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THE OLIGARCHS’ BIG PRIZE IN TRUMP’S BUDGET-BUSTING BILL  
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Timothy Noah
July 3, 2025
The New Republic
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_ Avoiding an income-tax increase is nice, but that’s not the
bill’s greatest gift to the rich. _

, Chip Somodevilla/Getty Images

 

If America is a ruled by a billionaire oligarchy, as I argued in a
recent _New Republic_ feature story (“How the Billionaires Took
Over
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what will our billionaire overlords get out of the “big,
beautiful” budget reconciliation bill that narrowly cleared
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Senate this week? Higher interest rates
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for one, because the bill more than doubles the budget deficit; this
will benefit billionaire creditors but hurt billionaire borrowers. The
top marginal rate won’t rise from the present 37 percent to 39.6
percent, as it would have done in a Harris administration, which is
excellent news if you actually pay that much—but often billionaires
do not
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And I’ll wager your typical oligarch doesn’t give a rat’s ass
whether or not 12 million people
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medical coverage and six million people
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food stamps.

The oligarchs’ real prize in the reconciliation bill is the
continuation or possible expansion of a 2017 change in the tax code so
tedious to explain that most news accounts haven’t bothered. Some
people call it the qualified business income deduction, others call it
the pass-through deduction, and still others just call it Section
199A
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It’s a deduction of 23 percent (House version) or 20 percent (Senate
version) on business income that “passes through,” untaxed, to a
private individual, who then pays taxes on it as personal rather than
corporate income. The rationale for this deduction is that business
income shouldn’t be taxed at a maximum 37 percent rate when the
corporate income tax is only 21 percent.

Are you bored yet? If so, you’re exactly where the oligarchs want
you. Maybe you’ll perk up if I tell you this tax cut will add to the
budget deficit either $820 billion
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or $736 billion
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version). More than half
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benefit will go to millionaires.

Pass-through income is a key driver of income inequality. Between 1985
and 2021, the top 1 percent in the income distribution increased
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of the nation’s income from 13 percent to more than 25 percent.
The majority of that increase
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from pass-through income. Defenders of the pass-through tax break will
tell you that most pass-through businesses are small businesses, and
that’s true. But the majority of _income_ from pass-through
businesses goes to the rich. In 2011, 70 percent
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pass-through income went to the top 1 percent; the 2017 tax break
almost certainly pushed that proportion higher.

We’re talking oligarch money. When corporations spend money on
political candidacies, as they were invited to do by the Supreme
Court’s execrable _Citizens United_
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2010, the corporations in question are seldom publicly held (i.e., the
kind that pay corporate tax), because shareholders are liable to
object. Instead, corporate contributions typically come from privately
held S-corporations, partnerships, and limited liability corporations
(or LLCs), where income passes through to a very wealthy owner. The
less tax these oligarchs pay on pass-through income, the more they
have to buy politicians.

Pass-through corporations proliferated after Ronald Reagan’s 1986
tax reform reduced the top marginal income-tax rate from 50 percent to
28 percent. That law lowered the corporate tax rate too, but not
enough to halt a stampede from public to private corporations. (I’m
grateful for this history to Bloomberg’s Justin Fox
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The pass-through advantage diminished in subsequent years as a result
of various tax changes. But when Trump’s 2017 tax law dropped
publicly held corporations’ tax bill from 35 percent to 21 percent,
the pass-through-dependent rich screamed bloody murder until Congress
agreed to lower taxes on pass-through income too, with the 20 percent
deduction. (Reason Number I-Lost-Count why it was dumb to lower
corporate taxes in the first place.) The result was not, in fact,
parity, mainly because revenue generated by publicly held corporations
gets taxed twice (through corporate taxes and taxes on dividends or
capital gains) whereas pass-through revenue gets taxed only once.

If any type of corporate structure should be favored by the tax
system, it’s public ownership. I’m no cheerleader for publicly
held corporations, but they’re usually preferable to privately held
corporations because they’re at least theoretically accountable to
shareholders, many of them pensioners. And again, it’s privately
held corporations that account for the bulk of corporate political
spending unleashed by _Citizens United_. But the trend runs the other
way; between 1996 and 2020, the number of publicly held
corporations shrank by nearly half
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You don’t have to be a bleeding heart to hate the pass-through tax
break. The American Enterprise Institute’s Kyle Pomerleau can’t
stand it, either
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the grounds that tax policy shouldn’t favor one type of corporate
structure over another. According to
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“it’s hard to find any tax expert of any political leaning not in
the employ of the pass-through industrial complex who thinks the
qualified business income deduction is a good idea.” A 2021 study
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Economic Research found the 2017 pass-through deduction did not
increase capital investment, wages, or employment. When it was first
proposed, Daniel Savior, professor of law at New York
University, called it
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worst provision ever even to be seriously proposed in the history of
the federal income tax.”

But oligarchs love pass-through income, perhaps most especially Donald
Trump, whose Trump Organization is privately held. And what oligarchs
want, they usually get.

_TIMOTHY NOAH is a New Republic staff writer and author of The
Great Divergence: America’s Growing Inequality Crisis and What We
Can Do About It._

_THE NEW REPUBLIC was founded in 1914 as an intellectual call to arms
for public-minded intellectuals advocating liberal reform in a new
industrial age. Now, two decades into a new century, TNR remains, if
anything, more committed than ever to its first principles—and most
of all, to the need to rethink outworn assumptions and political
superstitions as radically changing conditions demand._

_Cofounder Herbert Croly declared that TNR was an “experiment"—and
today we rededicate that experiment, and our magazine’s legacy, to
the urgent challenges of reclaiming the democratic faith amid
dangerous, deranging new upheavals in our common world._

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* pass-through deduction
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