In the United States, there is a group of families with net assets of at least several million dollars, who are neither Silicon Valley founders nor Wall Street traders. They are scattered across the country, many of them are ordinary business owners in local communities.
Economists Owen Zidar from Princeton University and Eric Zwick from the University of Chicago spent about 10 years studying tax data from the U.S. Department of the Treasury and the Internal Revenue Service. They found that for many wealthy families, the real wealth lies not in salaries but in the businesses they own.
In their recently published book “The Everywhere Millionaire,” Zidar and Zwick refer to this group of individuals as “Everywhere Millionaires” – they are not Wall Street traders or Silicon Valley entrepreneurs, but rather people engaged in ordinary businesses like running restaurants, HVAC repair, car sales, and operating dental clinics.
According to reports from CBS News and other media outlets, there are around 5 million households in the U.S. with net assets of at least $5 million, of which approximately 3 million are private business owners with an average wealth of about $25 million. This is the average wealth of these business owners, a level not achievable by every small business. Collectively, their wealth is roughly 13 times that of the combined wealth of the Forbes 400 richest individuals.
One of the most frequently mentioned examples in the book is Dick Portillo. In 1963, he invested around $1,100 to open a small hot dog stand in the suburbs of Chicago. He didn’t even know how to cook hot dogs at the time. The stand later evolved into a restaurant and expanded into a regional chain. By 2014, the company had about 4,000 employees. That year, he sold the company to the private equity firm Berkshire Partners for around $1 billion.
Moving from $1,100 to $1 billion is undoubtedly a rare feat. What the economists observed from tax data is another more common, yet less noticed path: an HVAC company owner who initially serviced clients himself, then hired more people, purchased service vehicles, and secured larger contracts. Over a decade or two, he is still in the HVAC business but now owns a company potentially worth millions or even tens of millions of dollars.
Dental clinics, car dealerships, restaurants, construction contractors, they all follow a similar path.
The research also uncovered an interesting phenomenon: the higher the income, the lower the proportion of wages in total income, with the importance of business income gradually increasing.
Consider a simple scenario where two individuals each earn $300,000 annually. One is a corporate executive whose income is primarily salary-based, while the other owns a company and also makes $300,000 a year. At first glance, their incomes are similar.
However, the latter also owns the company. If the company grows from two employees to 20, from one store to five, the company itself could become an asset worth millions of dollars. While their annual incomes may be close, what really sets them apart is how much the company itself is worth.
This is the key to how many small business owners eventually accumulate wealth in the millions: not just how much money they make from the business each year, but also the value of the business itself.
The research found that about three-quarters of these wealthy business owners are self-made entrepreneurs, with the vast majority not inheriting their wealth. The typical “Everywhere Millionaire” is around 62 years old, and many continue to operate their businesses even after amassing millions of dollars in wealth.
Initially, they might not have set out to become millionaires. Zwick noted that many entrepreneurs initially seek freedom and independence, desiring to become their own bosses. As the business grows and wealth accumulates, the status of becoming a millionaire gradually follows.
Zidar and Zwick also discovered that the U.S. tax system has played a role in the wealth accumulation of these business owners. Many private enterprises are structured as pass-through businesses like limited liability companies (LLCs) and partnerships, where business profits are directly attributed to the owners’ personal income, providing certain tax advantages.
The economists believe that the tax arrangements of the past few decades have been one of the factors contributing to the wealth growth of these business owners.