Trump's Big Beautiful Bill is Great for the Stealthy Wealthy

Eric Zwick on Derek Thompson's Plain English podcast

Eric was on Derek Thompson’s Plain English podcast today talking about our work on the 2017 Tax Cuts and a bit about our forthcoming book on the stealthy wealthy.

Here’s part of the interview:

Derek: “Eric, before we go, I want to make sure that I really clearly understand what you're talking about here when you're discussing the tax changes to pass throughs. Make this as concrete as possible. Just like, please give me an example of a business and say, this is the kind of business that is going to see a huge change between the status quo in 2024 and the status quo in 2025-2026 if this law is signed by President Donald Trump.”

Eric: “So pass-through business is a firm that unlike a traditional company is not taxed at the firm level, instead the income flows through to the owners and is taxed at the owner level at the individual income tax rate. And so the individual income tax code is what is relevant for pass-through owners. In the 2017 reform, there was a lot of focus on cutting the corporate tax rate.

The pass-throughs are a very powerful lobby. They advocated strongly that they also get a cut because they don't benefit from that 35% to 21% rate cut. And so they got this deduction that was scheduled to expire, which basically says you get to deduct 20% of your income, which reduces your top rate from the 37% individual tax rate down to 29.6.

And that was slated to expire, but it's being extended as part of this most recent legislation. In addition, it's been enhanced from 20% deduction to 23% deduction.

Derek:What does that mean?

Eric: That's like reducing your top individual tax rate by another percentage point. On top of that, it used to not be available to like certain types of pass-through businesses, because there's a ton of, as I said, auto dealers is a great example, beer distributors is a great example. But there's like more pass-through businesses in different industries, almost any industry that you can think of.

So law firms, doctor's offices, mid-market manufacturers as well, construction companies, they're like ubiquitous across the economy. And those law firms used to not get any benefit because they're in service businesses and they didn't want to give them a tax cut because they could relabel a bunch of their income to get a better rate. But now, some of them get a deduction because of the way that this rule has been rewritten.

It sort of phases out, but you still get thousands of dollars potentially of tax savings if you're one of these sort of structured as a pass-through business service companies. And this is the most concentrated form of income. More concentrated than dividends is pass-through business income.

70 cents on the dollar goes to the top 1% of the income distribution. And they're a very powerful lobby. And I think there are more folks in the top 1 and 0.1% that are pass-through business owners than like any other sort of driver of income in terms of thinking about where their wealth comes from.

And this is a group that we call the stealthy wealthy that we think just doesn't get enough attention because they're not in tech and finance. They're not on the coast necessarily. But they got $800 billion of the $4 to $5 trillion, was specifically for pass-throughs in this most recent legislation.”

From Plain English with Derek Thompson: Trump’s Big, Beautiful Bill Is Great for the "Stealthy Wealthy", May 28, 2025