Passthrough Tax Loopholes & the Rise of the American Gentry: CHART OF THE DAY
Today’s America: 3 million business owners worth an average of $25 million each, notables in their towns but not individually visible to the nation. And more than half the rise in the top 1% share since 1985 flowed through the pass-through businesses that was a “tax efficiency innovation” feature of the Reagan Revolution. The Reagan Revolution promised faster growth in exchange for lower taxes on the rich. The rich won; the growth never showed up.
A number that I very much want to see, and now that I see it I wonder how solid it is. All such counterfactuals are dicey:
Torsten Slok: Not Tech, Not Wall Street <https://www.apollo.com/wealth/insights-news/insights/daily-spark/not-tech-not-wall-street>: ‘The income that lifted America’s top 1% did not come mainly from tech or Wall Street, according to The Everywhere Millionaire. More than half of the rise in the top 1% income share since 1985, 5.8 of 10.5 percentage points, flowed through pass-through businesses, see chart below. The authors, Owen Zidar and Eric Zwick, counted roughly 3 million wealthy private business owners, with average net worth near $25 million, running law firms, car dealerships, medical practices, commercial contractors and regional restaurant chains, the kind of businesses that make their owners wealthy and well known in their own communities without ever making them nationally famous.
The Reagan Revolution was supposed to be a bargain: the rich would get to be richer—to after taxes keep more of “their earnings”—in exchange for unleashing wave after wave of innovation to drive more rapid economic growth to restore the growth rates of the 1950s and 1960s. Everyone would win!
Everyone did not win:
Oh, the superrich—the plutocrats and the kleptocrats—won super-big from the Reagan Revolution, and the gentry won big. But not the rest of us. The growth rates of the 1950s and 1960s were not restored, The Reagan-Bush I record was not “seven fat years”, but seven moderate sandwiched between two bad and then three bad ones, adding up to a trend growth rate about what we have experienced since the end of the GFC-triggered Great Recession. The policy configuration and economic-structural configuration that did—somewhat—restore growth was the left-neoliberal Clinton Doctrine, which was then dismantled by Bush II, the GFC and Great Recession, and the ænemic post-2009 response. As far as growth in incomes for non-superrich non-gentry are concerned, the only bright spot is the 2021-2022 Biden pedal-to-the-metal recovery which prevented another downward lurch in trend income growth like the ones we saw under Nixon, under Bush II, and then with the GFC-Great Recession:
