How Many Millionaires are Small Business Owners?

The Washington Post has a nice piece online today examining some of the claims and counter-claims about how small business owners would be impacted by tax increases on those earning more than a million dollars. 

The Post is correct in its suggestion that the more narrow interpretation of the data is the better one. Indeed, it's not surprising that if one is looking at millionaires that the vast majority have some ownership in a business of some sort. When you have that much money you have to park it somewhere to make a return and owning a business seems a natural place (in the given data it's impossible to make attributions about how the millionaires made their money as none of the analysis is really longitudinal). 

If you aren't looking at where they are also investing their time in running a business then you would be creating a group of people who is dominated by investors and not business operators. While this might be something which is helpful in talking about angel investors, it's probably not a good characterization of the question being posed.

One piece we released last year is relevant to this discussion but has not been picked up by many in the mainstream discussion. Business Owners, Financial Risk, and Wealth uses the Survey of Consumer Finance to examine how business owners appear similar and different to other groups in their wealth and risk preferences. 

It shows that in most ways business owners (defined even more conservatively than the Post article suggests) are conservative in many of their borrowing and savings patterns but more likely to assume risk for return. 

The study concludes: "The results suggest that policies aimed at increasing business ownership should focus on helping households identify high-value business opportunities through transparent tax, legal, and regulatory systems. 

Efforts to reduce risk should focus on the business venture, such as full loss offsets, rather than focusing on reductions in other financial risks." Worth a read for those following this debate. 

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e.j. reedy data maven

E. J. Reedy

As a director in Research and Policy, E.J. Reedy oversees the Ewing Marion Kauffman Foundation’s research initiatives related to education, human capital development, and data.

Since joining the Kauffman Foundation in 2003, Reedy has been significantly involved in the coordination of the Foundation’s entrepreneurship and innovation data-related initiatives, including the Kauffman Firm Survey, for which he served as a principal investigator, and the Foundation’s multi-year series of symposiums on data, as well as many web-related projects and initiatives. He is a globally recognized expert in entrepreneurship and innovation measurement and has consulted for a variety of agencies.