transcript

Speaker 1:
[00:00] Rich people dress so boring now.

Speaker 2:
[00:03] When we see our wealthy, particularly the wealthy that have come about in the last 20 or 30 years, our tech wealthy, they are very much just like the rest of us. Or, you know, everybody in their t-shirts and hoodies.

Speaker 1:
[00:16] Boston law professor Ray Madoff. We're talking live on stage at the Center for Brooklyn History.

Speaker 2:
[00:21] You see Elon Musk, he's just a regular guy. Don't go thinking he's somebody fancy or somebody rich. He's just like you and me.

Speaker 1:
[00:30] But once upon a time, it used to be extremely clear who was rich. In the turn of the last century, in the 1890s, 1910s, robber barons and industry tycoons announced their wealth proudly.

Speaker 2:
[00:43] They wore top hats and fancy things, tons of jewels.

Speaker 1:
[00:47] The daughter of Cornelius Vanderbilt wore tiaras.

Speaker 2:
[00:50] She actually wore crowns. She wore a crown walking around New York City.

Speaker 1:
[00:56] I'm like, man, they don't make rich people like that anymore.

Speaker 2:
[00:59] And then they threw these unbelievable parties, but not off on a private island, you can't come parties. They had glass doors, glass walls, so that the regular people can actually see these elaborate parties that were going on.

Speaker 1:
[01:14] And you were talking about like they would hand out cigars wrapped in hundred dollar bills.

Speaker 2:
[01:18] At the parties, yes, at the parties, they had like elephants, they would each, they would outdo each other, they'd be written on the society pages. And so they proudly announced themselves as being the elite, and they wanted everyone to see just how very rich they were.

Speaker 1:
[01:35] So yeah, how did we get from this era to now?

Speaker 2:
[01:38] Consumption to stealth wealth. Da da da. Taxes.

Speaker 1:
[01:43] Yes, taxes. I know, taxes. You're like, oh, tax season just ended, I don't want to think about taxes. I know, no one likes to pay taxes, no one likes to think about taxes. But that's the thing, because they are so Icky to confront, they really haven't been examined very closely.

Speaker 2:
[02:00] And that is how we're getting growing wealth inequality.

Speaker 1:
[02:03] And as Professor Madoff proposes in her excellent book, The Second Estate, How the Tax Code Made an American Aristocracy, taxes are part of why rich people dress so boring now.

Speaker 2:
[02:13] When we see our rich, they do look like us, and so they seem less alien.

Speaker 1:
[02:19] And they are alien, in that they are separate from us, because these ultra rich just don't pay taxes, almost none. And to be clear, when I'm talking about rich people, I'm not talking about like a doctor or a lawyer.

Speaker 2:
[02:34] For purposes of this book, the rich are anybody who doesn't need a salary.

Speaker 1:
[02:40] The lifetime earnings of a doctor, on average, are $6.7 million. A hedge fund manager earns on average $84 million over a lifetime. Those are wealthy people by any measure. But they pale in comparison to Mark Zuckerberg's net worth, which is $237 billion. Jeff Bezos is worth $269 billion. And the difference between a million and a billion is massive. It's literally 1,000 times larger. So we're talking about phenomenally wealthy people, people who are above a paycheck.

Speaker 2:
[03:17] If somebody can get by without earning money, they have enough money that they can live off of. Those are the people who are able to grow their money tax-free.

Speaker 1:
[03:26] We're talking about people who are so rich that they do not need to earn an income. Because income gets taxed. Like people who earn a lot of money, the working rich, they pay taxes. They pay a lot of taxes actually. They are our comrades here.

Speaker 2:
[03:41] People with high income are much more aligned with people with low and moderate amount of income, in that we all pay a lot of taxes. But people with huge amounts of wealth, don't have to pay taxes at all.

Speaker 1:
[03:55] This, in part, explains why we no longer see the top hats, and the tiaras, and the cigars wrapped in $100 bills. All that visible excess attracted too much attention.

Speaker 2:
[04:06] They thought these people, they're a bunch of lazy, layabouts, they live these lavish lifestyles, and all of this is a big problem, and therefore we need to have taxes on inheritances.

Speaker 1:
[04:17] The splashy largesse of the rich led to the creation of a tax code that was meant to curb all that behavior. And yet, in the years since, that fair tax system we made has been whittled away. It doesn't work anymore. The ultra-rich are not paying their share. And so, you know, why would they want to wear tiaras again? Why would they want to attract that kind of attention?

Speaker 2:
[04:38] I think that just like the rest of us look of the very wealthy has served a protective function.

Speaker 1:
[04:45] They want to look just like us and pretend they pay what we pay when they don't at all.

Speaker 2:
[04:52] And sometimes people say, I don't want to tax the rich because I'm going to be rich someday, and then I don't want to have to pay taxes. But the thing is, what people don't realize is that their likelihood of becoming rich is significantly limited by the fact that they have to pay taxes. People who have salaries or other gig workers or anything like that, they're moving two steps forward, one step back. Meanwhile, the richest Americans are moving two steps forward, four steps forward, six steps forward, a hundred steps forward, a thousand steps forward.

Speaker 1:
[05:25] Because they pay no taxes. So, how do they do it and how can we fix this? And you might be asking, wait, does this really have to do with clothing? Yeah, it does. Because our taxes and our tariffs explain so much, not just about how rich people dress, but about how we all dress and how we all live after the break.

Speaker 3:
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Speaker 1:
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Speaker 2:
[09:41] Poor people were being completely taken advantage of and their horrible working conditions, their horrible living conditions.

Speaker 1:
[09:48] Almost everyone was poor. US life expectancy was 47 years old, and the economy was in such a bad recession that it introduced the term unemployment. Like people were living in tenements, barely scraping by in starving conditions.

Speaker 2:
[10:03] These two worlds were being presented at the same time.

Speaker 1:
[10:06] There was extreme excess right next to utter destitution in the same city.

Speaker 2:
[10:11] So, let's start with the first transition that caused the wealthy to be subject to taxes. Because in the time when we had all of this lavish wealth and lots of poor people, the tax system that we had was tariffs.

Speaker 1:
[10:27] For the first 137 years of the United States, there wasn't really an income tax. I mean, it was instated occasionally, like it was put up to fund the Civil War and a few other wars, but it was an aberration. And it was in part because collecting income tax, like gathering all that paperwork and enforcing it, that's kind of logistically complicated for a young, growing country to manage. Tariffs, on the other hand, are simple.

Speaker 4:
[10:56] A tariff is a tax that is imposed on the product that is imported.

Speaker 1:
[11:01] This is Steve Lamar. We're just going to call him a tariff expert for now. I'll tell you his real job in a little bit.

Speaker 4:
[11:06] Tariffs have played a big role in American history for many, many years up until the beginning of the last century. Tariffs were the primary way that the US government collected revenue. We financed our entire government through tariff collection.

Speaker 1:
[11:22] Tariffs are a really simple system for a scrappy, poorer country. Like Alexander Hamilton could just send a thousand people with muskets to a US port, and they'd be like, nothing's coming through until you pay.

Speaker 4:
[11:34] Just seems like a very easy thing to do. I'm going to impose a tariff, I'm going to put it on this other country, because the other country is going to pay the tariffs. That's the rhetoric, that's the narrative, and it's going to appear to be something that's not going to hurt the US.

Speaker 1:
[11:45] This was, of course, super appealing to the founding fathers, because taxation was a touchy subject at the beginning of the country.

Speaker 4:
[11:53] We fought a war over it. Quite literally, the whole reason we fought the Revolutionary Wars, we had taxation without representation. I mean, these words are drummed into our souls.

Speaker 1:
[12:03] So tariffs were a nice, simple system. Our country will be funded by imports. Great. Put it in the Constitution.

Speaker 4:
[12:09] This is why the founders put tariffs in Article 1, Section 8.

Speaker 1:
[12:13] And what was seen as an added benefit was that tariffs made foreign goods more expensive. So then our goods could be more expensive.

Speaker 2:
[12:22] People who had businesses, they got to benefit when there were tariffs. It allowed domestic providers to raise their prices too.

Speaker 1:
[12:29] Professor Ray Madoff again.

Speaker 2:
[12:31] So they was like a very happy system for the industrialists and not so great for consumers and everyone else.

Speaker 1:
[12:38] So everything got expensive. And then once you had the cigars being passed around with $100 bills, it was clear who the tariff system was benefiting.

Speaker 2:
[12:48] So you had these super rich people, and you had a lot of people who weren't doing well at all. And a lot of people began to be concerned that the people that weren't doing well would not be so happy with this system of capitalism. And at the time, there were actual alternatives.

Speaker 1:
[13:06] This is back when there were options out of capitalism.

Speaker 2:
[13:08] Socialism was really quite big and was sweeping parts of Europe.

Speaker 1:
[13:12] I think it's so ironic today that capitalism suffers from a lack of competition.

Speaker 2:
[13:17] Because of the threat of socialism, people that wanted to keep capitalism felt they needed to show that capitalism could serve the public well.

Speaker 1:
[13:25] The way to keep capitalism competitive and to show that it could serve the public would be taxes. A lot of them.

Speaker 2:
[13:32] Even the conservative Wall Street Journal advocated for heavy taxes on, particularly on people with inherited wealth. Then Andrew Carnegie, in his famous Gospel of Wealth, wrote, We have to have heavy taxes on inheritance because all of these rich people running around, living on their inherited wealth is a problem.

Speaker 1:
[13:51] There was this push from lots of different people across the political spectrum to create a modern tax system.

Speaker 2:
[13:57] Congress enacted rules that were designed to tax the richest Americans.

Speaker 1:
[14:02] In 1913, the income tax became a standard, regular part of American life.

Speaker 2:
[14:07] And in fact, only applied to the richest 5 percent of Americans, nobody else paid any taxes at all. Over time, the income tax, as we all know, became applicable to pretty much all Americans. We had a progressive income tax that had higher rates for those who had higher income.

Speaker 1:
[14:24] And this was all meant specifically to rein in the rich people.

Speaker 2:
[14:27] And in 1916, it was an additional estate tax.

Speaker 1:
[14:31] This is a tax on inherited properties.

Speaker 2:
[14:33] And for a while, the systems worked very well.

Speaker 1:
[14:36] And in fact, the system kept growing to continue to compete with socialism. Like when FDR created social security, this was his way of being like capitalism can take care of people.

Speaker 2:
[14:45] With massive industrialization, people didn't live near their families anymore, and they couldn't rely on the kids will take in the parents or whatever. And so he created this system of social security benefits and unemployment benefits. Old age benefits and unemployment benefits.

Speaker 1:
[15:02] When FDR created social security, he wanted all Americans to feel a buy-in, so that it wouldn't feel like a charity.

Speaker 2:
[15:07] He wanted it to look like an insurance program.

Speaker 1:
[15:10] Which meant all Americans had to chip in to funding it.

Speaker 2:
[15:13] He wanted it to look not like taxes, but they are very much taxes. It is money that is taken out of current workers to pay the retirement benefits of current retirees.

Speaker 1:
[15:26] The systems of social security and Medicare are paid for by payroll taxes, which are really quite hidden. If you work for an employer, the payroll taxes are taken right out of your paycheck.

Speaker 2:
[15:37] I earned this. I wiped tables for it. I steamed milk for it, and it was totally not worth it.

Speaker 1:
[15:44] Like that moment in Friends when Rachel got her first paycheck. Who's FICA?

Speaker 3:
[15:48] Why is he getting all my money?

Speaker 1:
[15:49] FICA is the Federal Insurance Contributions Act. That's the payroll tax.

Speaker 2:
[15:53] There's a lot of ways that it's hidden from the public, right? It's called FICA. They use words like contributions, making you think like you're doing it voluntarily. Very odd, you know, but it's intentionally done that way to make it politically strong because people do feel that they've paid into the system. They've somehow earned it. On the other hand, by not calling it taxes, by not calling it what it was, they made it easier for these taxes to increase and increase, and payroll taxes have like more than doubled over that time.

Speaker 1:
[16:25] Payroll taxes are the second largest source of federal taxes right after income taxes.

Speaker 2:
[16:30] So they're much higher than people see, and they are really quite burdensome, particularly for Avery and other self-employed workers who have to pay the full 15.3 percent themselves.

Speaker 1:
[16:42] I mean, I'm a freelancer, so I watch it go. I see it.

Speaker 2:
[16:46] But even when the employers pay the half of it, which they do for people who have jobs, economists believe that that is actually money that would otherwise go in the form of higher salaries to people. You might remember Mitt Romney and the 47 percent, right, of takers, not makers, right?

Speaker 1:
[17:04] In 2012, Mitt Romney was caught saying this at a fundraiser. 47 percent of Americans pay no income tax.

Speaker 5:
[17:10] I'll never convince them.

Speaker 4:
[17:12] They should take personal responsibility and care for their lives.

Speaker 1:
[17:14] Oh, come on.

Speaker 2:
[17:15] He said they don't pay income taxes. The most recent number is 40 percent that don't pay income taxes. But the vast majority of that group pay significant payroll taxes at quite high rates.

Speaker 1:
[17:27] So working people are paying the income tax, the payroll tax, and get this, working people are still paying most of the tariffs. Leftover from that old outdated system.

Speaker 4:
[17:40] We often say that tariffs are the hidden tax.

Speaker 1:
[17:43] This is our tariff expert Steve Lamar again.

Speaker 4:
[17:45] And I think that it's important for folks to understand that these tariffs, even when they don't see them, even when the headlines disappear, they still exist.

Speaker 1:
[17:54] To be very clear, tariffs existed long before Trump went all trigger happy with them, and tariffs still exist after his flagrant abuse of tariffs was deemed unconstitutional. But very critically, this whole narrative that tariffs are something that other countries pay, that's not true.

Speaker 4:
[18:09] The reality is, tariffs are taxes that are paid on US imports. They are paid by the US importer, the importer of record. They're not paid by foreign countries. They're not paid by foreign companies. They are paid by US interests. And ultimately, when tariffs make their way through supply chains, the tariff cost is felt by the ultimate consumer.

Speaker 1:
[18:31] And the ways that we, buyers of stuff, feel the effects of tariffs is not always simply in raised prices.

Speaker 4:
[18:38] We as consumers are going to experience this differently. It could be a back to school sale or a Black Friday sale that instead of being 50% off is now 40% off. Or it's not three for $10, it's now two for $10.

Speaker 1:
[18:54] And there is one category of products that was and is particularly subject to tariffs.

Speaker 4:
[19:01] We are the most heavily tariffed industry.

Speaker 1:
[19:04] Steve Lamar, our tariff expert, is actually CEO of the American Apparel and Footwear Association.

Speaker 4:
[19:11] This is the trade association for the apparel, footwear industry, textiles. Really the whole ecosystem of producers, suppliers, service providers that helped you get dressed this morning. We are still the most heavily tariffed industry.

Speaker 1:
[19:26] This is what gets tariffed, clothing. One Bloomberg estimate from 2015 claimed that 75% of tariffs that US households pay are from apparel.

Speaker 5:
[19:36] We've had a very high tariff system for clothing since the tariff act of 1816.

Speaker 1:
[19:42] Ed Gresser, vice president of the Progressive Policy Institute.

Speaker 5:
[19:46] And so for over several decades, the system evolved into a very kind of ugly way. And as you say, developed into mainly a way to tax clothes and shoes.

Speaker 1:
[19:56] The United States used to make a ton of clothes. We invented ready-to-wear. We were cranking out mass-produced clothes for the whole world. And we also had our domestic cotton and our mills. We had a whole homegrown industry. Tariffs were a way to protect our domestic clothing industry by making foreign clothes at that point, usually from England, more expensive.

Speaker 5:
[20:17] The Industrial Revolution businesses, Rhode Island and Massachusetts and sometime New York, felt that they needed a kind of very heavy level of tariff protection to get started. And they never gave it up.

Speaker 1:
[20:29] So it's just inertia. Clothing is so heavily tariffed, even though we don't really make a lot of clothing in the US anymore.

Speaker 5:
[20:36] What's the material of your shirt, can I ask?

Speaker 1:
[20:38] Oh, it's denim, I think.

Speaker 5:
[20:41] Denim, okay. That's probably, there's a 16 percent tariff included in that.

Speaker 1:
[20:45] But luxury items have almost no tariff, while cheaper items do.

Speaker 5:
[20:51] Cheap, mass-market things are tariff very heavily and expensive luxuries very lightly. So like my shirt, this is cotton and it's also 16 percent. If it were silk, it would be 0.9 percent, and if it were polyester, it would be 32 percent. And that is very, very typical.

Speaker 1:
[21:06] Cheap sneakers have a 48 percent tariff, while leather dress shoes have only an 8.5 percent tariff. Acrylic sweaters have a 32 percent tariff, cashmere sweaters only 4 percent, a canvas bag has a 16 percent tariff, snakeskin leather 5.3. You get it.

Speaker 5:
[21:24] The type of system we have is not a good one. When the more I looked at it, the more shocked I was, like, how do we let this happen?

Speaker 1:
[21:30] Why? Who decides this? Why is this?

Speaker 5:
[21:32] Why is inattention more than it is maliciousness.

Speaker 1:
[21:37] Really?

Speaker 5:
[21:38] When we had big clothing industries, if you go back to the 1950s and 60s and 70s, people who were making silk shirts and patent leather shoes and snakeskin purses, companies that make those sorts of things didn't really care much about what the tariff rate would be because they weren't competing on price with foreign rivals.

Speaker 1:
[21:59] Like, you don't buy cashmere sweaters or silk shirts for the bargain. You buy them because they're a fancy, expensive product.

Speaker 5:
[22:07] They're competing on image and kind of glamour.

Speaker 1:
[22:10] Right.

Speaker 5:
[22:11] Whereas people who make polyester shirts are competing kind of only on price and anything they could do to keep their competitors' price high, they would want to keep that.

Speaker 1:
[22:20] Those cheap domestic industries once advocated for higher tariffs, and then those just stayed even though it doesn't make any sense anymore. Especially because now, it's so rare that something is made entirely in the United States. We live in such a global economy.

Speaker 5:
[22:35] If you say heavy tariff on clothing, also heavy tariff on sewing machines and building materials and dyes, it's just not going to work. All you're doing is raising costs across the board.

Speaker 1:
[22:48] And this kind of blanket tariffing is really bad. I mean, I too would like more clothes to be made in the United States, but tariffs are not the way to do it.

Speaker 5:
[22:56] You could pass a law banning imports of clothes. People will need to buy clothes and there will be businesses that show up to make them, but it will be very expensive and there will be a large drop in living standards in the United States.

Speaker 1:
[23:08] And I also have to admit, when the Trump tariffs were beginning, I was like, oh, maybe these tariffs will end over consumption and fast fashion. But that's really elitist, like tariffs are not the way to do that.

Speaker 5:
[23:18] The opinions can differ, but I kind of personally tend to think it's a nice thing that we have cheap appliances in the United States. It's a nice thing that lower income young women have fashion choices. If there are environmental problems or labor problems that come with that, then sometimes those nice things should be secondary, but not always.

Speaker 1:
[23:36] Tariffs, Ed Gresser would argue, are not the way to address these larger, deeper problems. Tariffs tend to hurt any industry that makes stuff.

Speaker 5:
[23:45] Farmers, manufacturers, restaurants, retail and construction pay a lot.

Speaker 1:
[23:50] Right, more than stockbrokers.

Speaker 5:
[23:51] Yes, lawyer, stockbrokers, media companies.

Speaker 1:
[23:54] Intangible, white color industries are not impacted as much.

Speaker 5:
[23:58] It's a very inequitable sort of tax.

Speaker 1:
[24:00] And not just on a business level, on an individual level.

Speaker 5:
[24:03] Tariffs are tax on purchase of physical goods, basically. The types of people who spend a lot of money on goods are low income people. Like a single mom family, about 40% of the income goes to buying goods of various sorts, food and clothes. Very wealthy families, more like 10%.

Speaker 1:
[24:20] Can I ask about that? Why is it that lower income people buy more stuff? Like, don't rich people also need food and clothing and materials?

Speaker 5:
[24:29] Yeah, rich people spend more in dollar terms than poor people. But the money that wealthy people spend, they're much more likely to go to vacations and education and entertainment. And poor people typically have less money for those things. So it's going to hit the poor people harder.

Speaker 1:
[24:48] Oh, and also, this tariff system is overtly misogynist.

Speaker 5:
[24:52] Men's silk underwear, 0.9%, women's 2.1%, cotton 7.4% for men, 7.7% for women, polyesters 14.9% for men, 16% for women. Is this okay?

Speaker 4:
[25:03] No, this is awful.

Speaker 1:
[25:04] On average, there is a 3% tariff gap between women's and men's clothes.

Speaker 5:
[25:09] And that translates to about $2.5 billion extracted from women each year.

Speaker 1:
[25:14] And again, Ed Gresser doesn't think this was malicious.

Speaker 5:
[25:17] I think it's less like a group of people think we're really going to stick it to women, or we can high-five each other. Businesses making women's clothes were more aggressive and defensive tariffs than those making men's clothes. They weren't really thinking about what the outcome was going to be.

Speaker 1:
[25:32] But these tariffs are outdated, and no one in Congress has thought to be like, well, maybe we should reconsider them.

Speaker 5:
[25:39] There weren't that many people who are interested in this. I think for a long time, most people thought tariffs were boring and hard to understand.

Speaker 1:
[25:46] I mean, in Ferris Bueller's Day Off, it's what the teacher was droning on and on about.

Speaker 5:
[25:51] Anyone?

Speaker 2:
[25:52] A tariff bill?

Speaker 1:
[25:54] Anyone? Generally, people don't want to really think about these boring tariffs, although Trump's abuse of tariffs has really brought attention to them.

Speaker 5:
[26:02] There's not been this type of interest in tariff policy even to public.

Speaker 1:
[26:07] Yeah.

Speaker 5:
[26:07] In many, probably more than a hundred years.

Speaker 1:
[26:10] And now there's a proposed bill in Congress called the Pink Study Act.

Speaker 5:
[26:13] Which would require a Treasury Department study and report to Congress on gender bias and regressivity in the tariff system. So we're very enthusiastic about that.

Speaker 1:
[26:23] But in the meantime, all the tariffs are still there on clothing.

Speaker 5:
[26:26] If you want to avoid high tariffs, buy silks and cashmere, that will work.

Speaker 1:
[26:31] So rich people can get away with paying fewer tariffs by owning nicer stuff. And in addition, rich people have somehow managed to wiggle out of all the other taxes, out of the payroll tax, out of the estate tax, out of the income tax, out of so many other measures that were supposed to make sure they contributed fairly to society.

Speaker 2:
[26:53] Some people might be wondering how to rich people avoid taxes, and can I avoid taxes too? I'm going to tell you what the tricks are, and I'm going to forewarn you, chances are you can't do them.

Speaker 1:
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Speaker 2:
[30:05] This is 1950s or 60s.

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[30:07] So she's like, show them off for jewelry. Let's see who else is live. You can watch someone selling antiques. You can watch someone selling vintage designer handbags. There's someone broadcasting live from the Goodwill bins. And there's some amazing deals to be had.

Speaker 4:
[30:22] It's pretty old as a set, but I told you I got to keep them on your toes.

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[30:26] I just bought these flirty 80s earrings with fish on them for like 20 bucks. They really are like thrift store prices. It brings that element of luck and publicity and character back into shopping. Download the Whatnot app today and get free shipping on your first order. Just search Whatnot, W-H-A-T-N-O-T, Whatnot in the app store and start scoring amazing deals. I hate paying taxes. Even though I'm a good little liberal and I believe in more paved roads and universal health care and big government, still don't like it. It's not like you like paying taxes, right?

Speaker 2:
[31:04] No, nobody likes paying taxes.

Speaker 1:
[31:06] And that's okay. We're not supposed to like it. Professor Rae Madoff doesn't like paying taxes, even though she studies taxes and teaches tax law, and wrote a great book about taxes called The Second Estate. But as she once told me, taxes are supposed to be like this cat and mouse game where we, citizens, try to pay fewer taxes and find loopholes, and the government goes nuh-uh-uh, and we go, oh man, and we grumble, and we pay up. Like, that's how it should be.

Speaker 2:
[31:32] Right? And Congress is like, what, is something happening here? They're literally doing nothing. Congress is engaged in complete, quiet quitting and has done nothing to close any loophole since 1990.

Speaker 1:
[31:44] Here is how the wealthiest Americans pay no taxes.

Speaker 2:
[31:49] The first step of the tax avoidance playbook is to avoid salaries. Anyone who's getting a salary, complete sucker. You're paying income taxes, you're paying payroll taxes, it's all being withheld.

Speaker 1:
[32:04] Some of the richest Americans only take a small salary. I mean, it's small for them. It's only a tiny percentage of what their companies are worth.

Speaker 2:
[32:12] Warren Buffett, he takes $100,000 in combined salary and bonus, never more than that. Jeff Bezos makes $82,000 enough for him to claim the child tax credit, which he does.

Speaker 1:
[32:25] Mark Zuckerberg makes a dollar.

Speaker 2:
[32:27] Mark Zuckerberg makes a dollar.

Speaker 1:
[32:29] Larry Ellison also paid himself a dollar a year. Elon Musk once violated California labor laws by paying himself too little.

Speaker 2:
[32:37] But they are not just forgoing salary. Instead, they are being compensated through the enormous growth in value of their stock.

Speaker 1:
[32:47] Enormous growth.

Speaker 2:
[32:48] Buffett's wealth has grown by $50 billion over the past two to three years. Zuckerberg's has grown by 100 billion. Larry Ellison's has grown by more than 200 billion. Okay, this is just over the past couple of years.

Speaker 1:
[33:02] And all this accumulated wealth is just sitting there in their investments, and they do not sell their stock.

Speaker 2:
[33:08] They don't sell. That enables them to continue to control their companies, but it also enables them to avoid taxes. Because under our tax system, you do not pay any taxes unless you sell.

Speaker 1:
[33:21] So these guys are worth a lot, but it's all just sort of hoarded.

Speaker 2:
[33:25] Now you might say, but yes, they must sell though, because they want to support their lavish lifestyles. How else is Larry Ellison going to buy his Island of Lanai, which he owns all the businesses, all the real estate.

Speaker 1:
[33:38] Here is how they own all their fancy stuff. They borrow money.

Speaker 2:
[33:43] The way that they do it is they borrow against those funds, because there is always somebody available to lend them money at quite favorable rates, and borrowing is entirely tax-free.

Speaker 1:
[33:53] A lender is delighted to loan to Larry Ellison or Elon Musk.

Speaker 2:
[33:57] And as long as their wealth grows faster than that rate of interest that they're charged, which it does, then they are just always end up ahead.

Speaker 1:
[34:04] So you take out a loan to pay the loan?

Speaker 2:
[34:07] Yeah.

Speaker 1:
[34:07] To pay the loan.

Speaker 2:
[34:07] Or they just, or whoever first lent it to you is happy to keep lending it to you, because they're carrying a loan for which they're being paid. If somebody lends Larry Ellison $100 million and Larry Ellison is paying them whatever interest rate they want, they're happy. These are people in the business of making loans, and they're happy to keep those loans outstanding.

Speaker 1:
[34:28] So that's how a lot of these big tech billionaires do it. They take a small salary and then they just keep some asset that's ballooning in value, they don't let it go, and they keep borrowing money against it.

Speaker 2:
[34:38] A lot of these guys do borrow heavily. They get quite favorable rates, and paying the interest is much cheaper than taxes.

Speaker 1:
[34:46] The other way to have a lot of money without paying taxes is...

Speaker 2:
[34:50] Acquire money the old-fashioned way and inherit massive wealth.

Speaker 1:
[34:53] Inheritance is tax-free.

Speaker 2:
[34:55] Because under our income tax system, no matter how much you inherit, you don't pay any income taxes on it. It's entirely excluded from income taxes.

Speaker 1:
[35:05] Someone who inherits $10 million or $100 million or even $100 billion doesn't have to report it on their income tax returns.

Speaker 2:
[35:13] So we have this really comprehensive income tax system, except you inherit $100 million, don't worry about it. So we have a very different system for people who inherit wealth.

Speaker 1:
[35:25] So why is that the case?

Speaker 2:
[35:26] Well, because the rules were put in place on the assumption that we have a robust estate tax.

Speaker 1:
[35:32] That tax on inherited property, the estate tax, but it doesn't actually work. It has become functionally eliminated. It's just there, a ghost of itself.

Speaker 2:
[35:43] Estate and gift tax rates have come down from like 90% to 40%.

Speaker 1:
[35:48] Payroll taxes have gone up and tariffs have gone way up. And meanwhile, the shrinking ineffectual estate taxes over there are pretending to level the playing field.

Speaker 2:
[35:57] So this is all a result of a campaign that was funded by 18 of the country's richest families, the Cokes, the Waltons, the Mars family. The Mars family are big players in this story. Who knew candy was so profitable? Although then you read like they also do pet food. I'm like, okay, that's crazy. These people have so many, many, many billions. These families got together because they were like, we got to get rid of this estate tax. And so they funded this campaign to get rid of the estate tax.

Speaker 1:
[36:29] An amazingly effective campaign.

Speaker 2:
[36:31] They hired this guy by the name of Frank Luntz. Remember when we used to talk about global warming? And remember how scary that was? It's getting hotter. It's awful, right? Frank Luntz gave us climate change. It's just different, not necessarily worse. It's just a change.

Speaker 1:
[36:47] He's a genius.

Speaker 2:
[36:48] He's a genius. Anyway, he is the one that came up with this phrase, death tax.

Speaker 1:
[36:53] He rebranded the estate tax as the death tax.

Speaker 2:
[36:58] Because a death tax sounded both scary and mean. You know, like 10% of Americans wanted to get rid of an estate tax, but like 90% wanted to get rid of a death tax.

Speaker 1:
[37:10] Even though the vast majority of Americans would not be rich enough to be subject to the so-called death tax, like the estate tax only applied to 0.07% of descendants. There was this campaign to turn it into a scary thing that people would want to dismantle, and it was so successful. Trump said he would fight the death tax, but when he had the opportunity to eliminate it, he didn't. It wasn't in the Big Beautiful Bill. Because the 36-year-long marketing campaign against the estate tax has rendered it pretty useless, and all the rich people are very happy to let the estate tax stay in its winnowed down state so it's just a shell of itself.

Speaker 2:
[37:48] The estate tax is really just a tax in name only that really provides cover for the wealthy and no real burden.

Speaker 1:
[37:56] Ray Madoff thinks this is kind of a lost cause. It's not worth trying to fight to make the estate tax robust again.

Speaker 2:
[38:02] So I don't think we should save the estate tax. Personally, I think we need to abandon the estate tax.

Speaker 1:
[38:07] Because it makes rich people look good. It makes them look like they are paying their share. Just like all the charities rich people give to.

Speaker 2:
[38:17] They give philanthropy. They create their foundations, and it's so great, and we all benefit. And one of the things that concerns me about this is that the wealthiest Americans don't typically do their giving directly to charities. Instead, they give to their own donor-created private foundations and donor-advised funds. And basically, they're ways for people to put money aside, get the tax benefits up front, but there's no payout requirement at all.

Speaker 1:
[38:46] So they can just park it?

Speaker 2:
[38:47] You can just park it. And the financial institutions benefit when you don't spend it. They have every incentive for you not to spend.

Speaker 1:
[38:54] Private foundations are required to spend 5% each year, but they can just stick that in a donor-advised fund, where it can just sit and not necessarily help anyone.

Speaker 2:
[39:04] So we have these rules that are like pretending to do something that they're not.

Speaker 1:
[39:08] It's kind of unfathomable the impact that so much money could have on the world. The 400 richest people in the United States could, like, advance humanity in incredible ways. They could afford to completely eradicate malaria, provide clean water and waste disposal to every human being in the world, give every American household $10,000, and give a four-year federal tax break to all households earning less than $80,000. They could do all of those things, and they would all still be billionaires after that. There's just too much at stake here to let this obscene wealth go unregulated. So this is Ray Madoff's solution. Here's how you tax the rich.

Speaker 2:
[39:54] Let's simplify the system and have one system for everyone.

Speaker 1:
[39:57] The government can bring gifts, inheritances and life insurance into the income tax system, where they belong. Rich people should have to report that stuff.

Speaker 2:
[40:06] What we need to do is we need to bring in inheritances and investment income into our income tax system just the way we do salaries.

Speaker 1:
[40:16] It should be that when you inherit property or wealth or stocks, you get taxed.

Speaker 2:
[40:20] We could say that everyone can inherit even a million dollars tax-free, but after that, they should pay income taxes on it. The way we pay income taxes on lottery winnings or anything else.

Speaker 1:
[40:32] I do love how you have this like come into this. It's like this invitation.

Speaker 2:
[40:36] Yeah, so fun. The water is fine.

Speaker 1:
[40:38] This is the proposal for the super rich. Join the rest of America. Pay what we all pay, feel what we all feel, and be a part of our society. You're not supposed to like it. None of us do. And then, once you do start paying in, you're totally allowed to go back to wearing tiaras and renting elephants again. By all means, please do that. Articles of Interest is made by me, Avery Trufelman, with very, very special thanks to Ray Madoff and Ed Gresser, not only for your insights that you shared in the story, but also for listening and fact checking this piece to make sure I got things right. Music by Ray Royal, Sasami, and Lulatone. If you'd like to get an idea of how much wealthier Jeff Bezos is than a doctor or a lawyer or a hedge fund manager, or even Beyonce, he's so much richer than you could imagine. I'll have a visualizer up at articlesofinterest.substack.com.

Speaker 4:
[41:39] Radiotopia, from PRX.