The Hidden Business Owners Who Rewired American Wealth

WASHINGTON — The 1986 overhaul of the U.S. tax code helped create a class of wealthy Americans whose influence extends from regional economies to federal and state policy. The change began when President Ronald Reagan signed the Tax Reform Act on October 22, 1986. Co-sponsored by Senator Bill Bradley, a New Jersey Democrat, and Representative Richard Gephardt, a Missouri Democrat, the bipartisan legislation was celebrated as a historic simplification of the tax code.

The law cut individual tax rates to a top tier of 28% and lowered the corporate rate to 34%. It was designed to eliminate shelters and level the playing field. But because the top individual rate fell below the top corporate rate for the first time, the traditional tax calculus changed.

Before the reform, standard C-corporations generated almost all business income in the United States. Afterward, owners had a powerful incentive to use “pass-through” entities, including S-corporations, partnerships, sole proprietorships, and later, Limited Liability Companies (LLCs). Their profits flow directly to owners’ personal tax returns rather than facing double taxation at both the corporate and individual levels.

Today, pass-through entities represent 95% of all American businesses, employ half of the private-sector workforce, and generate the majority of national business income. Their growth shifted corporate profits onto individual tax returns and helped form what researchers call “everywhere millionaires.”

The scale of that wealth was difficult to see for decades because the Internal Revenue Service kept individual tax returns and business filings in separate, unlinked databases. In 2014, Eric Zwick, Owen Zidar, and Danny Yagan secured access to a secure Treasury Department database. They were then graduate researchers and are now economics professors at the University of Chicago, Princeton University, and the University of California, Berkeley, respectively.

Dubbed “tax ninjas” for their work in the Treasury basement, the researchers spent months writing code to connect the two databases. Their work mapped pass-through business profits directly to individual owners, including people whose wealth was tied to businesses far from coastal financial centers.

Their findings appear in *The Everywhere Millionaire: Who is Really Rich in America and How They Got There*. The data challenged the assumption that Wall Street hedge fund managers and Silicon Valley tech founders dominate the top 1% of income earners. Instead, it identified a broad network of regional business owners, including beverage distributors, auto dealers, medical specialists, and commercial contractors.

The researchers define an “everywhere millionaire” as an individual with a net worth of at least $5 million who derives the majority of their income from a single, closely held operating business. Roughly 3 million such households exist in the United States. The authors estimate that the group collectively holds 13 times the wealth of the entire Forbes 400 list of billionaires.

For every billionaire on the Forbes list, there are more than 4,000 private business owners with a net worth of at least $10 million. Their wealth is distributed across mid-sized metropolitan areas rather than concentrated in Manhattan or San Francisco. Historian Patrick Wyman’s term “American Gentry” describes the regional, asset-owning elites who command significant local economic and political influence.

That influence is also visible in elected office. Zwick estimates that pass-through business owners account for approximately 25% of federal elected officials and 40% of state legislators, compared to just 2% to 3% of the general population.

During recent tax debates, lawmakers allowed certain consumer clean-energy vehicle credits to expire while moving to make permanent the pass-through deduction introduced in the 2017 Tax Cuts and Jobs Act. Known as Section 199A, the provision allows certain pass-through owners to deduct up to 20% of their qualified business income. The benefit heavily favors auto dealers and other regional business owners represented on congressional tax-writing committees.

The tax structure also affected workers who do not own established companies. Paul Osterman, a professor emeritus at the MIT Sloan School of Management, examined that side of the labor market in *Disposable Workers: The Transformation of Employment*.

Drawing on a survey of more than 6,000 American adults and nearly 100 industry interviews, Osterman found that 35% of the current U.S. workforce is engaged in “disposable” work. The category includes freelancers, independent contractors, gig workers, and short-term W-2 employees hired with no expectation of long-term retention.

Osterman traces the shift to the early 1980s and President Reagan’s 1981 firing of 11,345 striking air traffic controllers represented by the Professional Air Traffic Controllers Organization (PATCO). The move signaled a broader unraveling of post-World War II employment norms, when large corporations routinely invested in and retained their core workforces.

After 1986, heavy payroll tax and benefit burdens on salaried W-2 workers encouraged companies to outsource tasks to independent contractors. Contractors often form their own pass-through entities, using corporate structures to lower their effective tax rates and bypass traditional payroll taxes.

For a new generation of entrepreneurs, the changing landscape has meant leaving behind the traditional path of climbing the corporate ladder and pursuing outright business ownership. The transition is accelerating as the oldest members of the Baby Boomer generation, born between 1946 and 1964, reach retirement age.

McKinsey & Company estimates that approximately 6 million small businesses, representing roughly $5 trillion in value, will need to transition to new ownership over the next decade. Fewer than one-third of those business owners have a documented succession plan.

Platforms such as Baton have emerged to facilitate the valuation and sale of small businesses. Co-founded by former Zillow employee Chat Joglekar, Baton has provided free valuations for 2 million U.S. firms. It found that fewer than 10% of owners can accurately estimate their company’s market value within a 10% margin.

The ownership transfer, sometimes called the “Silver Tsunami,” has attracted younger buyers who use leveraged buyouts (LBOs) to acquire existing, profitable firms instead of launching high-risk startups.

Bakari Akil left Morehouse College in 2011 without graduating and spent two years experiencing homelessness, occasionally sleeping at LaGuardia Airport. At age 25, he secured a position at the payroll software startup Justworks and began researching strategies for acquiring wealth.

After reading about early-career business acquisitions, Akil enrolled in a specialized course at Columbia Business School to learn the mechanics of leveraged buyouts. He now focuses on acquiring existing small businesses from retiring owners and views the purchase of established cash-flowing firms as a vital mechanism for preserving middle-class wealth.

Other entrepreneurs have scaled and exited modern consumer brands through ownership. Katlin Smith, a former management consultant at Deloitte with a background in biology and business, founded Simple Mills in 2012 to produce clean-label, almond-flour baking mixes and crackers.

Smith partnered with the private equity firm Vestar Capital Partners to fund the brand’s expansion. In January 2025, Thomasville, Georgia-based packaged food giant Flowers Foods acquired the business for $795 million.

Smith continues to serve in a founder and advisory capacity at Simple Mills. She has also used her platform to collaborate with the Non-GMO Project to establish a “non-UPF” (ultra-processed food) verification standard.

Chicago hot dog tycoon Dick Portillo followed another version of the same ownership path, building the Midwest’s largest privately held restaurant group before selling it to private equity.

The paths of Smith, Akil, and Portillo coincide with a finding in the Treasury data: the most direct route to significant wealth in the United States remains the long-term, direct ownership of an operating business. While the nature of employment has grown more contingent and “disposable” for over a third of the workforce, the structural advantages written into the U.S. tax code nearly four decades ago continue to reward and protect the class of private business owners who quietly anchor the nation’s economic and political systems.