book is devoted to telling the stories of high street millionaires.
The book’s publicity states that these stories “suggest that the American dream is not dead and that many paths to prosperity remain open today.” And that’s definitely a takeaway here: you simply don’t have to get into a super-elite university and then found a tech company or work at one of the prestigious companies from the Chetty, Deming and Friedman study from the Ivy League to get rich. Indeed, if you are smart and hardworking and just want to make a lot of money, these prestige courses may be a bad idea. A very large portion of American millionaires own and operate businesses in mundane fields; they are HVAC contractors or beer distributors who outperform the competition in a defined geographic area and make big money.
But what I find most interesting about this book are its somewhat unfortunate implications for politics.
One of the problems with this proliferation of highly profitable small businesses is that they are a tax nightmare. The way the tax code really “wants” to work is that everyone works for one giant corporation. Some people earn modest salaries, others are well-paid executives, and everyone is taxed progressively. Then everyone who earns money spends some of it and saves some. The money you save earns a return in the form of capital gains or dividends, and this income is also taxed, but at a lower rate than wage income, because encouraging savings is good for long-term growth. Corporations themselves also pay corporate income tax, and this income is their revenue minus their costs.
Small business owners screw things up.
Gn bussni
