There's a Mind-Boggling Number of Rich People in America | Odd Lots

0:00 John Usher's so funny. The doctor. John. He's not a doctor who started the $5 electric toothbrush, and sold that business after having sold other businesses before and probably had enough money before starting that business. But he tried to take up golf from Florida. He's like, so bored by it. Maybe not a great swing, I don't know, but, went back and started this $5 toothbrush business in the.com era, which is exactly the kind of company you would think would make you hundreds of millions of dollars during the.com era.

0:29 It's only $5 electric toothbrushes. but that's what he did because he just, like, couldn't sit still. I mean, he was a had a personality, clearly, because, like, even as a kid, his first business was, Don't tell your son you're not going to media. No, no, no, no sources here. Hello and welcome to another episode of the All Thoughts podcast. I'm Tracy Alloway and I'm Joe Weisenthal Joe.

1:00 I've a very exciting episode for you today. Go on. We are going to be talking about pastors as cause this is in the US tax code. This is so great. I'm so excited about this because I remember during some of those, tax cut negotiations and you have who's that? I think it was a senator from Wisconsin, Ron Johnson, and he was like, oh no, I don't know which one it was. But he was like, oh, we really need to preserve some pass through. And I didn't learn about it.

1:27 And then, then I was like, well, you know, whatever. And then I've missed it. That was a great. So finally, here in 2026, I can learn about something that I really should have learned in December of 2017. Well, actually, I'm glad you said that, because this is sort of the thrust of what this entire conversation is going to be, which is when we talk about tax breaks for the wealthy we normally talk about, or we think about Jeff Bezos paying like 0% income tax or something like that, but actually a lot of the tax cuts, that we've seen, I guess, since the 1980s and now most recently under the Trump administration, have been for eskers for these pass through entities which generally get framed as small businesses. That's right.

2:09 But as it turns out, a lot of these businesses are actually phenomenally large and very, very wealthy. Yeah, there's a few things that I think are really interesting here. So obviously, people just like, love the sound of small business, right? Like small business makes people feel good, whatever it is people like, it's sort of it's something aesthetically nice about something very American as well. So you think about talk, though, and his big impression of America was, oh, it's this nation of entrepreneurs. Yeah.

2:38 So there's something about small business that feels good, etc.. The other thing that I'm really interested in, and I brought this up a couple of times on the podcast. You know what? Well, I think when a lot of people think about the United States or the American economy and the sort of distribution of wealth and income and so forth. There is an incredible, you know, there. People talk about inequality and then they think, okay, there's like a 1% or 0.1 percent.

3:03 It's insanely wealthy. You mentioned Jeff Bezos and a handful of others like that, and then people are aware of the fact that for a country as rich as ours is probably unacceptably high levels of like poverty, and people perceive there correctly to be a lot of people who are financially struggling, etc.. But I always think that like, the missing thing is like that fat layer of rich people and the fact that the I'm always reminded by it, you know, we're recording this September 9th, I think by the time people listen to this will have already been there.

3:37 But whenever we go to Southern California and I have Orange County, Huntington Beach, you just see, like all these people with boats and you see all these people you go to, like a steak house or something, and they have their own private like wine locker at the steakhouse. And it's like there's a lot of rich people. Yeah, they're not all like the tech billionaire. They're not all on the Forbes 400 or whatever that layer. And I of like, just really rich people. And they're not people who made some great invention etcetera necessarily, or some great huge breakthrough.

4:12 But like whether it's like real estate or cars or just some sort of simple business. A lot of really rich people in this country. Yeah. And we should talk about them, try to figure out who they are, how many of them there actually are. And the one other thing I would also add that makes this sort of a very awful episode is we talk a lot about the private markets, right? Private credit, private markets, private equity. And often when we are talking about those specific businesses, we are talking about these types of businesses.

4:41 So, you know, a private equity firm, you think of it as this Wall Street entity, but it owns a portfolio of, I don't know, HVAC companies in Missouri or something. And the last thing I'll say, and I don't know how much we'll get into this part per se. But like if you think about, I don't know if like the dark matter of American politics, etc., you know, like privately owned companies are often or the owners of privately owned companies, some regional beverage distributor or something like that are often very important figures in regional politics.

5:12 And senators, if you want to get your handle on that, should sort of know who these people are and how they got there. We'll get into that, definitely. So I'm happy to say we do, in fact, have the perfect guests. We're going to be speaking with the authors of the new book, The Everywhere Millionaire, who is really rich in America and how they got there, and the authors are Owens at are professor of economics at Princeton, and Eric Swick, professor of economics and finance at Chicago.

5:36 Booth. So thank you both so much for being here. Thanks for having us. It's great to be here. It's a great book. When I was reading it, I was thinking, it's sort of like a stud, like an upscale. Studs Terkel, you know, you have all these stories of millionaires and how they actually got there. But the origin story of this book is something I wanted to ask you about, because it also sits squarely within our plots territory.

5:57 When we talk about, I guess, what a mess government data and technology tends to be. Because this book started with a project, a commission by the Treasury Department to try to sift through IRS data to figure out who these people actually were and how many of them there are. Talk to us about what you found when you started that project. Yeah, so we started more than a decade ago, commissioned by the Treasury to go into the bowels of the Treasury and work with tax data to try and link all the businesses to their owners and workers because they didn't have the ability to do that, and they needed it to do tax policy to sort of think about what if we change the tax code, how much tax these pass through businesses pay? they didn't have the capacity to do that because the data weren't connected. And so that was the original kind of sin of our project. That was the foundation of our project was to sort of build this data that, as we continued to expand it, add years, different types of, layers on it by looking at just the entrepreneurs, for instance, we could start to see, oh, there's actually a picture of income, wealth, entrepreneurship, prosperity.

7:06 in the American economy that is very different than the picture that we were getting from the media, the picture we were getting from the Capitol book and so on. And so that's sort of the beginning was that kind of nerdy tax data project, the computers, the, databases, the XML and so on, which we can talk more about. But, but that's where we started. Well, I wanted to ask about the databases, actually, because it just sounded like a nightmare the way you described it. And then there's this funny moment in the book where you basically, like, randomly find the guy who kind of built these systems and understood them and was able to help you wrap your head around them. How difficult was this?

7:43 I mean, so the the underlying data are basically everything on a tax form. So, you know, you can have information about the business, you can have investors in the business. You get money going to them. They're not made to be linked and many of them aren't electronically filed. I guess when you say they're not made to be linked, can you what's their separate data. So they're just different forms, you know. So when you say Joe and Tracy had the an S Corp and you own at 5050, you can file the businesses form and then, you know, you have to file, an investor form.

8:18 That is right. Half the profits are going to Joe, half the profits are going to Tracy. And the way they set up the identifiers aren't made where you're supposed to be able to add up all the things from investors. And that should add up everything from the business. So the story, about how we figured out how to do this, we're going through old code books, like things were called different variable names. And Eric, I don't know if you want to tell the story about going to, obscure part of Utah.

8:44 Yes, I'm like, giving a talk, at Utah State. And I knew that one of the guys who designed the XML system, that when people electronically filed their tax returns, it's sort of like the formula for converting those tax returns into rows and columns that then get processed. lived on the way from the airport to the lecture I was giving. So I was like, can I come and just ask you some questions? And so I met him for lunch.

9:11 We had burgers. You thinking, I was thinking, okay, this is gonna this is, I was imagining, like, in the matrix, you know, like, you go see the Oracle, and it's like this old lady, you know, is like the spoon is bending. You know, I was imagining, like, some guy who, like, like, kind of a hermit is like someone knocking on doors, like, why are you here? What do you, It's like, that's not me. And then finally, after.

9:30 No, I keep going. He was a super reasonable. He was kind of wearing, like, a flannel shirt, as everyone in Utah seems to. Do you want to have a beer at lunch? And I was happy to join him. And I had my, like, list of 25 questions that are like very intricate questions about the structure of this database. We had to rearrange columns in order to create the links to match, like the business forms of the individuals.

9:53 We didn't know what any of these columns were. And what year was this, by the way? Like this is like 20 1415. So yeah. So you can't ask Claude to read the manual and read the code. There's no way to do that. There's no documentation. There's just like this knowledge in people's brains that you have to find to try and do this link. And there were other people who kind of knew some of these details, but we couldn't really get to the bottom of it until having a burger and beer with the architect. I did this sort of a diversion, but I feel like I've read so many, NBER working papers, which include the line we exploit a novel data set. How much of economics is like finding a novel data set? Like, you know, we think of it as like, oh, maybe we're going to apply some econometrics or theory of whatever.

10:42 How about you just, you know, as professional economists, is it about finding that data? I think it's an important part, but it's also you need to ask an important question. And if you are thinking about how do people get rich and you only see a small sliver of how it actually works, and then suddenly you can say, you know, there's a thousand private business owners that have $25 million for every large public company CEO. Like, we've missed all of these people.

11:07 And now, for the first time, you can trace back, where did these people come from? Like, what are they doing? How did they do it? That, I think, opens it up and opens up a lot of work where I think you're right. Like, there's, one of our one of Eric's advisors, Andrew Slifer, teaches a class at Harvard, and he basically gives the college students the assignment, like, find me a cool data set, and, like, that's cool how you write the paper. It's like, show me something I haven't seen before. So there's certainly something to find, a novel thing to get a hook on, something we care about.

11:35 Yeah, but figuring out the question to ask with that data is kind of the trick. Like the data is sitting there like, oh, we can use this to understand inequality. Okay, maybe this is like jumping forward, but just finally really give me what is passed through me. Like I finally like I'm just going to ask it when we talk about like, oh, this isn't a really wants to preserve or expand the pass through induction, what are we talking about here? So pass through businesses are different than traditional corporations. So if you look at like a typical public company like GM, the rest of the corporation, they face the corporate tax. So when they make profits they have to pay the corporate tax. And then if they want to send money to individual investors, they have to pay dividends.

12:18 Pass through are a different part of the tax code where you don't have to face the corporate taxes. The profits and losses go directly to the owners, and they weren't that big of a deal. In the 80s, the lion's share of profits and activity were in traditional corporations. And then after Reagan cut taxes in 1986 for an individual is lower than corporations. That suddenly became the most attractive way to organize yourself. And so we've seen this huge boom and pass through entities where that's the vast majority of businesses in America and like half of profits.

12:51 So, okay, once you figured out the IRS code and, got the, I guess, IRS servers that seem to be run by hamster spinning on wheels to actually work, what were your findings about wealth in America? So this income is among the most concentrated so past their business income, 70% of every dollar passed. Their business income goes to the top 1%. And if you look at the rise of income inequality, so like the famous graph, top 1% share of income from Piketty and Sy is going back to the 1980s, more than half of the growth from that period of time to the, you know, 2021 is coming in the form of pass through business income. Do you want to understand what's driving income inequality and wealth inequality? Because, you know, it's sort of a parallel story there. you really have to understand this past their business sector. Like, what is the nature of this activity? We knew was past their business income.

13:41 We didn't really know if this is like monopoly, man. Big business. Yeah. You know, they're just passively collecting the income or what we turned out to find it was sort of these mid-market regional businesses, of which there were just millions of them across the country. and that was kind of like the second huge finding about, you know, who these passthrough business owners were and what they're doing. Oh, you want to tell them, like our mnemonic from reading our kids like little books? Yeah.

14:09 So I have three young kids. Eric has one young kid, and we're half jokingly thinking about writing a kid's book of the ABCs of getting Rich. Yeah, just go through and have a fun fact on each of them. And so A is for auto dealer. B is for beverage distribution business owner and then C is for contractor. D is then you know we could go through we actually did it. We haven't made the book. You got to do it. Can I just say my son is obsessed with money. And finally you know he's like really shocking. Yeah.

14:35 Where does he get it? I don't know. I know it's like he's always scheming. So he would love this book. Okay. Please write it. Okay. Pastor. Podcaster. Oh, yeah. All right. So give us an example that like, let's dive into a specific one. And I'm just going to choose car dealerships because this is an interesting one. I think everyone knows how a car dealership theoretically is supposed to work. And I don't think you normally think of used car dealers as super wealthy. And yet you have a lot of examples in the book of people who have accumulated millions, if not sometimes billions, from this business. So the book opens with The Wedding of the century, which is, a wedding. Bob and Paul Brockway, coral Gables, Florida. they sent their daughter to first to the island. Gary, for the bachelorette party was a four day party where they dressed up like Marie Antoinette.

15:30 But then they flew all the guests to Paris for a five day wedding. I'm on private jets. They rented, Versailles. Not for the wedding, but just for, like, here we talked about here. This was 2014. No, no. No worries. In 2023, 23, 23, 23, 24. Yeah, this was 2023, 2024 a few years ago. And it was all over social media. I remember this the wedding of the century. Adam Levine sang the first dance. You can see the Eiffel Tower illuminated in the distance.

16:01 And, their car dealers, third generation car dealers from Florida, the Mercedes dealer. And they had just sold the dealership, for several hundred million dollars to, actually a consortium that Nick Saban was a co-owner of. but they dropped $60 million on his wedding. and, you know, they're not even close to the top of the list in terms of the most prodigious car dealers in the country. So when we like zoom out and look at the industries that generate the most pass through business income and the top point 1%, the auto dealers were the number one bucket, which we were like, okay, this is not the Piketty story of like billionaire tech or finance.

16:37 This is something different. What are these car dealers doing? Or as an example, industry. and then we found them even more when we started looking in like yacht and jet registration data. They just own all these yachts and jets. And that's how we found them by name. Because the tax data that we were talking about before, we couldn't identify people that way. So when we set out to write the book and tell a bunch of stories, okay, let's find other data sources.

17:01 We know the rough signatures, we know where to look. but let's find the people by name so we can tell a little bit more of their background, their story. I love that looking at yacht registries to find rich people, it makes sense, but I'm guessing not many people have done it before. I'm curious, like from, pure like economics perspective, when we think about, let's say, someone's salary. And so, okay, here is a really talented person. Maybe they're really great with computers. Maybe they have a lovely voice that sounds great on podcasts and they're like, okay, this is maybe a rare skill, etc. so they're going to get a lot of money.

17:38 Or maybe we think about like someone who makes a great invention or whatever, and everyone wants to buy it and they get a slice of it. And so they make a lot of money. Let's just stick with car dealers, for example. How would you characterize what these very successful car dealers have brought to the table, such that the economy has rewarded them with such riches? So that's a great question, I think, only to tell two stories of car dealers that kind of give, a flavor of the complexity, even within car dealers. So one of my favorite ones is a story we tell in the book. it's about Larry Miller, and Larry Miller is from Utah. He basically worked in the parts department at a Toyota, and he learned every single, almost like your Aldi guy.

18:24 he, like, knew all the parts. and he turned it from the 961st best dealer of parts of Toyota parts to the first. And he's killing it. He really is good. He started managing, a couple different dealerships for the owner, and then he sits down at a Denny's, and the owner is like, hey, you know, I know the plan was for you to run things, but it turns out that my sons need to run it. Sorry. and he, like, you know, on his heels. He eventually find somebody else to buy one dealership and that becomes two dealerships and eventually 40 something dealerships. And he buys the Utah Jazz.

19:01 And so that is like, you know, the good story. He developed some skill. He really was actually on that last point. Can you clarify? Okay. So he really gets to know the parts better. Yes. Anyone else. Can you actually just operationalize that a little bit more. What he contributed to the market so to speak, such that either in his first place of employment or at his own entrepreneurship, He goes. They go from 961 to 1 or whatever it is.

19:28 Yeah. So I think it's, you know, when you're dealing with customers, it's being really responsive, understanding what they need and just, you know, being hardworking and diligent and delivering and, having a reputation for, okay, if I have, some need, I'm going to go to this guy. And it grew over time. And that's one, you know, broader lesson of the book is that it takes a long time. you know, in contrast to the Silicon Valley, move fast and break things. It's off and move slow and make things.

19:55 It takes decades, often. So that's that's kind of, in my view, Larry Miller's The Good Case. But the more troublesome case, where you have more regulatory capture or other, auto dealers who are quite protected and I can go in the we can go in the history of auto dealers if you want, but the short version is like they have a bunch of legal protections that were meant to protect the little guy from big manufacturers of auto companies. You know, Ford or GM might put a bunch of cars on your lot and that was hurting the small guy.

20:27 So over, series of decades, there are a bunch of franchise protections. And then if you go forward to, say, 2008, when we had, financial crisis. Yeah, you know, the auto team had, deal with the situation where Chrysler, for example, had three times as many dealerships as Toyota, even though they sold the same number of cars. And so they had all these extra dealers. And why did they have them? It's because they have a bunch of protections where you have to pay them off.

20:54 You have to pay three years of rent and a bunch of things that really don't make sense. And so there's a lot of protections from local competition. There are pretty sweet deals that were in the name of protecting the little guy that don't make a lot of economic sense. And so I think some of it is rents, in the form of the state laws that help dealers. And both of those things are true. And that's partly why things are complex, is that you can have stories like Larry Miller, and you can have regional auto dealers that are getting more money than they probably would, because they're getting paid a lot for warranties, for example, that are a little more than what the market would would pay them otherwise. And they have a local monopoly, sort of like you can, you know, you can't sell the Toyota within a geographic boundary of the existing dealership. And the manufacturer is very limited power to affect that competition. Any way to introduce.

21:42 So there's really barriers to entry. That's a big part of it. And then they sell these ancillary services in the dealership where the markups are much higher than on just the immediate sale of the car. So you know, the warranty repair, the financing is a big source of profits, I think, for the dealers. And it's like, well, you know, are you going to buy the you can get the loan at the dealer, you're going to go to a bank separately when you're buying the car. They're on the lot.

22:05 So that's like first mover advantage to sell all these ancillary services. I think it's a huge part of like the margins and the profitability of these dealerships. And as the economy grows you still this like fixed and trim, you know, and like you can't get a car through any other pipe other than through that pipe, and so they just grab a chunk as it's passing through. Yeah, this was really interesting to me in the book because we're used to thinking about antitrust or competition issues as these like big national scale companies.

22:34 But actually you talk a lot about sort of regionalized, competition problems, which was very interesting. I have a bunch of other questions, but I want to ask you one more just on sort of local regulatory protections and loopholes. Can you talk about beer distribution? Because that was a really interesting thing, one to me. We were very amused by the beer distribution. So one of the things for folks that are listening, if you're like walking, like I walked from my home to the office and, passed by a truck that says Budweiser on the side. You know, Budweiser doesn't own that truck, a distributor does. You look on the door and there's the name of the distributor you might see raise or somebody like that.

23:12 Yeah, these are incredibly wealthy businesses that sit between manufacturers and end users, like bars, restaurants, groceries, and so on. And depending on the state, similar to the auto dealers or these franchise protections. So you have to pass through the distributors and these way these contracts get protected. So then, you know, as demand for beer grows, the distributors just sort of like in the middle, this middle tier was again sort of protecting, you know, the little guy from the macro brewers. Yeah.

23:39 But over time these little guys have become really big guys. and, you know, the idea was you didn't want the big brewers to dominate distribution as well as the actual selling of the product. That's right. And it sort of emerged post prohibition as this, like sort of system. Let's avoid this is a situation where, the manufacturers have so much power over the rest of the system in terms of what is available, but then the distributors end up having just a ton of power and they get, super rich. They show up with in the jet data a lot.

24:10 And there was this like conference in San Antonio, and the mayor called the, Lobbyist who organized the conference just like that. You know, this is amazing. I never seen so many jets at the San Antonio airport as when the beer wholesalers were there. You mentioned a disagreement or a different interpretation than Capitol picking in size, etc.. What is the essence of the conclusions or the things that you've discovered that you feel like someone coming at the wealth inequality question from their work.

24:41 You would have a different interpretation of it, but we've never actually had either one of them on the show, so maybe we'll get them on, soon, because we should. But what is the sort of the crux of how you see things differently? So we joke that our book is kind of like picketing with people. If you happen to read capital, which is a difficult read, I think we actually also joke that our book we wrote so people could read it, not just collect it, because that book, it's a really good read. I'm just going to reiterate that.

25:07 Yeah. So it's like we're going to have, you know, that book is like the top 1% of this kind of nameless, faceless entity, this blob. and they're just generating capital income. And so you kind of are meant to think about almost Gilded Age monopolists who have massive companies and are just collecting the rents or the capital income or the interest or whatever. And, it's it's about this accumulation of massive troves of wealth that are generating this almost passive return.

25:32 And we're saying, well, actually, when you look at the data, it's actually more this like these millions of private business owners who are actively owning and operating businesses, in large case, they're concentrated portfolios. Really, the business is kind of the main asset. And, and it's not really just financial capital. It's kind of like human capital is a pretty important part of it, broadly defined. It's sort of like the networks, the experience. Maybe it's like having access to the contract or the special like market position.

26:01 That's an important asset. but that's like sort of a different story about who's really rich. That's sort of a this more active kind of human. And yeah, there could be an ugly of the humans there, but that's kind of the distinction, I think, that we draw. Since you talk to a lot of these people, I have a sort of anthropological question. But do they see themselves as wealthy because we touched on this in the beginning. But so much of these, you know, everything is sort of like shaded as small business ownership entrepreneurs, you talk to a lot of people who, like did start from humble beginnings, but now have millions and millions of dollars. Do they do they see themselves as the rich, as the 1%? Usually they they have a pretty good idea. Often it's because it takes so long to get wealthy. They're, you know, they've gone through the life cycle. So one of my favorite characters that we talk to in the book is Dick Portillo. And he started he grew up in the projects of Chicago, the Cabrini Greens, and he didn't know how to make a hotdog and then started a hotdog company and was washing the dishes by hand because there wasn't running water. And he ended up over decades selling a lot of hot dogs to become a billionaire. And I think it's a really useful example because it shows like, well, you have to have market power.

27:18 To be a billionaire. No. You can actually sell hot dogs to super competitive industry. And then is he rich? Well, he has a really big penthouse. He's got a yacht called Top Dog. which is just a great name for the yacht. Yeah. and, you know, so it depends on when you're talking to him. I think when he's watching it, you know, when you find him in his 30s washing stuff by hand, he does not feel rich. But when he's got a yacht and, you know, a huge IPO that they couldn't send him a check, because his bank account wasn't sophisticated enough to take the check when he was just like, I'm getting on my yacht and leaving, like I think he knew.

27:53 so it basically the short answer is it depends on when, in their lifetimes, because it does really take a long time. Like there's another woman who, we talked to. She spent two decades making frozen quiche. Oh, yeah. The quiche lady. Yeah. And she, you know, it was pretty tenuous for a long time before she got some big contracts to go through. And so, you know, I don't think she felt that wealthy from her business. Like, it seemed like it was losing money until it really wasn't.

28:21 This is maybe more of, like, a sociological question and and, economic question, but I think it kind of relates to who feels rich and who doesn't. When I think about, like, coastal rich, and by that I mean like San Francisco or New York City rich. I often think about heads of, like, really gigantic, heavily bureaucratic, layered, hierarchical organizations. You know, I imagine someone like a Jamie Dimon or CEO, their numerous layers, a they're often like very educated.

28:54 And they're also going to be just like numerous layers of the organization. And there will be people who work at JPMorgan or whatever who never interact ever with the CEO, etc. whereas in my mind, the sort of everyday millionaires, the head of the, beverage distributor and the car dealership. In my mind, I suspect these organizations are like that. CEO is probably much more in touch on some level on a day to day basis with the mass of like the workers at that organization, maybe on the floor with them, many cases like at a dealership, etc.. and I'm curious if that resonates and whether that's sort of like, you know, when we think about sort of, you know, someone who owns a yacht is obviously mega-rich, but on the, that's unquestionable.

29:44 But also they're just on a day to day basis. I suspect they have a lot more connection and like interaction with capital workers than many as sort of like the coastal rich do. Yeah. So like the Portillo, when he was growing the business, they didn't have offices for the managers because he wanted the people to be on the floor all the time. So there was a bit of a marine ethic that he kind of brought to running this business. And, you know, he was there for opening.

30:11 He was like very detail oriented, you know, investors. He owned all the real estate. He tried to take no debt. Reinvesting every dollar. You know, he had kids, but like it was pretty clear when he was moving into his 80s. This is not a family business. This is Dick's business. And there's kind of a relentlessness to that character that I think we see in many of the stories. the first generation founders look like that. Yeah. One thing that stood out to me is, like, all of these people don't seem to have hobbies. They hate.

30:40 Yeah. I hate how John OSHA is so funny. The doctor. John, he's not a doctor who started the $5 electric toothbrush, and sold that business after having sold other businesses before and probably had enough money before starting that business. But he tried to take up golf from Florida. He's, like, so bored by it. Maybe not a great swing, I don't know, but, went back and started this $5 toothbrush business in the dot.com era, which is exactly the kind of company you would think would make you hundreds of millions of dollars during the.com era.

31:11 It's $95 electric toothbrushes. but that's what he did because he just couldn't sit still. I mean, he was a had a personality, clearly, because even as a kid, his first business was, Don't tell your son. Not going to media. No, no, no resources here. His first business to his parents is took, like one of those painting classes where you, like, have models come in and do the, like the nude paintings. And they hid the paintings from like five seven year old, I don't know, like, in the attic.

31:42 And he would charge a nickel to his friends to look at the paintings. I would love that. Yes. That was the best margins of any business you ever start. I can't you can't, he can't listen to this episode. Yeah. let's stick to the children's books. Yeah, yeah. We're going to give you just paint still lives. We're going to Mexico. Can we talk a little bit about you mentioned dentists, and I'm sort of curious whether dentists are doctors. What is their role in the story of the medical profession and how rich can they get?

32:15 Yeah, I know that's a great question because there's there's the, kind of the Dick Portillo's more tactile, blue collar, rich. And then there are the more white collar ones. But if you own a dental practices, you can be really rich. I mean, I think you'll if you're just a normal dentist, you have a pretty good life. But if you own a few, you know, a few offices, you can have a great life. And dentists have some amazing stats.

32:41 I think they're like number 21 on our list of top, pass through four digit industries by profit. And if you add up all the revenue of dentists in America, it exceeds the revenue generated by the NFL, the NBA, MLB Basically all professional sports and dentists are earning more. The joke we like to tell us that everybody's got teeth. And so if you own several of these, this is great. And then they also are in every congressional district.

33:13 And so when you know, you think about things like, oh, let's include dental services and Medicare for example, they lobby against that to be like, well we don't want price pressure from the government. We want to make sure we can protect. So there. There is a bit, regulatory might. And that's really the case. More for doctors too. You know, the doctors showed up in one of our early statistical breakdowns when we're trying to figure out, okay, who are these people earning?

33:37 All is past their income. We said, what are the top four digit industries in the top 1%? Doctor's offices was number digit. So this is like there are industry codes okay by the BDA. and so for digit they're about 300 industries in the four digit system. So that's like a pretty refined like doctor's office is different from dentist's office is different from like, physical therapy type industry as an example within services. Doctors were number one in terms of the number of amount of profits, and they had just a ton of them.

34:07 Is it true that like dentists, like they're all really bored so they get really like, tempted to finance films? Isn't that like a big thing where it's like filmmakers like go to dentists? Like, this would be more exciting than teeth. Put $100,000 into this film. They are, I think, sitting on pools of cash. and maybe they don't have so many ideas of what to do with it. And so they make for maybe easy targets. And because it's a big pool of cash, you know, there's a lot of fishing to be done in that pool.

34:37 So, speaking of dentists and doctors, this reminds me you have a working example in the book showing how the S Corps pass through tax benefits actually works for. I think it was an anesthesiologist and the one who is in private practice who has their own S Corps pays less tax than the one who's employed and earning income. What exactly are we incentivizing or supposed to be incentivizing through the pass code through the tax code here? Because, again, these are two people who are ostensibly doing the same jobs. One is paying a lot less tax than the other one by virtue of the pass through arrangement.

35:17 Yeah. So we are taxing salaries at a different rate than taxing business income. And so that anesthesiologist that runs most of the business through the S Corp is, not paying, payroll tax, not paying like ACA sort of, surcharge, which is uncapped Medicare tax on the profits that come through. Mhm. Which is maybe particularly galling because they're billing Medicare for so much services. And they themselves on their mostly labor income aren't paying the Medicare tax on it.

35:53 so you know, there is a minimum level of compensation, which the IRS rules say you're supposed to pay yourself in wages. So you pay payroll tax on that. Everything above that reasonable compensation limit. It's kind of profit and just falls in this other bucket. And then, you know, in the 2017 reform they brought down the pass through rate even further from, say, the top rate of 37% to below 30%. They put in these guardrails, for doctors and skilled service professions. So they couldn't get that rate.

36:23 But there are strategies that certain ones take to try and move a bunch of the ancillary services again, or the surgery piece, or the maybe they rent some real estate back and so they can shift more and more of that income, I think, into forms that then get that below 30% rate. Whereas the surgeon that's working in the hospital system as a salaried worker is paying the top individual tax rate 37%. The payroll tax another 3%.

36:47 You have all the state and local taxes. The cap on state local tax deductions applies to that salaried worker. But if you run all your income through the business, then the states have allowed them to basically take the deductions through the business instead and get that uncapped. And what's what's the thinking behind this? We just want lots of small businesses to be created. And so here are some tax benefits. I think it's kind of an unintended consequence of trying to simplify the tax code for the mom and pops in the small business. Yeah.

37:16 and then people sort of look at the rules and say, well, how do I minimize my tax, given the rules are what they are? and then how do we protect those loopholes that sort of pop up over time? I like to think of the tax code like a house that sort of depreciates over time. And you kind of need to like, invest in it, like repair windows or replace the floor, this kind of thing. These loopholes are like the depreciation that's applied to this House over time. The reason they've been so persistent, we haven't fixed them, is because it turns out that like a quarter of federal elected officials are also past their business owners.

37:53 Oh. Hmm. You know, this is always like, my impression is like, you know, I don't know, pick a state, Iowa or Ohio. And it's like, you know, I get some politician who's worth $100 million, but I and they often tend to do very well. And they like to position themselves as, like, you know, popular among the working class voters. And they probably do connect well with them, in part because they like this is what is going back to their on the shop floor. They probably do connect with those voters better than like, you know, a CEO of a big bank who's like completely disconnected from them. But on the tax question specifically, you know, when it comes to the prospect of raising revenue for the government or raising taxes, you know, there's you get a litany of issues.

38:39 So, hey, no one likes paying higher taxes, period. Then there's you get to say, well, you know, we don't want to disincentivize entrepreneurship or success or whatever. And taxes are bad for that reason. And then there's the third layer. It's like, well, even if we want it, even if we want to have higher taxes, and even if we weren't worried about that, it would be impossible. And the rich always find a way. And so it'd be self-defeating. There's no way to like, actually, you can't do it. They'll find some loophole or whatever.

39:08 And then the third part I'm really curious about is that real? Or in your research, like if there were the political will to raise taxes, are there straightforward ways to do it? Yeah. So it's certainly real. I mean, we could start with the most recent report. So first of all, you asked for about Iowa and Ohio. So Ohio, the senator one of the senators is Bernie Moran. I was an auto dealer. so that that's a great, a great one.

39:35 And he had a proposal with Elizabeth Warren to shore up Social Security. How would you want to do it? You put it on the payroll of all these salaried workers. There's no mention of these very wealthy business owners, like all salaries. So the anesthesiologists that we're talking about before one of them is getting off, you know, scot free, and the other one, is paying a lot more. So I think that's, one very recent example. Now, it's interesting.

40:02 We've been talking to folks on the Hill about, you know, what, the prospect of raising money on the rich or raising taxes on the rich is one natural place to start is this trillion dollar tax cut that, was part of the one big, beautiful bill that no one likes to talk about. And even among Democratic staffers, there's a lot of reticence of like, oh, I don't know, small business. And you're like, and this is not small.

40:26 You know, if you take all passthrough income, only 20% of it is actually small business. According to an old Treasury study, the vast majority are big businesses that happen to be private. And and so I think the most realistic thing, if you can get rid of some of these loopholes, is to limit them by income. And and that to me seems like one path. When you say limit them by income, we should explain them. So, you know, say you cannot get a deduction that takes your rate from 37 to 30.

40:54 If you have income in excess of $1 million or 400 K or you pick, you know, the number that and I don't like these numbers. But you know, that would be one mechanism for saying, okay, somebody has more than $1 million and business income like they are doing very well. You can't plausibly call them small. This reminds me, actually, can we talk about the role of private equity in wealth creation? Because again, when we talk about a lot of these businesses, whether it's H, HVAC or, I don't know, veterinarian services or dentist offices, a lot of the exits come in the form of a PE buyout.

41:27 So yeah, we love this line from, your colleague Matt Levine, who, you know, tells this joke, what am I doing after business school? Oh, I'm going to work for a prestigious private equity firm in San Francisco so I can run their plumbing company in Mississippi. And, and, you know, I teach private equity, to MBA students. And I talk about these unglamorous deals. so we're talking about founder owned firms, and, you know, more than half of the deals, typical deals in the pipeline from private equity are going to be founder generated firms that maybe there's no natural successor.

41:59 So private equity sort of take comes in so we can take the baton. and maybe we'll be willing to pay a pretty high price because we can see the growth trajectory for it. And so they're looking for these unglamorous businesses that are quite profitable. Maybe they have some competitive advantage because of either a barrier to entry or established brand and customer network and so on. And they're going to go in and, you know, take it over for the founder who doesn't really want to give it to the kids or doesn't have a kid that wants to take over the plumbing company. So private equity portfolios, if you go below the glamorous New York job, where you go like where they're actually on site, what are they looking at? It's a mid-market manufacturer making cabinets or it's sort of in the shade store or something like that.

42:41 these regional businesses that they want to grow further, maybe consolidate a few of them. Maybe they can listed or break it up or whatever down the road. But it's transformed finance in a way, because a lot of capital is flowing. Yeah. And there's the end point. Are these search funds? Is that what they are called like? I've heard that term and I'm curious, I've been like seeing the, you know, people on Twitter, but they like, oh, all this stuff. I'm rolling up cabinetmakers or pool servicing providers or lawn mowers or like, I imagine like, pest, pest, repellent is a pretty big thing. But I've been reading about them for like, a long time now. Is there still more juice for the squeeze? Is there still a bunch of these boomer businesses where the kids don't want it? And in theory, you could take over the local lawn lawn maintenance company and make more money.

43:36 Or how much is left there? Well, we think about the great wealth transfer, right? There's tens of trillions of dollars of wealth in the sort of silent generation or baby boomer generation. More than half of that is like in the form of business wealth. But there's a huge amount of business wealth that's coming, and there aren't necessarily kids or great, you know, people who want to run it from within those businesses. Some of them are too small to attract private equity interest. And so, yes, I see students.

44:05 But first it was like a few students that knew about the search fund thing. When we say I started in 2014 teaching and I was talking about search funds. So this is like a student spends two years. Usually they have a partner, looking for one of these businesses that's kind of too small to attract private equity interest. So they can do a mini LBO. They can do a mini buyout if they find a good candidate. The investors that funded the search will do a second step. Yeah.

44:31 So there's optionality for the investors that makes it such that even the median return in search funds is negative. Most of them lose a little bit of money because the search doesn't work, but the average return is like, low 20s, I think, in the sort of data is a little hard to come by. But I think the people who are trying to do a good job of comprehensively measuring it, and it's rolling up pest control business, is one of the most successful ones I talk about in class is, drug treatment facilities in California. There was like a huge growth in demand for that, unfortunately. And these facilities, running them, running them well, doing the billing, doing the kind of, you know, they're running those businesses is complicated. A lot of regulatory, things you have to manage as well. but that person that was like 100 X investment, for the investors and for the founder, like, you go to banking and then maybe flip into PE and then maybe get like, junior partner and get up there and like a decade or 15 years or something.

45:26 or it could like start this business and run a business, get all this weird experience doing deals, industry learning, raising money, operating something like kind of bootstrapped my way into being a seasoned founder and executive and own 20% of the company and the other end of it as well. This also reminds me in terms of just creating an environment that encourages entrepreneurs. You actually found some really interesting, or did some really interesting research. So showing that if you are in a place with a lot of entrepreneurs, you are more likely to be a business owner yourself.

46:04 Yeah. So one of the cool data things, you know, to go back to the very beginning, when we built this data set that for the first time linked owners, to businesses and their workers, we could track every single new firm in America since 2000. So we have the best data on entrepreneurs that has ever existed. And we can say, you know, how how many people are going to start businesses if they're poor, if they grow up in Salt Lake City versus Mississippi or Salt Lake, you the probability start a star business meaning the top 10% of revenue or employment. It's three times higher than if you grew up in Mississippi. And anecdotally, you know, it's not entirely clear what's going on. you know, there's the nickname, the Silicon Slopes, Salt Lake. But, you know, some of it might be that, there's a large Mormon population. And, a common thing to do is to go on missionary work and bang on doors and have people tell, you know, you keep going. You get some resilience and grit and like, there's no hard data and that's what's going on. But that seems kind of, plausible to me. so that's that's one thing.

47:07 And you see it also for the children of business owners, they're way more likely to start a business themselves, even if you take all of the family firms out of the data. So it's like you're not just inheriting. You know, your son is not inheriting, the podcast, but just here is all about money all the time. Yeah. Around to fourth generation podcasts. Yeah. You know, you have to start the S Corp first. You know, I'm sure curious. And so the the search funds thing, you know, one of the things you hear is like, okay, some guy has a pool, a pool company. Well, maybe people like that guy and maybe like some. Then some guy from Wharton is like, we don't know you. We don't.

47:46 and so I imagine that's tricky. And then also, I imagine, you know, the cost of labor has gone up and low and wages have risen a lot. And of course, immigration crackdowns, etc. are people stepping on? Do you see a lot of people stepping on rakes here? And they're like, you know what? Maybe this business idea to like, you know, power wash people's, sidewalks was not quite the path to riches that I expected it to be.

48:16 So there is risk in doing it, right. but you can take that experience as long as you don't do anything illegal. Okay. you actually have on your resumé this experience. You learned a bunch of industries. You did a bunch of kind of deal M&A type work, basically analyzing industries, making pitch decks. This kind of thing like leading up the search. So that actually is part of maybe the sales pitch. If you decide to return to the workforce or do something else.

48:45 Do people get SBA loans? Like is there like publicly subsidized leverage for these buyers? It is possible most of the debt that's used in those deals is coming from banks. Okay. I mean, they're established businesses with a decent track record most of the case. So, like, you can really you can leverage that. They're not leveraging like, 80%. All right. Leverage. They're more like 4050. The typical search fund deal is there's a lot of equity there too.

49:10 So I think there's more cushion than a typical larger LBO. Just going back to the Picardy part of this conversation and the idea of income inequality, what do we see when we look at the s core data in terms of how much is actually accruing to owners versus workers? Yeah. So it is quite striking. There are different ways to think about growth of this group and their income. It's like, is the pie growing? Yeah. are they just capturing a bigger and bigger slice of a pie that's not growing? and we can sort of decompose the growth. So first of all, like if you look at the growth of the business sector, more than half of it, like 60% of the growth over the last 25 years is coming in pass through forms.

49:51 There's a lot of economic activity coming in, pass through form. The pie is growing. The share that the owners are capturing of the pie has gone from like a third or 40% to like 50%. They're capturing in larger and larger slice. Can I just ask what's your explanation for that? I think some of it is it's easy to think about the skilled services, the demand for the skilled service at the top that doctors practice is really driven by kind of the scarce factor being brought, which is the expertise, the reputation of those folks at the top of the business.

50:26 So they can just raise the price, you know? I mean, is the case that we have 30% fewer doctors in the OECD average. So the AMA is helping restrict the supply of doctors in a way that's quite useful, the American Medical Association. so as demand grows for that stuff, like it's the there's a lot of surplus, but you don't need to pay the nurses or the assistants in that medical practice. So there's a piece of it there. I don't know, like in some of the other industries that are more like competitive, maybe there's like a mixed, you know, productivity and invention and stuff.

51:00 But I think that's an important part of it. Yeah. So, you know, we tell different examples, like we have, a colleague, Kevin Murphy, who is one of my favorite economists, and he just his first language is economics, not English. he can just go up to the board. And just as a quick aside, I used to, as a first year faculty member, I went and sat in his class. It was the most amazing class. You sit there and he's like, what are you guys interested in? It's like, why is the labor share falling? And he just goes up to the board and derive like 3 or 4 equations and have the most coherent and beautiful, and he just does it. That's cool.

51:32 So anyway, so Kevin, he does some econ consulting, and if Kevin makes a merger more likely to happen, so it's 5% more likely to happen as $1 billion merger. That's a lot of value from the perspective of the, people paying them to try to help the merger get through. And so, you know, mergers are increasingly valuable as the economy grows. And Kevin's just doing his thing. And so I think that's also part of the story. So some of it is real skill and expertise.

51:59 Sometimes it's and do scarcity from policy. And all of those things are kind of a blend. It depends on the complexity of what specifically is going on in that industry. but a material part is a bigger slice of the pie. And then also, another big chunk is growing the pie. and both of those things are true. And we have stories and examples where workers are brought up along, the CEO. and then another examples where, you know, most of it is just go into the owner.

52:29 And that's a big part of what's actually going on in the data for rising inequality. It's a bigger buy and a bigger slice. And it's like 5050 for the quantitative breakdown between those two. Profit sharing isn't the default motive. I think for these folks, especially the first gen, they're not like, oh, how do I share more of the profits with the workers? It's like, well, I pay people for what they do and I incentivize them. And then, you know, if we have more money, at the end of the day, I'm gonna to reinvest in the business or I'm going to take it. And that's kind of like the mentality of this founder generation, especially with this chemical importer exporter, called Cam impacts, you know, a really like, sexy name.

53:08 there are a lot of unsexy names in this. Oh, yeah. This is right. Unglamorous, right. We like to talk about, like, the NBA player who made way more money running Wendy's franchises than being an NBA player. Junior Bridgeman so yeah, the whole franchise thing is a whole nother list of unsexy businesses to get really rich. But the cam impacts they she talked about how they were able to offshore, and have the middle of the business sort of Indian and Indian people helping with the supply that, you know, through their family, they're able to connect to and hire. And so they're using the same kind of ways to offset sort of labor scarcity or, you know, to, to to reduce labor demand. I think in that then means that they can be more productive. but the workers are not, you know, capturing that, that those processes. Let me just give you some number because they really are striking. So I think if memory serves in 2001, the value add per worker. So that's like add a profits and pay for for people was 30 4KA worker. And then that went up 18 K to 52 K and 2021. So there's 18 K per worker of growth owners got 15 of that and workers got the rest.

54:22 It's so like the numbers are really striking in terms of how big. You know, that's part of why, there's so much abundant wealth in America. That's why when you go to California or any nice mountain town or any nice lake, there's a lot of boats like I used to go to the Lake of the Ozarks when I was growing up. And, you know, there's so many people with huge boats and you're like, what are these people doing? And it's pest control.

54:45 It's all of these, you know, they're making the windows for drive thrus, for example. Like there's so many stories you hear. Yeah. And one of our favorite things now is just to go ask people like, who is the richest person in your high school? And like, what did they do? and the stories, I mean, we have a list of hundreds and hundreds of millions didn't even put it in the book because there's too many good ones. it's a pretty fun game.

55:07 Invented post-its. Mhm. Does anyone get that reference? Oh. What's that from? Romeo Michele's high School. Where. Yes. Yes I knew those. Yeah. All right. Eric. And oh and we're going to have to leave it there. But thank you so much for coming on. Albert's the book is the Everywhere Millionaire and it is very, very good. So thank you so much. Thanks so much for having us. Yeah, thanks. It's a lot of fun. Thank you so much.

55:30 So, Joe, I know I've been kind of gushing about this. Yeah, but I do genuinely think that this is a piece of research based on a novel dataset. to your point earlier that has been missing from a lot of the discussion of the US economy and what it looks like now when we talk about billionaires, when we talk about rich people, we are so used to thinking about public companies, CEOs, tech venture capitalists, that sort of thing. And as Owen and Eric have pointed out, the field of millionaires across America is much more varied than that.

56:03 No, I couldn't agree more. I think this is such an important conversation and it is so interesting. I do think the one there is one part that I think is fairly understood. People know a that car dealer, The car owners are significant within their congressional districts. I think people have seen a lot of car owner, politicians, they mentioned Bernie Moreno. I think people have intuition that car owners are often influential, particularly in the Republican, side of the aisle, etc. but I think, like, okay, there's oh, that's car owners. And I think the idea that there is this big swath of similarly structured businesses and, across so many different industries with political influence is not sufficiently appreciated when people talk about inequality.

56:57 And when people think about the tax code, because there is so much talk about, like, you know, taxing wealth in California. And I do think that if we're going to have, you know, at any point we're going to meaningfully raise revenue for the federal government if we're ever going to do something to ameliorate, ameliorate Inequality. Then like clearly tech, wealth, etc. is part of it, but there is so much more that than just public company equity wealth that constitutes wealth in America. That does not only does it not really get talked about, but because people have this sort of impulsive love for small business, it's almost never on the table.

57:36 Right. And it is worth really asking what you're incentivizing through the s core structure. If the idea is like, oh, well, we want a bunch of small businesses, but in effect, you're protecting a bunch of companies that are generating like millions of dollars in revenue. Totally. And I like the characterization of the tax code as a house. Yeah. The idea that, like, the economy evolves, I mean, the economy evolves for structural reasons. There are new technologies or new things that are new types of businesses.

58:06 And then, of course, tax optimization strategies evolve and people are slowly discovering there are different ways to structure their own work and business so that they could take advantage of lower rates, etc.. And so the idea that like we need to I mean, it seems like mostly it's a one way ratchet. Taxes just keep going lower. taxes just keep going lower. But the idea that like, no, like we need to repair this, we need to fix this, we need to, adjusted for the current conditions rather than just finding, places to cut.

58:38 I like the the house analogy. I think of the tax code as an amorphous blob that people are always poking with a stick. Can I just say something? Yeah, I know. People like us, who are like wage earners or is it companies who just get, like, a normal W-2? Yeah. we are truly the most oppressed class in America. No, I don't believe that. But, you know, like, all, like, the only the only like, the only sort of class of people that really does not have some, like, very obvious way to minimize taxes is basically just workers it companies poor for us. All right.

59:19 Shall we leave it there? Let's leave it there. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway and I'm Joe Weisenthal. You can follow me at the stalwart. Check out Owen and Eric's book, The Everywhere Millionaire. Follow our producer Carmen Rodriguez at Carmen, Carmen Bennett at Dashboard, Cal Brooks at Cal Brooks and Kevin Lozano at Kevin Lloyd Lozano. And for more all thoughts content, you should check out our daily newsletter.

59:43 You can find that at Bloomberg.com. For small lots, and you can chat about all of these topics 24/7 in our discord discord tagged lots! And if you enjoyed this conversation, then please like the video or leave a comment. Or better yet, subscribe! Thanks for watching. Be.