If America is a ruled by a billionaire oligarchy, as I argued in a recent New Republic feature story (“How the Billionaires Took Over”), what will our billionaire overlords get out of the “big, beautiful” budget reconciliation bill that narrowly cleared the Senate this week? Higher interest rates, 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. And I’ll wager your typical oligarch doesn’t give a rat’s ass whether or not 12 million people lose medical coverage and six million people lose 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. 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 (House version) or $736 billion (Senate version). More than half the 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 its share of the nation’s income from 13 percent to more than 25 percent. The majority of that increase came 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 of all 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 ruling in 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.) 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.

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, on the grounds that tax policy shouldn’t favor one type of corporate structure over another. According to Fox, “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 by the National Bureau of 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 “the 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.

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