That's the end, yeah.

That's the end.

But right now, you have all these people very concerned, and even the Wall Street Journal wrote, "We gotta do something about taxes here.

We have to because we have all these rich people, and they're an affront to what it means to be an American, 'cause what it means to be an American is to work hard." Even de Tocqueville, who was that, you know, famously reflected us about what the American culture was, said, like, "What makes America America is that everybody values work." Now we got a bunch of rich kids sitting around, and they're showing off their money, and this is very destabilizing.

So the answer, even though Teddy Roosevelt was a big advocate for it, he never got it through.

It wasn't until 1913 that we got first the constitutional amendment that allowed the new income tax, and then three years later, the estate tax, and then in 1924, the gift tax to back up the estate tax.

So now we had a way that we were actually going to tax rich people.

Yeah, yeah.

Yeah

... with, uh, with, uh, Donald Trump's love of tariffs.

Tariffs were pretty much the only game in town for raising revenue, and, um, the problem with them was that they imposed their greatest burdens on farmers and consumers and anybody who needed to buy things that they were living on.

Uh, they were the ones that bore the burden of taxes, and business people, people who were selling things, uh, the wealthiest, they, uh, they benefited from the system of tariffs because they were able to raise their prices without worrying about foreign competition coming in and underselling them.

So people were getting it high prices from both ends, both from foreign imports and from domestic providers who were all imposing higher prices.

Um- So, uh, the thing that, that was also happening at the time was this was the time that we think of as the robber baron era or the Gilded Age, right? It's the time where we had massive growth of extreme wealth on one end and extreme poverty on the other end.

So this was a time where many of these richest Americans whose names are known to us today, right, like, uh, uh, Mellon and Carnegie and many of these super rich people were, uh, you know, controlling the country.

Hmm.

And meanwhile, the real people like the heirs and heiresses to the Mars candy fortune

are behind this.

And these are the real people who benefit.

Absolutely.

The most effective person they had was a Chester Thigpen, who was the grandchild of sharecroppers.

And he was this tremendously powerful—he had a Christmas tree farm in— I think it was somewhere like Alabama, somewhere in the South.

And he was the face of the estate tax repeal movement.

You want to talk about that for a minute? Yes,

... give me a couple of the ways that the rich, the super wealthy avoid taxes.

Well, I think the thing that is important for your audience to understand is that, um, this is not just like, oh, there's this little thing here, and there's that little thing there, right? That's maybe how it was back in the day when we had tax shelters and things like that.

People could set up things to offset their income.

The problem today is much more systemic, and the problem is that people who earn money through work, whether they ha- get a salary or whether they're a gig worker, whether they're an independent contractor, anybody...

And even if they barter their work with somebody else, anybody who works for a living is subject to high tax rates that are very difficult to avoid, and that is because compensation from work cannot really be offset very easily.

And so anyone who works pays high taxes.

The people who are able to avoid taxes are people who have enough money, just like the second estate, that they can live off of their investments and inheritances.

So is that, do you think that wealth tax as proposed or even a perfection of that wealth tax is a good way forward?

So Could you kind of share with us, Professor Madoff, like why that is not quite how it works?

Exactly.

So first of all, your clients are right.

They are the ones that are self-employed people are hit the heaviest with taxes.

So they have income taxes, as you said, up to 37%.

And on top of that, they have payroll taxes that are at about 15.3%.

And those payroll taxes start right away at the first dollar earned, unlike income taxes, which have pretty large exemptions.

For somebody

I'll pretend I do.

[laughs] Pretend you did.

Uh, before you were born, there was, in the early nineteen nineties, a campaign funded by eighteen of the country's richest families, and that campaign was designed to turn the public against the estate tax.

They, they sought estate tax repeal, and George W. Bush was a big carrier of the banner.

And they-- their most effective thing that they did was they hired this guy by the name of Frank Luntz, who was a communications expert, and he said, "Never call it the estate tax because that sounds like something that's for rich people.

Instead, call it the death tax, and we'll bring this campaign, and we'll say it's unfair, and it's a double tax, and it hurts family farms and businesses, and, and we're gonna run this campaign." And this campaign was extraordinarily effective, not for their goal that they sought to achieve, which was actual get rid of the estate tax from the, from the books, but it was successful in a way that was ultimately even, I'll argue, more successful, which is what they did is they were so successful in their campaign to make people feel uncomfortable with this idea of the estate tax-That Congress stopped doing its job in terms of closing loopholes.

Indeed, the last time that Congress has closed a single loophole was in 1990, 36 years ago.

Mm-hmm

The last time government decided to tax the rich, to soak the rich, did billionaires flee or the equivalent of billionaires?

Well, I think we have to look at the difference between the states and the federal government, as they each have separate strengths and challenges.

Uh, the federal government has long had a system that is designed to impose its greatest burdens on those with the greatest capacity to pay.

We've had this system since the early 20th century.

In 1913, when we enacted the first income tax, it was geared only to the very richest five percent, and even as it expanded to include everyone, we had progressive rates to impose greater burdens on those with the most income.

And in addition, since 1916, we've had an estate tax, which as Kyle explained earlier, was designed to serve as a backup to any of the problems in the income tax system by imposing an additional level tax on the wealth of the richest one to two percent of Americans, uh, when they, whenever they gave away the property, either during life or at death.

And together, they were designed to address the problem, and they were very well accepted.

[chuckles]

They want to look just like us and pretend they pay what we pay when they don't at all.

And sometimes people say, "I don't wanna tax the rich because I'm gonna be rich someday, and then I don't wanna 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, right, they're moving two steps forward, one step back.

Meanwhile, the richest Americans are moving two steps forward, four steps forward, six steps forward, 100 steps forward, 1,000 steps forward.

That's the payroll tax.

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.

When you hear that, that sounds like a very soak-the-rich kind of code.

Absolutely.

And the problem with that statistic is it's misleading on both ends.

So let's start first with the forty percent of non-payers.

You might have heard this in terms of Mitt Romney talking about the forty-seven percent, which is what it was when he was running for office, and he was caught on a hot mic saying, "Forty-seven percent of Americans are non-payers, and therefore, you know, they'll never vote for me because they're just takers, not makers." The thing that he didn't account for is the tremendous burden imposed by payroll taxes.

And even though forty percent of Americans don't pay any income taxes, they still pay significant payroll taxes.

Indeed, today, I just read a statistic that eighty percent of Americans pay more in payroll taxes than they pay in income taxes, and these can be quite burdensome because, unlike income taxes, they start at dollar one.

I want a dynasty trust.

So how is it that the wealthiest Americans manage to pay relatively little in taxes?

Yeah.

That's right.

Um, the reason is that the wealthy are able to follow what I call the tax avoidance playbook.

So whereas most Americans can't avoid taxes because they rely on salaries to live on, and salaries are subject to quite heavy taxes, right? Income tax rates as high as thirty-seven percent and payroll taxes on top of that, which are as high as fifteen point three percent.

So we have serious taxes on earnings.

So the very first step of the tax avoidance playbook that the very rich do is that they don't take salaries.

But why is that?

When we talk about taxing someone's wealth as opposed to their income, what do we mean? And why is this a solution that people like to talk about when dealing with the wealth or the income gap in the U.S.?

Yeah.

And I think the answer is because of the failure to tax income.

I'm going to start on the income side because I think that's the tax that most people are most familiar with, right? Most people who are well off are well off because they get salaries and other forms of taxable income.

And the more taxable income you get, the higher taxes you pay.

The thing is, for our richest Americans, all these guys in Silicon Valley, they have found ways of avoiding taxable income.

And they do it by following what I call the tax avoidance playbook.

So are these state-led measures just a bad idea?

So let me begin by asking you the basic question: How is it that our tax system doesn't offset the inequality so that we see greater inequality today than we did five years ago, and that was worse than it was 10 years ago? It, it's really extraordinary.

Thank you so much.

First of all, that's a perfect setup for the, for this discussion.

Because, in fact, our system that we have today was put in place a little over 100 years ago to do exactly what you said, to serve as a counter to the excesses of capitalism.

And it was designed to do so by imposing progressive income taxes, right? So that the more income you had, the greater taxes you paid.

And on top of that, an additional estate tax that was designed to be imposed on the richest 1% of Americans to ensure that their transfers by gift and at death would be subject to an additional level of tax.

And all of this was designed to make our system highly progressive and to basically serve as a counter to the excesses of capitalism.

What are they doing that, uh, that enables them legally to escape?

They don't pay tax.

So we had this estate tax in place for this whole period.

But the important thing about the estate tax was it wasn't just created as a one and done.

It was created and then as loopholes were created, Congress did its job and came in and closed the loopholes.

So, for example, one of the long-term problems was that people would create these long-term trusts.

right, that would go from grandparents to parents to children to grandchildren.

And the way the tax rules worked, they were only subject to tax when the money went in, and they were never subject to tax as it passed from generation to generation.

And then the minute the clock takes over to January 2010, they're like, okay, I can die now.