I'm going to give you a number which is truly shocking. When the top 1% of Americans had $55 trillion, which is how much they had in 2025, the total amount raised by the estate and gift tax, which is supposed to be a 40% tax on all transfers during life or at death, the total amount raised was $28 billion. Wow. That's 0.6%. It's nothing. And it's not because of the exemption amount. It's not because of the lower rate. It's because people are able to avoid the tax altogether. And that's what the problem is. So when people say it doesn't matter if we tax the rich, that is just simply not true.
Today's number five. That's a number of days left until Prop Markets kicks off its live tour in a sold-out show in San Francisco. Tickets are still available in Chicago, Los Angeles, and Miami.
Ed, no joke today.
Claire was giving me [__] about our guests showing up in 20 minutes, and I just didn't have time to find an offensive yet not too offensive joke. So, I'm going with our constant self-promotion of the tour.
Well, the promotion is very important, especially for all of our Chicago listeners and our Miami listeners. I think we need to pump crypto a little bit if we're going to get all the Miami people to show up to the Fillmore. I think that's something that we should maybe get into. We've got 5 days left to pump some altcoins. Maybe we could get into some rocket, maybe some Faultcoin. Maybe just keep it simple and stick with Bitcoin.
This is just making a whole lot of sense to me.
Yeah. No, this is so I told you who I came up actually this wasn't my idea. This is who we're going to invite. Although we're trying to track him down, but I think it'd be great if he said yes. So, if he's listening, I think we should have Adam Newman.
That's not a bad idea. I agree. You know, he's actually an incredible speaker and communicator. Everything he says, he just...
Did I tell you my story about Adam Newman?
I don't think so. Not coming to mind.
So, I was invited to the JP Morgan Alternative Investments Conference, which is literally one of the I'd kind of second only to Davos in terms of what would happen to the GDP if all of a sudden the earth opened up and swallowed all the people there. And they have me do my predictions thing. I've done it twice, I think. And then they have me interview somebody. And the first year I'm up there, I did my predictions thing. And I said, 'And now I want to welcome to the stage Adam Newman.' And I interviewed him and he went into his whole rap about community and elevating the world's consciousness and everything else he figured out on a wild mushroom trip that thought he could turn into a public company. So we did this thing and he was like wearing no socks. He looks like Jesus. He's very handsome. He's very compelling. He has a whole rap. And then there was a movie called We Crashed where I played me. No, I didn't play me. Kelly Aucoin from Billions played me interviewing him. Somebody got a hold of the transcript. And the next year I was invited back and they had me interview some influencer who's come and gone. I don't even remember her name. And at the end of the thing I said, 'And by the way, you know who the last person I interviewed on the stage was?' And she said, 'What?' And the audience went stone cold silent. I said, 'Adam Newman.' And I guess that was not the right thing to say according to JP Morgan executives. And I have not been invited back. I have not been invited back. Yeah. I've also been disinvited from another unbelievable gathering that I went to for the first time last year because I've been saying that Elon Musk would lose his case. And I guess the guy who hosts the events, the event is butt buddies with Elon.
That's a shame. But you were right. I mean, that's what we learned this week. You were right.
I have that, Ed. So that's all that really matters. Yeah. Yeah. I actually I don't remember the story itself, but I remember watching it wasn't a movie. It was a show. It was a series.
It was Apple. We crashed.
Yeah. Exactly. On Apple with Jared.
And I remember seeing that scene.
Yeah. With Kelly Aucoin who played you very very well. That was I believe he was on Billions I want to say.
Yeah. Dollar Bill on Billions.
I mean he crushed that role. He nailed you.
Yeah. He's been on a lot of stuff. I thought he played a better me than me. We should have him stand in for you on this show at some point.
You know, I'm all for it cuz I'd like to go buy I'd like to go get tapas right now.
You got about 15 minutes. Why don't you order some room service? Get yourself a snack.
I did. It's sitting here. I'm in this beautiful hotel that feels like some, I don't know, prince or someone lived here and then got beheaded. But yeah, it's beautiful. I haven't been to Lisbon in a while.
Very exciting. Well, we're going to learn all about princes in a second with our guest. But before we do that, I'm just going to reiterate we are heading to LA on the 28th where we will have Ted Sarandos, co-CEO of Netflix. He will be our special guest. We'll be in Miami on May 30th. Then in Chicago on June 1st, Governor JB Pritzker is joining us on stage. Tickets are still available to that show. Also still available for the Miami show. And then on June 2nd, we're finishing things off in New York City with the one and only Anthony Scaramucci. I think there might be a couple tickets left in New York City. It might actually be sold out. Either way, go check it out. Go see if they're available. profgmarketsour.com to secure your tickets. It's going to be a lot of fun. We're going to have a Q&A section at the end. You'll ask some questions. We'll do our song and our dance and we'll have some interesting voices on stage to discuss things with us as well. Very excited. profgmarketsour.com.
Ed, should we get on with the show?
Let's do it. Hey guys, if you haven't already, please subscribe to our ProfG Markets YouTube channel. And if you want to get notifications of our latest episodes, click the bell icon as well. Thank you. Wealth inequality is reaching a breaking point in this country. The top 1% now command roughly a third of the nation's wealth. Meanwhile, the bottom half of Americans control only 3% and 1 in 10 Americans still live below the federal poverty line. One instrument that might have created this divide is the tax code. There are a number of loopholes in the tax code that have enabled America's wealthiest to increase their wealth. And today, the average American is paying a higher tax rate than the wealthiest 400 people in the country. Meanwhile, audit rates, particularly of the ultra wealthy, have collapsed to a historic low. We've spent some time discussing these issues on the show, but we wanted to bring in someone who has dedicated their career to studying how the tax code shapes inequality and how the wealthiest Americans use it to preserve and to grow their wealth across generations. So, this is our conversation with Ray Madoff, professor at Boston College Law School and author of The Second Estate: How the Tax Code Made an American Aristocracy. Ray, thank you so much for joining us on the show. I'd like to start with a potential rebuttal to your thesis, which in so many words is that the wealthy are not paying enough in taxes compared to the rest of us. And then we'll get into the conversation. But the rebuttal, the statistic that a lot of people use is the fact that the top 1% of Americans pay 40% of the federal tax revenue in America. So if that is true, if the wealthiest are paying most of the taxes, then the first question is what's the problem?
First of all, thank you so much for having me. I know that the two of you talk a lot about taxes and it's wonderful to have the chance to join you in conversation on this important topic. And I am particularly grateful that you have started with that question because I call that the statistic that saves the rich from taxes and we see it being published in lots of publications. Wall Street Journal, The Economist, the Washington Post has now joined in and this is a statistic that is both true and highly misleading. And so the way it's described is the top 1% pay 40% of all income taxes. But what they're not saying there is what do they mean by top 1%? What they're actually talking about is the top 1% of income earners. Those with high taxable income, high paid lawyers, bankers, surgeons, anybody with a very high salary. And those people are indeed paying heavy taxes. And however, the problem is that this says nothing about our wealthiest Americans. And that is because our wealthiest Americans avoid income taxes by avoiding taxable income. And as a result, they are just as likely to be in the 40% of Americans who pay no income taxes as they are in the top 1% that pay 40% of income taxes. So the statistic that we find quite fascinating here is that Americans pay an average effective tax rate of 30% and then among the 400 wealthiest Americans the average effective tax rate is 24%.
And that goes back to what you have just laid out which is the difference between making your money via income and then making your money via wealth via the appreciation of your assets. Just so that we're all on the same page about what this difference is, could you lay out exactly what that difference is? How do the wealthiest, the very very wealthiest make their money compared to, let's say, just average wealthy or even average American or average American.
Yeah. So, let's start with the tax and the tax lives of most Americans. The tax lives of most Americans is that they earn their money through work. As I imagine the two of you do and I do and most of our listeners do, right? And whether they work as independent contractors, whether they work for somebody else, they are subject to the heaviest taxes. They're subject to income taxes at rates up to 37% and payroll taxes at rates at 15.3% rates. And payroll taxes are paid. They're we call them the hidden taxes because most Americans don't even realize that they're taxes. They show up as things like FICA and FUDA. Very hard to understand what they are. They're called contributions, not taxes. But they actually impose quite heavy taxes so that somebody who a self-employed person who earns $60,000 will pay more than $13,000 in federal income and payroll taxes. That is a significant burden for somebody trying to get by on a $60,000 salary. As people go up the income tax brackets, the taxes get even more burdensome. So a very high-income person will pay typically 50% in taxes. Maybe a little bit more if they're in a high tax state. And so they are paying significant amount of taxes. Now let's move over to our wealthiest Americans. All the names that we have all come to know so well Buffett Bezos Musk all of those fellows and for that group they live a very different tax lifestyle and that's because they acquire their wealth they do not acquire their wealth from salaries when we the one thing all of them have in common is that they take very low salaries the most highest paid salary of all in that group is Warren Buffett And he has never made more than $100,000 in both salary and bonus combined.
Yes. And he even cuts it back a little bit to pay for the fact that he sometimes uses his office space for his personal investments. So he charges himself for that and further reduces his salary. Jeff Bezos has always kept his salary at 82,000 which has enabled him to claim the child tax credit which he has done in the past. And all the others are just dollar a year guys. And so they take no salary so they don't pay payroll taxes, they don't pay income taxes, pay very minimum taxes on that side. And so then well why were they not taking taxes? As you said, are they just being humble? No. The what they are doing is they are counting on the growing value of their stocks. All of these people own significant amounts of their companies and their stocks have appreciated extraordinarily in value. So if you look just since 2023 there many of their have seen stock growth between like 50 and 150 billion dollars just in the past 3 years. It's been extraordinary that amount of growth. So then the question becomes, I mean, if they're making their money because their stocks are going up, well then how are they paying for their lifestyle? Like you can't buy a Louis Vuitton handbag with Amazon shares. You need to pay with dollars. So if they're not getting salary, then how are they paying for themselves?
Exactly. And the key here is that they are using their stock and other assets to as collateral for loans and they are able to get very favorable rates on their loans because they have so much wealth. Right? So this is an extremely well-secured loan and they borrow lots and lots of money to support their lifestyles and they borrow enough money to cover the interest payments which are usually pretty modest because of the fact that their loans are so well secured. So they're able to support their lifestyles and their borrowing by borrowing. Now some Americans might think, 'Yeah, but surely they've got to pay that money back.' Because the rest of us are used to loans where we're given maybe even 20 years for a house loan or 30 years, but our other loans, you know, they want them back in a set period of time. The difference is for the very wealthy, there are all sorts of people in the business of lending money. And when you have these very well-secured loans, there's always people ready to just lend you money and to keep lending you money on that loan because they get paid for that service of lending money. And so there's never a problem rolling over the loans or getting somebody else to give you a loan. These loans don't really have to be paid back because of the big market of people that are in the business of lending money.
I'm glad that you laid it all out for us there because I just want to make sure that all of us are on the same page here. We're not saying or you're not saying that the lawyer or the doctor who's making 300 $400,000 a year isn't paying enough in taxes. Those guys are paying, as you say, 50% in taxes in many cases. What we're saying here is that there are a handful of billionaires who make their wealth via the appreciation of their assets. And because of the way that the system is set up where you can essentially just borrow against those assets and especially at a very low interest rate, the more money you have, what it basically means is that you can get by as a billionaire paying almost nothing in taxes. And that's the point.
The only tweak I'd like to make to that otherwise perfect description is that we're not just talking about a handful of billionaires. Somebody who has $100 million could still do this, right? And so it's a much larger group. I think it makes it we make a mistake when we describe this as a billionaire problem because the problem really is for anybody who has enough assets that they don't need to work they can depend on the growing value of their assets they too can avoid taxes and that's why our problem that's why our system is so problematic is because it loses so many people and that's the real problem.
So professor and that'll bridge us nicely into I possible solves. I want to propose two possible solves and get your response. I think what we want are taxes that are the least taxing. And one of my intellectual role models is a guy named Daniel Kahneman and the Israeli American psychologist who writes a lot about money and basically came to the conclusion that money does buy happiness, but it flattens out at a certain point. Which says to me if we're in fact going to need to fund our navy and our parks that the least taxing tax would be an alternative minimum tax. I think trying to redo the tax code which has been weaponized by wealthy people and corporations would be a full xarant. But an alternative minimum tax of say 40 or 50% on any income investment gain or if you borrow against that that's a trigger for capital as an event and alternative minimum tax of say 40% on corporations. And then the second thing would be to lower the estate exemption from 30 million to 1 million. And I believe no one gets hurt, no decline in the quality of life, and you can fund the programs that substantially increase the quality of life and general well-being and happiness, universal child care, food stamps, tax credits for young people trying to buy homes. I would put forward to you and I want you to nullify or validate my thesis that the illusion of complexity has been weaponized by the incumbents. Get rid of the estate tax exemption, alternative minimum tax on any income above a million dollars or corporations making above a certain amount.
I agree conceptually that we need to bring in investments and inheritances. I think that description is a little bit I want to push back a little bit on the on the because the alternative minimum tax is a what that is is it's something that disallows deductions. Okay? So you can't take a charitable deduction. You can't take a home interest deduction. It doesn't do anything about the problem that we have in our system of the failure to tax appreciation which is a problem of realization. That's separate from alternate from deductions and about the failure to tax inheritances which again are subject to broad exclusion. So the problem that we have as I see it as a tax person it's I share the I share the desire for the solution which is we need to bring investments and inheritances into the tax system but I disagree with the alternative minimum tax and estate tax framing the alternative minimum tax for that reason that I say the alternative minimum tax is really about deductions and so it's not really about all these things that are written out of the system. You say well then we should write them into the system. So that's how I would focus on it. I agree we should bring in appreciation. The problem is if you tax appreciation as it occurs currently each year, right? That's which is I don't know if you're proposing that that was one of the right. So how are we going to handle this appreciation? Right? We have all these guys they're walking around with hundreds of billions of dollars. When are we going to tax those gains? And different proposals have been made. Right? Some say we should tax them each year as they occur. I think that's going to be too burdensome and too complex for people to understand. So what I think we should do is say that whenever the person transfers the property, whether they transfer it by gift, whether they transfer it at death, whatever they do with it, once they no longer own it, then they should tally the gains and pay taxes on it then so that the person who earns that income earns those profits pays taxes on them. Our failure is to not tax the appreciation to the person who earns it by letting them pass it tax-free. In Canada, they have this rule which says that whenever you transfer the property, we're going to tally the gains. And I think we should have that rule here for purposes of investment gains.
I 100% agree with that. What you're basically saying is what is the trigger for when something becomes a capital event where it's subject to taxation.
And the basic strategy now is buy by investing in your own company or buy a stock, borrow against it, and then die and get a step up in basis. So, I think we're brothers from another mother here. I think the wealth tax is class welfare. I think it makes for a speech. All you're going to do is fill the pockets of every accounting firm and trying to assess value. I can't imagine what a boon it would be for appraisers trying to convince you that one property is worth negative value and then try and figure and we've talked about this. 16 countries have proposed a wealth tax. 13 have repealed it. They don't they typically just don't work very well. But the only thing I would add to you in terms of it triggering a capital event that's taxable is when they borrow against it. And that's fine. I'd be perfectly happy to do it.
I think there are some problems because first of all, you can borrow against any number of assets, right? You might have loss assets that you can borrow against. So it's not really clear. And also people's borrowing is very small in relation to their total wealth. So the only thing I'd be concerned about when we talk about taxing borrowing is I wouldn't want that to be seen as the solution to the problem because when somebody has $200 billion, you know, you can live a pretty good lifestyle with just a billion dollars. Hard to believe. And so then we don't want people to think they're solving the problem by taxing borrowing. So, that would be my only hesitation as you and I are fine-tuning our tax systems.
We'll be right back after the break. And by the way, we're heading out on tour next week. So, for more info and to get tickets to a show near you, head to profgmarketour.com.
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We're back with Profy Markets. So, Ray, one of the things you propose here is that we don't see enough realization events for the appreciation of assets. And you know you keep on borrowing you borrowing you borrow you borrow against your assets continually continually you never have that moment where you sell those assets and then realize the tax. And so you're saying anytime there's any transfer of any kind if you donate it if you transfer it into a new account that is a moment to say okay let's figure out how much the assets have appreciated and let's tax them. One thing that I that is confusing to me though is we do have a moment where rich people do transfer assets and that is when they die and they hand it over to usually their children. And so the question for me is and that that is this is the estate tax that's we tax those assets. Why isn't that working? Why is that a problem still?
And that's a really important part of this conversation of understanding this issue because we have all these seeming failures in our income tax system, right? We don't tax appreciation. We also don't tax money received by inheritance. So if you find $100 on the street, you leave your office, you found a hundred bucks, you are supposed to report that to the IRS and pay taxes on it. However, if somebody hands you a million dollar or $10 million or even $10 billion, you don't even have to report it. You don't have to tell anybody. You don't have to pay any taxes on it. And that also applies to money you receive by life insurance and money you receive by gifts. All of that is entirely tax-free. Well, why do we have this enormous giveaway in the income tax system? The answer is because we count on a robust estate tax system sweeping up and making sure that these untaxed forms of income are eventually subject to tax with what had previously been a pretty onerous tax. The estate tax was enacted just a couple of years after the income tax 1916. We've had it a long time and for a long time it did its work. Basically we had a tax and we had a Congress that kept up with reforming the tax. So in 1976 and 1986 we had a problem of these long-term trusts and Congress enacted this whole additional tax as a backup called the generation skipping transfer tax. Then we had a problem with valuation gaming techniques. So four years later, Congress enacted special valuation rules and a whole other, you know, group of a whole other section to the code and these were both enacted under Republican president. So this was broad bipartisan supported keeping this tax up to date. However, what you know, you and your listeners might might remember or well, I guess maybe Ed, you might not remember it, but maybe you've heard about it.
Pretend you did. Before you were born, there was in the early 1990s a campaign funded by 18 of the country's richest families. And that campaign was designed to turn the public against the estate tax. They sought estate tax repeal. And George W. Bush was a big carrier of the banner. And 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 we're going to 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 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. And so, as a result, over the past 36 years, there has been a proliferation of tax avoidance techniques that have been allowed to occur. They all have this sort of Dr. Seuss sounding names, Kratz and cruts, clats and cluts, grats and gruts, qerts, Q-tips, Q dots, the whole panoply of them. And as all of these exclusions have developed, the estate tax has been completely corroded. So it no longer does anything. Not because the exemption is too big, which it is big. It's 15 million and it used to be 1 million. But because of all of these things that take these transfers out altogether and so to raise or lower the exemption or raise or lower the tax rate will not be effective because this tax has been effectively killed. And so we're not going to start seeing all types of robust action with respect to this estate tax. And I think it's because the estate tax, it wasn't just well, we're always vulnerable to rich people. I think the problem was that the estate tax had an Achilles heel and that is that it was theoretically designed to be imposed on the donor. And so what that on the dead person and so what it meant was for those individuals who indeed paid high income taxes their whole lives, right? They paid lots of income taxes. Now we're imposing a second tax on them. And it seemed kind of just punitive in some weird way to the public. This was made easier because the public doesn't know very much about what happens on the income tax side. Most people don't know that money receives by gifts and inheritances and all of those things are tax-free. And I know this is true because in this area a lot of people ask me, well, if I give more than $19,000 to my kids, don't they...
have to pay income taxes on it? This is because of some gift tax exclusion amount. But people are confused about this. And so the estate tax is a kind of an awkward tax and it made it easy for Congress to stop acting.
What's particularly interesting is that the estate tax has become so ineffective that, and I'm going to give you a number which is truly shocking, when the top 1% of Americans had $55 trillion, which is how much they had in 2025, the total amount raised by the estate and gift tax, which is supposed to be a 40% tax on all transfers during life or at death, the total amount raised was $28 billion. Wow. That's 0.06%. It's nothing. And it's not because of the exemption amount. It's not because of the lower rate. It's because people are able to avoid the tax altogether. And that's what the problem is.
I was just about to ask you if there is a rough number that we can estimate on how much we are losing to this issue, to this estate tax loophole, and you've given us our answer there, north of $20 trillion, close to $30 trillion, it sounds like.
Right. If you think about that, we're designed, we're supposed to have a tax on the top 1%, and that percent has $55 trillion. By the way, this is a time where the total revenue raised by the federal government is like $5 trillion. So they have massive amounts of wealth. So when people say it doesn't matter if we tax the rich, that is just simply not true.
It almost sounds as if fixing this problem would do a lot, would solve a lot of our problems. And this gets to something else that I'd like to get your views on.
Yeah. Can I add one more piece here before we go? Yeah. I think the thing that makes it most telling that the estate tax is actually something that now works as a cover for the rich rather than as a burden is the fact that in 2025, a time when the Republicans fully controlled that new tax bill and they easily could have repealed the estate tax, they chose not to do it. No mention of it. It had been their number one issue, but now all of a sudden they didn't care. And that's because they wanted to preserve all of the income tax benefits they got when there was an estate tax that provided cover.
