No Mercy / No Malice: The 1% Next Door

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Scott Galloway (1:28)

I'm Scott Galloway and this is No Mercy, No Malice. America has more millionaires than the next 11 countries combined. Who these people are and how they built their wealth is a case study in entrepreneurship and American economic dynamism.

The 1% next door, as read by George Hahn.

Scott Galloway (1:58)

It's more compelling and lucrative to be a catastrophist. History, however, is on the side of optimists. Any analyst, author, academic must adjust for history and ask, what could go right? And optimism is a prerequisite for entrepreneurs. No business I've ever started at the moment of inception made any sense, until it did or didn't. The only way to predict the future is to make it, i.e. summon the irrational optimism necessary to advance, despite the risks, into the unknown.

Macroeconomic conditions supply abundant reasons to catastrophize. What keeps me up at night? Answer, tariffs, Iran, inflation, the national debt, treasury yields, a stock market that's seven companies, consumer sentiment, and the K-shaped economy. Despite all this, there is always a cause for optimism. And wealth creation in the US is a bright spot.

The wealth flowing to Wall Street and Silicon Valley drives an inequality narrative, but that obscures American economic dynamism. For their new book, The Everywhere Millionaire, economists Owen Zedar and Eric Zwick analyzed IRS and Federal Reserve data, finding that more than half of the rise in income among the top 1% since 1985 came via pass-through businesses. That's IRS speak for firms, most of them privately held, where the profits pass through to the owners, who pay taxes on those profits through their own personal tax returns. The growth in so-called Everywhere Millionaires isn't an accident, but the result of a policy choice. The 1986 Tax Reform Act lowered individual tax rates below the corporate rate, creating a loophole that allowed business owners to structure a business as a pass-through to pay the lower individual rate. In 2024, Treasury researchers estimated that S corporations, a popular pass-through structure, pay about 7 percentage points less in federal income tax than they would if organized as C-corps.

In news that won't surprise anyone, the US middle class is shrinking and falling behind relative to wealthier cohorts. Since 1970, the share of total US household income held by the middle class fell from 62 percent to 43 percent. Over the same period, the median middle class household income rose by 60 percent compared to 78 percent for upper income households. Here's the counterintuitive part left out of stories about middle class erosion. More middle class families moved up than down in the past 50 years. America is a millionaire factory. We meant 40 percent of the world's millionaires, more than the next 11 countries combined. There are currently 23.6 million of them in the country.

Zidar and Zwick identified 3 million wealthy private US business owners, excluding tech and finance, with a net worth greater than $5 million. They also excluded corporate executives, CEOs of private companies, high-earning W-2 employees, and individuals whose wealth is primarily tied up in passive investments. The average net worth of the Everywhere Millionaire cohort is $25 million.

Unlike the oligarchs and bro-ligarchs who cluster in major coastal cities, Everywhere Millionaires live everywhere. An hour north of Birmingham in Walker County, Alabama, population 65,000, the average top-bracket filer with a private business reported $1.9 million in pass-through income in 2023, the highest of any county in the nation.