Our Tax System Should Make You Furious

Jeff Bezos, Michael Bloomberg and Warren Buffett are three of the richest people in the world, but they pay little in income tax relative to their wealth. In 2021, ProPublica published an investigation built on leaked tax documents that reveal what some of the richest Americans really pay — or don’t. Warren Buffett had a true tax rate of 0.1 percent. Jeff Bezos: 0.98 percent. Michael Bloomberg: 1.3 percent. Ultra-wealthy Americans have essentially been written out of the tax system. “It’s wrong as a matter of principle. It’s wrong because we need their money. It’s wrong as a matter of fairness. It is wrong for so many reasons,” the law professor Ray Madoff told me. She’s the author of the new book “The Second Estate: How the Tax Code Made an American Aristocracy,” and she’s interested in helping people understand how broken the American tax system is and how to fix it. In this conversation, we discuss the techniques the ultra-wealthy use to evade the tax system, why they think “salaries are for suckers” and what tax reform could look like. Mentioned: “The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax” by Jesse Eisinger, Jeff Ernsthausen and Paul Kiel The Second Estate by Ray D. Madoff Taxation: The People’s Business by Andrew W. Mellon Philanthrocapitalism by Matthew Bishop and Michael Green Book Recommendations: The Age of Extraction by Tim Wu The Rise and Fall of the Neoliberal Order by Gary Gerstle Crossroads by Jonathan Franzen Thoughts? Guest suggestions? Email us at [email protected]. You can find transcripts (posted midday) and more episodes of “The Ezra Klein Show” at nytimes.com/ezra-klein-podcast, and you can find Ezra on Twitter @ezraklein. Book recommendations from all our guests are listed at https://www.nytimes.com/article/ezra-klein-show-book-recs. This episode of “The Ezra Klein Show” was produced by Rollin Hu. Fact-checking by Michelle Harris. Our senior engineer is Jeff Geld, with additional mixing by Aman Sahota. Our recording engineer is Aman Sahota. Our executive producer is Claire Gordon. The show’s production team also includes Marie Cascione, Annie Galvin, Kristin Lin, Emma Kehlbeck, Jack McCordick, Marina King and Jan Kobal. Original music by Pat McCusker. Audience strategy by Shannon Busta and Lauren Reddy. The director of New York Times Opinion Audio is Annie-Rose Strasser. And special thanks to Edward Fox.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:31Ezra Klein?

  April 15th was, as you may know, Tax Day here in the US. If you're a normal American, you make money through wages. Probably not your favorite day of the year. If you make a median income or above, you're handing a lot of that money back to the government. But that is a price we pay for living in a society, right? Well, not for everyone. You may remember this. In 2021, ProPublica published an investigation built on a bunch of leaked tax documents revealing what the richest Americans really pay or don't. Warren Buffett had a true tax rate of 0.1%. Jeff Bezos, 0.98%. Michael Bloomberg, 1.3%.

• 1:12Ezra Klein?

  Now, we don't get to see their tax documents year on year, but what they're doing, we kind of know what it is and how it works. So what is it and how does it work? And what can we actually do about it? Ray Madoff is a professor at Boston College Law School, who specializes in tax law and estate planning, and is the author of "The Second Estate: How the Tax Code Made an American Aristocracy." She knows how broken the tax system is, partially because she has helped the rich navigate it, and she has some ideas for how to fix it. As always, my email, [email protected].

• 1:56Ezra Klein?

  Ray Madoff, welcome to the show.

• 1:58Speaker 01

  Thanks so much, Ezra. Wonderful to be here.

• 2:00Ezra Klein?

  So, tax day just passed. A lot of us were doing our taxes here in the final couple of days, not naming any names. But let's start here. If you're a normal person, what kind of taxes do you pay?

• 2:12Speaker 01

  You pay a lot of taxes. Here's the thing. Americans, anyone who has a job or anyone who works for a living, either for themselves or for others, pays significant taxes. They pay income taxes at rates up to 37%. In addition, they pay payroll taxes that are as high as 15.3%. And together, it's a pretty significant liability. So what this means is that high earning Americans pay lots and lots of taxes, but all earning Americans pay something in taxes.

• 2:43Ezra Klein?

  How does this fit with the statistic people might have heard, which is that in this telling, our tax code is very, very progressive, almost ridiculously so, that 40% of people pay no income taxes, and then the top 1% pay 40% of the income taxes. When you hear that, that sounds like a very soak the rich kind of code.

• 3:02Speaker 01

  Absolutely. And the problem with that statistic is it's misleading on both ends. So let's start first with the 40% of non-payers. You might have heard this in terms of Mitt Romney talking about the 47%, which is what it was when he was running for office and he was caught on a hot mic saying 47% 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 40% of Americans don't pay any income taxes, they still pay significant payroll taxes.

• 3:42Speaker 01

  Indeed, today, I just read a statistic that 80% 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. So it was wrong and misleading in terms of the non-payers. But where it's particularly misleading... Is when it comes to this top 1%. We see this all the time. Whenever there are movements to impose more taxes on the wealthy. The stories start popping up in the Wall Street Journal, the Washington Post, The Economist. Those are just in the past couple of months. They all say, what are you talking about?

• 4:23Speaker 01

  The top 1% are already paying 40% of the income taxes. And what this isn't capturing is that that statistic is referring to the top 1% of income earners. Those with the most income, high income lawyers, doctors, finance people. They indeed are paying a significant chunk of the income taxes. However, when it comes to the wealthiest Americans, the Zuckerberg, Bezos, Musk, Ellison, all the people we hear about so often, they are just as likely to be in the 40% of non payers as they are in the top 1% of payers.

• 5:08Speaker 01

  And that's because under our current tax system, they are able to avoid taxes altogether by avoiding taxable income.

• 5:18Ezra Klein?

  So walk me through this. You're Elon Musk or Jeff Bezos. Congratulations.

• 5:23Speaker 01

  Thank you.

• 5:23Ezra Klein?

  What kind of taxes do you pay? What don't you pay? How do you end up not paying income taxes when you're Jeff Bezos or Elon Musk? What are you talking about?

• 5:34Speaker 01

  So first of all, let's focus on Jeff Bezos because he's much more of a classic case. Right for Jeff Bezos, he started his own business. He owns, you know, a dominant amount of the stock. And over the course of the years, he has taken a salary that is no higher than $82,000. It's been over 20 years now and that's his salary is always capped at $82,000. And you might say, well, why would it be? He started the company. He's, he's the man. Why isn't he taking a huge salary to reflect all of the, that he put into the company? And the reason is because salaries are for suckers. When people take a salary, they're Subject to high income taxes and payroll taxes and Jeff Bezos and a lot of our other

• 6:18Speaker 01

  multi centi billionaires have no interest in paying those taxes. So instead they take their benefits through the growing value of their stock and their stock has grown enormously and that massive growth of stock happens entirely tax free with no timeframe under our current system in which that stock will ever be subject to tax and that is because we only impose a tax if the stock is sold and Bezos never has to sell the stock because he can simply borrow against the stock and use that money to support his lifestyle and to pay any interest that's due on the loan.

• 6:59Ezra Klein?

  So I want to slow this down because there's a lot in that answer. Let me start with salaries are for suckers. One thing that you know you'll hear is that, no, no, they're not avoiding a salary. What they're doing is making sure their interests are aligned with the companies. You know, you get a salary kind of no matter what happens in the company, but Bezos only makes money if the stock goes up. So this is public spirited, you know, Elon Musk sometimes making like a dollar a year, that these are public spirited CEOs who have yoked themselves to actual success and we should applaud them for it, that this paying themselves in stock is just better for everybody incentives wise than salary. Why don't you buy that?

• 7:41Speaker 01

  Because it's not true. I mean, what is true is that they are profiting through their stock, arguably it aligns with the interest, but they could be taking a salary too. It would be deductible to the company. There's nothing that really supports that that's the actual reason for doing so. So yes, it's a nice cover story, but I don't think anybody presents it with a straight face.

• 8:03Ezra Klein?

  I think it can sound like we're just picking rich people at random, Jeff Bezos, Elon Musk. But there is this 2021 investigation published by ProPublica.

• 8:16Ezra Klein?

  That came from actual leaked tax documents that gave us a real window into them. We actually know what they paid.

• 8:25Speaker 01

  Yeah.

• 8:25Ezra Klein?

  Can you tell me about that investigation, what we actually saw and learned from that?

• 8:30Speaker 01

  Yeah, so there is a fellow by the name of Charles Littlejohn. That was his actual name.

• 8:39Ezra Klein?

  Named by Dickens.

• 8:41Speaker 01

  By, yes, the Robin Hood character. And he was a contractor at the IRS and he saw all of these tax returns and he leaked them to ProPublica. He's actually in jail now. He was hit with a very significant prison term when they found him because there were a lot of very rich, powerful people who were quite angry about this.

• 9:04Ezra Klein?

  It is illegal.

• 9:05Speaker 01

  It was absolutely illegal. It was illegal, but the actual penalty was much smaller than what he actually got. And the reason this information was so important is because while tax scholars long knew that there were ways for wealthy people to avoid taxes by avoiding taxable income, right? Taking low salaries and not selling their stock. It was always met with, that's just theoretical. That's not real. But here, when these tax returns were leaked, it was no longer theoretical. It was tax returns of many of our richest Americans paying zero in taxes.

• 9:44Speaker 01

  And so now it's no longer possible for people to say it's just theoretical because we know that it's not.

• 9:52Ezra Klein?

  I mean, that investigation found that year that Warren Buffett had a, what they called the true tax rate of 0.1%. Jeff Bezos, 0.98%. Michael Bloomberg, 1.3%.

• 10:06Ezra Klein?

  I mean, I pay much higher taxes than that.

• 10:09Speaker 01

  I mean, of course, what they're capturing there is their unrealized gains on their stock.

• 10:13Ezra Klein?

  Then the next part of the story you're telling. What is the difference between selling stock to fund your lifestyle? Jeff Bezos and Elon Musk, they presumably have private planes and multiple homes and fancy vacations. And what is the difference between funding that by selling stock and funding it by what you just described, which is borrowing against stock?

• 10:37Speaker 01

  If they were to sell the stock, then they would have to do two things. One is they would have to pay capital gains taxes, which would be when you take into account all the taxes associated with it, over 23%.

• 10:49Ezra Klein?

  So that's Still lower than on a high income.

• 10:52Speaker 01

  Absolutely. Selling the stock is definitely a better play than having to take a salary.

• 10:59Ezra Klein?

  So Because again, salaries are for suckers.

• 11:01Speaker 01

  Because salaries are for suckers. And it turns out selling stock is for suckers too, but just slightly less of a sucker. So you get to pay lower tax rates than you would on your, if you were to take a salary, your payroll taxes are, you don't have payroll taxes. You just have this net investment tax, which is less, and you have a 20% capital gains rate. So that's better than salaries, but not as good as borrowing against the stock. So you go to a private lender, probably. You know, you could go to a bank and their biggest risk is that they're going to lend it to somebody who is going to default on the loan. But if you're lending it to Jeff Bezos and he's giving you Amazon stock and other assets

• 11:42Speaker 01

  to hold as collateral against the loan, the risk of that loan going unpaid is nil. So they are basically making essentially a risk free loan for which they offer very favorable rates. And still they profit from it because the business is to lend money. But the thing is, when we turn to Bezos's side, the tremendous advantage is that that loan is entirely tax free. So when he gets that money and buys his yacht, he has not had a taxable event. He continues to own his Amazon stock. He continues to be able to live the lavish lifestyle. And all he has to do is, you know, pay a little bit in interest every year.

• 12:27Ezra Klein?

  I want to stop you again on this. They don't need to pay back the loans because this really doesn't feel intuitive. Like, how is it possible to fund a lavish lifestyle on these loans and no one ever has to pay them back, right? At some point in theory, the loan comes due.

• 12:45Speaker 01

  Well, no, you're assuming that Bezos lives in the world of Americans who have like 20-year loans on their homes and the bank is lending the money, counting on getting the money back. These are people lending money in the business of lending money and they're happy to keep lending money. If you're in the business of lending money and you get the money back, then you have to find somebody else to lend it to. So why not just keep lending it to Bezos?

• 13:11Ezra Klein?

  So you're just taking out, in this way of funding a lifestyle, one loan after another, sometimes paying one loan back with another? And you're just doing this again and again?

• 13:21Speaker 01

  Yeah. I think what's hard to internalize is how much wealth it really is when somebody has $100 billion, $200 billion, almost $800 billion. But when it comes to somebody like Bezos and our other centibillionaires, they are not bumping up against the value of their entire assets, right? A few billion really supports quite a lovely lifestyle and they don't have to get anywhere near where there's some risk that they can't provide sufficient collateral. It would be as if you, in order to support your lifestyle, needed to have $100 relative to the amount of wealth that you have.

• 14:05Speaker 01

  Do you think it would be hard for you to maintain a loan on that $100 based on the amount of assets that you have and borrow enough to pay the ongoing interest?

• 14:17Ezra Klein?

  I don't think it would be hard, but something I think you're getting at here is that consumption doesn't scale. So even we're talking about how do they fund the lavish lifestyles? Look, I don't know what Elon Musk's carrying cost is year on year. I don't know how many homes he's got or whatever, but say it's between $25 million and $100 million?

• 14:34Speaker 01

  Yeah.

• 14:35Ezra Klein?

  It's penny change.

• 14:36Speaker 01

  Yes, that's exactly it. And The other thing is, is that if they sell the stock, they run the risk of giving up control over their companies. And they also run the risk of not being able to enjoy the future growth of their stock. These are companies all heading into the stratosphere, and they don't want to give up any ownership. They want to keep going with this ride. And their stocks have proven to be a very good choice because the growth in value has far outpaced anything they have to pay in interest. So they get to retain control of their companies. They get to ride up the value of these tremendously profitable companies. And they get to do it all entirely tax-free, while all the rest of us are left, you know, holding the bag.

• 15:21Ezra Klein?

  All right, so the story you're telling here is a situation where if you have enough money, and that money is not seen by the US government as income, you can borrow against that wealth. And that creates a tax-free form of money that you can use and you just keep rolling it over and rolling it over and rolling it over. I have a couple of questions about this. But before we get into those, I want to compare this maybe to somebody in the 99th percentile. Let's say you're a Beverly Hills surgeon making $2 million bucks a year.

• 15:56Speaker 01

  Yeah.

• 15:57Ezra Klein?

  And then let's say you're a tech founder who has $180 million in company stock and only takes a dollar a year in compensation.

• 16:05Speaker 01

  Yeah.

• 16:07Ezra Klein?

  Both of those people are rich.

• 16:08Speaker 01

  Yep.

• 16:09Ezra Klein?

  What is the difference in the way they are taxed?

• 16:12Speaker 01

  So the difference is, is that, and that's a perfect example. The Beverly Hills surgeon is going to pay a lot of taxes, probably in excess of 50% on all of their earnings. So when they have however much they've accumulated over their lives, they've already paid significant taxes on that acquisition of revenue. However, our tech person who has a mere $180 million, right? Not a billionaire, a piker, still has achieved this $180 million entirely tax-free. There is no tax unless he or she sells the stock. And because they don't have to sell the stock, because they don't want to sell the stock, they often don't sell the stock.

• 16:56Speaker 01

  And here in the United States, they never have to pay taxes on that gain.

• 17:00Ezra Klein?

  And so then what happens when they pass that stock down? None of us live forever, even though some of us are definitely trying, particularly at the levels of wealth we're talking about here. But assuming they don't figure that out.

• 17:12Speaker 01

  Yeah.

• 17:13Ezra Klein?

  When the very rich today pass away and this stock or these other forms of assets we might be thinking about get passed down, what what happens from the perspective of the tax system?

• 17:25Speaker 01

  Right. So theoretically, what's supposed to happen is that the estate tax is supposed to kick in. And its purpose was to address these transfers by gift and at death by imposing a tax at a pretty significant rate in excess of an exemption amount. Today, that rate is 40% in excess of $15 million. So theoretically, both of our taxpayers are going to be subject to some pretty significant tax liability if they have to pay a 40% tax on the transfer of property that's over $15 million.

• 18:07Speaker 01

  That's how we imagine the system working. The problem is that the estate tax has become so riddled with loopholes that it is really more of a tax in name only than it is an actual burden. And I will give you what I think of as the ultimate evidence of this, which is that killing the death tax was the number one issue for the Republicans.

• 18:33Ezra Klein?

  Which is what they call.

• 18:35Speaker 01

  Which is what they called the estate tax. Getting rid of the estate tax or killing the death tax was a big issue for the Republicans for at least the past 30 years. However, in 2025, when they had the chance to do it, we had President Trump, we had an entirely Republican tax bill, and he could include anything he wanted. All of a sudden, estate tax repeal wasn't there. And why is that? I think it's because the estate tax has become so riddled with loopholes that it serves the wealthy more to keep the estate tax on the books, giving the appearance that the wealthy are paying taxes, than to actually repeal the estate tax, which would shine a light on all of the ways

• 19:20Speaker 01

  the income tax system benefits inherited wealth.

• 19:24Ezra Klein?

  Your specialty is estates.

• 19:26Speaker 01

  Yes.

• 19:27Ezra Klein?

  Tell me about some of the loopholes. If I, if I came to you.

• 19:29Speaker 01

  Yeah.

• 19:30Ezra Klein?

  And if I were, had chosen a more lucrative profession and done, done, done well in it, and I come and say, hey, I got $50 million.

• 19:37Speaker 01

  Yeah.

• 19:38Ezra Klein?

  And I want to pass that on to my kids. And I don't want the government getting a dime of it. They didn't earn it and they don't deserve it.

• 19:43Speaker 01

  Yeah.

• 19:44Ezra Klein?

  What would you, in a, maybe a more cynical and mercenary version of you?

• 19:48Speaker 01

  Yes.

• 19:49Ezra Klein?

  Like the richer, mercenary version of me here.

• 19:52Speaker 01

  Getting together.

• 19:53Ezra Klein?

  What would you tell me to do?

• 19:54Speaker 01

  Yeah, well, first of all, it would matter here, whether you were the surgeon or the tech entrepreneur with the stock, right? The surgeon has a much harder time because the surgeon has cash. They were paid in cash, they have cash, and it's a lot harder.

• 20:09Ezra Klein?

  They bought stocks, they're holding index funds, whatever it might be.

• 20:12Speaker 01

  Yes, but most of their wealth was achieved in cash rather than in untaxed appreciation. And so here is where people who own stuff, typically stock, really are able to take advantage of the system in a way that others can't quite as well. If you have a business that's worth, let's say, $100 million, and you pass it at death at $100 million, it's valued at $100 million. However, if you cut it up into three minority pieces, 35%, 35%, and 30%, each of those pieces is entitled to a discount of up to like 30%, 40%. Now, all of a sudden, your $100 million

• 20:54Speaker 01

  has been shrunk to $50 million, $60 million. And then it appears on the other side that your kid's blowing back up to $100 million. That's one way we call those minority discounts. But even better are devices where somebody creates a dynasty trust. These are really the.

• 21:17Ezra Klein?

  Sounds good. I want a dynasty trust.

• 21:20Speaker 01

  And dynasty trusts are fascinating because the purpose of the estate tax was to avoid dynastic wealth. And it's a sign of how flagrant the estate planning can be that they actually just call these dynasty trusts. Yeah, we know they're supposed to not have dynasties, but we got dynasties for you. And what they do is they create a vehicle for your children, grandchildren, great grandchildren, great great grandchildren forever in perpetuity to benefit from this trust and the growing value of this trust. And they get funded through

• 22:01Speaker 01

  a lot of complex arrangements, oftentimes through sales. You will sell your stock early on to this company in exchange for a low interest note. And for estate tax purposes, you've gotten it out of your estate. But for income tax purpose, you're treated just as if you're dealing with yourself. So you pay no taxes on that transfer. And these dynasty trusts through devices like that are being stuffed with billions and billions and billions of dollars. And this is happening all around the country. Around the country, estate planners are helping their clients fund these dynasty trusts. There's also charitable vehicles that are used where basically you give a charity an interest upfront and then

• 22:43Speaker 01

  at the end it goes to a private person, but you price it such that all of the game is somehow written out of the picture until it magically appears at the end of the story. It's the same thing with GRATs, rolling GRATs. A GRAT is something that is a grant or retained annuity trust. And it is a device by which people are able to transfer enormous amounts of wealth tax free by doing something called rolling GRATs. The money comes in, the profits get siphoned off. The money comes in, the profits get siphoned off. And all the profits get siphoned off entirely tax free. These are just some of the many devices that are

• 23:27Speaker 01

  used and that estate planners have and have had for too long now.

• 23:32Ezra Klein?

  Why do they have all these devices? Were they created to be used this way? Were they created for another purpose and people just figured it out?

• 23:40Speaker 01

  Yeah.

• 23:40Ezra Klein?

  Like, is this tax code designed to do this? Or has it been chopped up through kind of brilliant tax machinations?

• 23:50Speaker 01

  So let me step back for a second. In order for a tax system to work, there has to be a dance between taxpayers and Congress or the IRS, whoever is the regulating authority. Basically, Congress sets out some rules, the IRS sets out some regulations, taxpayers and their estate planners or other advisors find ways around the rules. Congress or the IRS is supposed to come back in here and close the loopholes, respond to that, taxpayers go out, they try to find other loopholes. And together, there's this dance that it does a pretty good job of making sure that

• 24:31Speaker 01

  the tax system is doing a pretty good job of collecting the revenue we need in the country to run the country. Okay? For much of the 20th century, this worked pretty well with the estate tax. The estate tax was seen as a, you know, a very innocuous tax, well accepted in the country. It serves as a backstop to the income tax system, which had all these ways for wealth to grow tax-free, right? And the estate tax was there as like a sweep-up tax to make sure that it was going to be subject to tax. The problem was, in 1990, they stopped. And that was the last time we have had any reform done to the estate tax. But of course, the estate planners haven't stopped.

• 25:14Ezra Klein?

  They have. Didn't stop because my understanding is we've had cuts to it since then.

• 25:17Speaker 01

  Exactly.

• 25:17Ezra Klein?

  I mean, George W. Bush, you could call it reform or not reform, but it has been chopped up and sliced up and made weaker.

• 25:25Speaker 01

  All that, right.

• 25:25Ezra Klein?

  Quite a bit since then.

• 25:26Speaker 01

  Well, what has happened is that there have been two changes. The exemption amount has increased and the rates have decreased.

• 25:33Ezra Klein?

  And so there is a big discourse around this. I remember this a bit. It's like, oh, these people are passing down family farms and their family farms are getting taxed away.

• 25:42Speaker 01

  Yes.

• 25:42Ezra Klein?

  And so they, they cut it up then. So, so how does it change?

• 25:45Speaker 01

  Right. So that double tax that hurts family farms and businesses, the death tax, that campaign was funded by 18 of the country's wealthiest families in the early 1990s. So the Mars, the Cokes, the Waltons, they all got together and they were like, okay, we got the income tax handled, right? We can borrow, we can avoid salaries, but this estate tax, Congress keeps fixing it. They keep doing the generation skipping transfer tax. They do the special valuation rules. We got to stop them. And they funded this campaign to turn the public against the estate tax. And they did so by telling the

• 26:26Speaker 01

  public that the estate tax was an immoral death tax, making it seem like it came for everyone, right? Rather than the estate tax, which definitely had a sort of a rich people air to it. So this is no, no, this is a death tax. It comes for all, and it particularly harms family farms and businesses. Now, what they didn't say was that there are actually a lot of provisions in the tax code specifically designed to protect family farms and businesses. And indeed, Congress had a very hard time finding actual examples of people who actually lost their farms. Their favorite person who they used was this fellow by the name of Chester Thigpen, who had a farm.

• 27:10Ezra Klein?

  What a name.

• 27:11Speaker 01

  Yes. And he was the grandchild of slaves. And he testified in Congress that he was afraid he was going to lose his farm due to the death taxes that were going to be imposed when he died. He was so effective that Republicans wanted to call it the Chester Thigpen Estate Tax Repeal Act, because he was such a compelling figure. Well, a few years later, Chester Thigpen dies, and turns out, he wasn't subject to the estate tax at all, because in fact, his farm fell well within the exemption, and there were other areas to protect it. So they easily, Congress could have easily addressed the family farms and business problem, if

• 27:52Speaker 01

  one sees that as a problem, by basically expanding the protections that were already there. But instead, they were using it as a cover for all of the people, the Mars, the Waltons, all of those people that had massive amounts of inherited wealth, and they wanted to be able to pass it tax-free.

• 28:10Ezra Klein?

  Okay. So I found these numbers in your book kind of shocking. In 2000, before the Bush tax cuts, Americans filed 122,000 estate tax returns. In 2010, it was 47,000. In 2013, after Obama's tax plan went into effect, it was 32,300. Then after Trump, there were 6,158 in 2021, of which only 2,584 were actually taxable. So either between 2000 and 2021, rich people stopped dying, or there stopped being rich people, or we really gutted this thing within an inch of its life.

• 28:55Speaker 01

  Yeah, I'm going with number three. So in 2024, the richest 1% of Americans controlled massive amounts of the country's wealth, $50 trillion. And yet, the estate tax that was designed to apply to all transfers at death and by gift, and there's a lot of gifting that goes on, because, as I mentioned, those techniques all involve gifting. So lots and lots of gifting is going on by these people. The 40% estate tax only raised $30 billion in 2024 out of $50 trillion wealth owned by the richest 1% of Americans. It is practically nothing. It is an amount that Elon Musk

• 29:38Speaker 01

  has both earned and lost in just a single day and probably hardly even noticed. So clearly, the estate tax is not doing what we think it's doing.

• 30:20Ezra Klein?

  This will sound stupid, but I think it's worth talking about. Why are there different rates for different kinds of income? Why do we treat income earned at our job, income earned by selling stock? And, you know, income earned when somebody dies and, you know, leaves everything to us? Or income given to us as a gift? Why do we treat them all differently? What, what, what are we trying in theory to achieve?

• 30:47Speaker 01

  Andrew Mellon, who is, was known as a tremendous anti-tax crusader, felt that-

• 30:55Ezra Klein?

  Named robber baron.

• 30:56Speaker 01

  Yes. And also Secretary of the Treasury for a number of administrations, felt that the rules should be that income is taxed at the lowest rates and investments are taxed at the highest rates. Because people earning income, they are in the most precarious situation and they are likely to need the lower rates as opposed to people who are just sitting back and relying on their investments.

• 31:22Ezra Klein?

  Let me read the quote here. I took this down. It's in your book. This is from Andrew Mellon's 1924 book, Taxation, the People's Business. He writes, "The fairness of taxing more lightly income from wages, salaries, or from investments is beyond question. In the first case, the income is uncertain and limited in duration. Sickness or death destroys it and old age diminishes it." Here he's talking about wages. "In the other, the source of income continues. The income may be disposed of during a man's life and it descends to his heirs." That Andrew Mellon was saying that it was beyond question that you should tax wage income more lightly than investment income. I mean, it speaks to a very different time.

• 32:06Ezra Klein?

  So what is the thinking that leads us into the, the current world where no matter how you think about the code, it is the reverse. Income, you know, if I sell stock, that gets taxed more lightly, the income from that than the income I make from the New York Times.

• 32:20Speaker 01

  Yeah. And what's interesting is when you actually dive into it, there are 50 reasons of arguments that are given about why investment gains should be taxed at a lower rate. Things like, there might be a lot of inflation if a lot of time has passed. So maybe it's not actual gains. And some say it's good to encourage investments. And others say, and I find this the ultimate in distorted reasoning, they say, look-

• 32:50Speaker 01

  Right now, people are encouraged not to sell their stock because they can avoid tax by not selling. We have to lower the rates in order to lure them into selling. And so that is another justification, even though they should just tax the gains and then people would sell.

• 33:14Ezra Klein?

  It's also the word he uses here, I think is interesting, fairness. I've been around this debate a long time. I've covered a lot of tax debates. I've covered debates on the capital gains tax rate. Get into a lot of arguments about efficiency and, you know, the exactly right macroeconomic level to turn the dial to. And yet, as a human being, right, just experiencing the way income works, I work so hard for the income I make for my work. I mean, you're a delivery driver, you're, you know, a doctor doing primary care work or a pediatrician. You're working so hard. And the idea that that is taxed so much more

• 33:55Ezra Klein?

  higher than somebody making money by just letting money sit in an index fund.

• 34:01Speaker 01

  Right.

• 34:01Ezra Klein?

  Or just occasionally clicking a button to move it between, you know, different investments. There is a fairness question here. It's cruel. I always think it's like actually quite cruel. It is so easy to let your money make money for you. The fact that we reward it over work is crazy to me.

• 34:20Speaker 01

  I totally agree. And you know who else agreed? Ronald Reagan. In the 86 Tax Act, they actually succeeded in equalizing for a very brief period, capital gains rates and ordinary income rates. They got rid of the preference for capital gains, which we should definitely do today. Now, one of the arguments that someone's going to make if we're, you know, is, yes, but everybody is better off when rich people take their money and they invest in the economy. That's what makes the whole country grow. But the thing is, much of this money is, this is not seed capital to start local businesses. This is money Trading on a secondary stock market. It is not going to a business.

• 35:03Speaker 01

  It's going to other owners of stocks driving up the shares. So I don't buy that argument that this is growing the economy when people are putting their money in stocks.

• 35:14Ezra Klein?

  Well, let me ask about a related dimension of this, which is the rise of stock buybacks.

• 35:18Speaker 01

  Yeah.

• 35:18Ezra Klein?

  And both how that has changed the way stocks work. And how that has changed the way taxable income.

• 35:26Speaker 01

  Yeah.

• 35:26Ezra Klein?

  Presents or does not present itself.

• 35:28Speaker 01

  We've been telling a story about wealthy people not paying taxes on their stock because their stock goes up in value. They don't have to pay tax on that gain. However, prior to 1982, because companies could only share their profits through dividends. What it meant to own a lot of stock was to get a lot of dividends. And for much of the 20th century, dividends were taxed at the highest rates, just like salaries. And so what that meant was that somebody who was sitting on a lot of stocks got a lot of dividends and paid a lot of taxes. However, in 1982, after this rule change, companies switched from issuing dividends.

• 36:12Speaker 01

  There used to be more than 70% of profits were distributed through dividends. Now it has never been as high as 20% since this change went into being. The effect of it is that companies began to do lots and lots of buybacks of their stock. And this had a tremendous impact on multiple levels. One is, if you look at the Dow Jones, there's a chart in my book that shows that 1982, the Dow Jones was at about 3,000. It was also that in the 70s, the 60s, the 50s, the 40s, the 30s, and the 20s, it was around 3,000. It's inflation adjusted amount. Now it's like in the 45,000, something like that today, right?

• 36:54Speaker 01

  And part of this story is stock buybacks because stock buybacks boost the value of stock. But another important part of the story is that it meant that for somebody who owned stock, they no longer had to get taxable income because they could enjoy their profits through the increased value of the stock. Some shareholders would sell their stock because that's the nature of the stock buyback. However, a lot of these shareholders are tax exempt organizations. So they are not worrying about paying taxes on their proceeds. So in terms of revenue to the federal government, profitable companies used to provide a lot of revenue to the federal government in the form of taxation of dividends. And now with the rise of stock buybacks, that

• 37:39Speaker 01

  is much less likely to be the case.

• 37:41Ezra Klein?

  So then I want to go back to the question of what happens to these great fortunes when they get passed down. How is that treated for you from a taxation perspective? Like, when, when does that get taxed?

• 37:54Speaker 01

  Right. So if you receive it at death, then there is an extra benefit for people who receive appreciated property at death. And that is that not only are those gains not taxed to the person who held the stock, but when somebody receives the stock from inheritance, all the gains are wiped away. We call this step up in basis, or the

• 38:23Ezra Klein?

  A nice inscrutable name.

• 38:24Speaker 01

  Yes. Or the angel of death loophole.

• 38:27Ezra Klein?

  That's better.

• 38:28Speaker 01

  Yes. And, and the angel of death loophole says that we're going to wash away the gains and the recipient is going to be treated as if they had purchased the property.

• 38:37Ezra Klein?

  Okay, I want to slow this down for a minute because I think step up basis here is really, really quite important. Let's say somebody made just great investment. They bought Nvidia when it was cheap. And, you know, now some years later, they have $30 million worth of it. In one world, they sell that stock because, you know, they want to buy a mansion or whatever it might be. In another world, they never sell the stock. They pass away and give it all to their kids.

• 39:05Speaker 01

  Yeah.

• 39:06Ezra Klein?

  What is the difference in tax treatment for that stock? It is the same tranche of stock.

• 39:10Speaker 01

  Yes. So in the first scenario, they would pay income taxes on this, on the capital gains. The capital gains is imposed at a 20% rate plus an additional 3.5% extra tax on it. So almost a quarter of it, of those gains, and it's almost all gains, would be subject to income tax.

• 39:29Ezra Klein?

  And so the gains are the difference between what you bought it at and what you sold it at.

• 39:32Speaker 01

  Absolutely. However, if instead you hold on to that stock and you don't sell it and you pass it on at death to your kids, there is an extra bonus. And that is that not only did you not pay taxes on that gain, but when they get the property, they are treated as if they had purchased it for its fair market value. And so now they're treated as if they had bought it for $30 million. And so they can turn around and sell it for $30 million and pay no gains at all. And that is this thing that we call step up in basis or the angel of death loophole.

• 40:16Ezra Klein?

  So the gains are just wiped away?

• 40:18Speaker 01

  Wiped away, not for you to worry about.

• 40:21Ezra Klein?

  That's pretty sweet.

• 40:22Speaker 01

  Yes, it's a very nice deal.

• 40:23Ezra Klein?

  So what do you expect will happen with a Jeff Bezos then? Can he pass down 150 billion or whatever it is without too much tax implication?

• 40:33Speaker 01

  Well, it's going to matter about 150. It seems like a lot of money. Chances are what these people are going to use are charitable vehicles as an important part of their tax-free transfers. And the problem is that these charitable vehicles afford these donors and their families enormous tax benefits while continuing to give them enormous power in the world. And some of these vehicles, these tax avoidance vehicles, if they set them up during life, are not just for charity, but are to influence politics. And that's because you can put money into a 501(c)(4), a particular type of organization that is allowed to engage in political activity.

• 41:18Speaker 01

  And under our current rules, when you give your appreciated stock, let's say somebody decides to give $50 billion to their c4, they get to have continued control over the assets and a tax-free path to avoid both give taxes and capital gains taxes.

• 41:37Ezra Klein?

  Let's talk about what you might do about some of this. I think something people are hearing a lot about right now is a wealth tax. One reason they're hearing about it is that there is a wealth tax on the ballot in California this year, a one-time 5% wealth tax. These operate a little bit differently for states and for the federal government. So let's begin with the one in the news, which is the California one. How would it work? What do you think of it? What are the considerations for a state thinking about doing this?

• 42:03Speaker 01

  The wealth tax is an obvious answer to this problem. It says, all right, we have a lot of ways that people are avoiding taxable income and they have massive amounts of wealth. Let's tax their wealth and we'll impose a flat tax, 5%. The problem for states is sort of a few problems, but one of them is that people can easily leave states. Now, California is trying to get around this problem of people leaving the state by making it this sort of retroactive one-time tax. It already applies retroactively to people who previously were

• 42:46Speaker 01

  living in the state, I think as of January 1st. A retroactive one-time tax, I think, is not going to be a permanent solution to the problem, obviously, and nor do I think it's going to prevent people from leaving the state because once there's a done once, there's every reason to expect it will be done again. So I do think there is a problem for states in their ability to raise revenue because other states are trying to compete on these low taxes.

• 43:15Ezra Klein?

  So you have, in that case, is something like Ron DeSantis in Florida.

• 43:19Speaker 01

  Absolutely.

• 43:19Ezra Klein?

  Trying to attract. I met a rich person not long ago who showed me an app they have that counts the number of days they spend in Florida because they really want to live in New York.

• 43:30Speaker 01

  Yeah, yeah.

• 43:31Ezra Klein?

  But they live in Florida. I mean, they actually do live in Florida.

• 43:35Speaker 01

  Right. They have to put in their house.

• 43:36Ezra Klein?

  Just enough days a year to not pay New York taxes. Which I found crazy because I figured the whole point of being rich was to not have to worry about things like this.

• 43:44Speaker 01

  You know, I think this is why-

• 43:45Ezra Klein?

  But people really do it, I guess.

• 43:47Speaker 01

  Yes, I think I find it insane to be rich and to have to live somewhere that you don't want to live. But of course, this is why you're a podcaster and I'm a law professor. Right? If we really cared about money, maybe we'd really care about taxes. Because to me, it seems insane. But people do that all the time.

• 44:03Ezra Klein?

  So do you think the wealth tax proposal would be good for California? Or is it something that would just create a benefit for taxes? Because it'll pull in these rich people?

• 44:12Speaker 01

  Well, it's hard to say that it's going to make a huge difference when it's just a one-time tax. So it would have to actually be a more permanent tax. And I think it has a number of problems. One of them is the problem of people leaving. But I think another really significant problem is how you're going to gather the information of how much wealth the person has. It's very easy to think about somebody who owns publicly traded stock, and we know how much stock they own, and we know how much they have. But there's are lots and lots of wealthy people that own their wealth in other forms that are very difficult to value. And now you're talking about a state Department of Revenue having

• 44:50Speaker 01

  to build up the resources to have everybody tell them everything they own and keep up with valuation of it. It's going to be quite a test.

• 45:01Ezra Klein?

  How much is your art collection worth?

• 45:02Speaker 01

  Exactly.

• 45:03Ezra Klein?

  How much are your crypto NFTs worth?

• 45:05Speaker 01

  Absolutely. And if also, when you start to look at things like partnership interests, these are highly complex structures, and it's impossible for somebody to be able to monitor that for all of the different taxpayers. So it's a very, very difficult, practical task to get around. Again, California has some solution where you can defer paying taxes and all of these things, but it's just very difficult to do. It's not as easy as it sounds. And I think that it's also a problem in terms of winning the support of the American public. Because we pay taxes on the value of our homes, but generally, when we think of the value of all of our assets, we know that there's an estate tax at death, but that's very different than requiring people-

• 45:49Speaker 01

  To disclose every single thing they own during their lives every year. That I think is going to feel invasive to the public, not just to the people who are subject to the rules, but to the other people who are thinking about the fairness of these rules.

• 46:06Ezra Klein?

  But that question also applies to a federal wealth tax, which maybe brings us to that. So, you know, I think to the extent these proposals are associated with anybody, it's probably Elizabeth Warren, who has had a number of them over the years. But there are proposals for different forms of national wealth tax, you know, something like it could be two percentage points of your wealth every year, year on year. How do you think about this?

• 46:27Speaker 01

  Yeah. So in the federal level, you get to avoid the problem, I think, of people moving. Sometimes people say, oh, no, people are going to leave the United States. It's very hard to leave the tax clutches of the United States. And also, this is not an age in which people, a lot of people want to regularly give up their US citizenship and become a citizen in some other country.

• 46:49Ezra Klein?

  Dubai or whatever.

• 46:49Speaker 01

  Exactly. So people claim that's the case.

• 46:53Ezra Klein?

  I think looks bad at the moment.

• 46:54Speaker 01

  Yes, exactly.

• 46:55Ezra Klein?

  The Dubai move, which people in the UK, the rich in the UK sometimes do, and I think has been called into question by the recent war.

• 47:01Speaker 01

  Yes, exactly. And so I think that's something that people threaten will happen. I don't think that would happen here. But the bigger problem here is the constitutional issue. So our federal constitution basically has these special rules about direct taxes and indirect taxes, and wealth taxes raise constitutional issues. It's hard because we have a limitation in our constitution on direct taxes. And the problem is that, given our current Supreme Court, we have every reason to think that this Supreme Court might find a wealth tax unconstitutional.

• 47:42Speaker 01

  Which it could very easily not survive. So all of that political effort will have been spent for nothing. And it just seems like not a smart way to go. Particularly in today's world where the wealthy are able to avoid taxes so easily through this sort of highway of alternatives of tax avoidance because of our failure to tax their investment gains and their inheritances. So I think there's, there's a lot more easier paths to follow. It's not going to be as immediately effective as a wealth tax, but it's more likely to be permanently effective.

• 48:21Ezra Klein?

  So then what, what would you do?

• 48:22Speaker 01

  Yeah. So what I think should happen is, first of all, we have to look at investment gains. And the problem with our investment gains is that they are never taxed to the person who owns it unless they sell the property. However, in Canada, they have a much broader rule. And that rule is that whenever the person transfers the property, not just by sale, but also by gift or at death, the gains at that time will be tallied and the person will have to pay tax on that gain. And that way gains are taxed to the person who earned them rather than kicking it down the road to some time in the future that may never come. I, if I could write the rules, I would say that we've, that we should eliminate the

• 49:06Speaker 01

  distinction between capital gains and ordinary income and give them an inflation adjustment to reflect that inflation holding and other than that impose ordinary income rates on that gain. In addition, we need to address inheritances. So people are receiving massive amounts of wealth entirely tax free. If you were to walk down the street and find a hundred bucks, you would be expected to report that to the federal government. However, if someone were to give you $100 billion, you literally don't have to tell anyone. There's not even a line on your tax return to let anyone know because that is seen as entirely your business. And we should not have that be the case. We should get rid of the estate tax, which isn't doing anything.

• 49:49Ezra Klein?

  That's really true. You could just hand somebody $100 billion. And you don't have to report it to anybody?

• 49:53Speaker 01

  The person who hands it is supposed to report a gift tax return, right? But if it's been put into a trust, the trust has grown, it's distributed from the trust. The person receiving the property may have some flow through gains through complicated tax rules, right? But the receipt of property by gift, inheritance, or life insurance. And by the way, life insurance is the favorite vehicle of the super wealthy to pass their wealth. When they convert it into a life insurance policy, it all of a sudden becomes non-taxable everywhere. Those are subject to exclusions, meaning you don't have to even report them.

• 50:27Ezra Klein?

  You know, one thing that the way you just described that, I think, makes clear is that there's the level of tax design. And then there's the level of the will to enforce tax design. Which is to say that if you imagine the kind of reform you're talking about, you could make it, but then you would have to actually want it to work. Such you began shutting all this other stuff down and keeping it shut down, right? Like these life insurance loopholes you're talking about. But how do you think about these two levels, right? There's a level of tax design and then the level of the tax code is complex. People don't know what's happening in it. And but the people who do know what's happening in it have a very, very, very strong incentive

• 51:11Ezra Klein?

  to support politicians who will allow them to keep using these loopholes or to punish politicians who try to close them.

• 51:18Speaker 01

  Yeah. So let me start by confessing I am an optimist by nature. So you may need to take everything I say with a grain of salt. However, I think that this system of non-payment by wealthy Americans came about because of our particular history and particular vulnerabilities of the estate tax. So we had a system where the income tax was incomplete. The estate tax was supposed to be a backup. The assault on the estate tax in the early 1990s was so effective that even Democrats were afraid to do anything to close the loopholes because so many Americans saw it as an un.

• 52:02Speaker 01

  Fair double death tax. I think if we had a cleaner system that we could easily have, we get rid of the estate tax. We have an income tax system. It gets a lot harder to pull the wool over the eyes of the public. So I don't think it's the case that rich people can always control, always get what they want. I think that we are living in a moment now where there's more pressure than ever for this to happen. This California wealth tax, right? With this is happening because the public has become broadly aware that we've got a lot of super rich people that control massive amounts of the country's wealth. More than they've held, I think, since the 1920s.

• 52:42Speaker 01

  Significant amounts, I think it's currently 31.7%, 32% of the country's wealth is held by the richest 1% of Americans. And at the same time, none of them seem to be wrapping themselves in glory these days, right? If we go back 20 years, we had all sorts of amazing things being done by our rich people. And there was a book that came out in the early 2000s that was called Philanthrocapitalism. And the subtitle was How the Rich Can Save the World. And this was not seen as insane. Can you imagine a book today, How the Rich Can Save the World?

• 53:18Ezra Klein?

  Right, I'm in the professional opinion business, I can imagine anything.

• 53:21Speaker 01

  Yeah. But the idea that someone would think that this would land with the public, which it did in that era, right? The super rich, they are, they are, they can do so many things. We should hand over all of society's problems to them. I mean, I think a lot of people would find that laughable today.

• 53:38Ezra Klein?

  I think something that comment is getting at is sometimes people want to tax the rich because they want to punish them. It is like, they don't like the rich, they definitely don't like the rich right now, right? I'm very sympathetic to the argument you're making.

• 53:51Ezra Klein?

  And on the other hand, That then sort of winds a lot of things up in moral judgment. When sort of my view is that Sergey Brin should have to pay taxes on that wealth, no matter if he's in the don't be evil era or in the

• 54:09Speaker 01

  I totally agree. I completely agree. I think it is a big mistake to focus on rich people are bad and therefore we should be imposing taxes because the reason I think it's bad is because when we move the conversation to whether rich people are good or bad, we are not focusing on the fact that the richest Americans have been written out of our tax system. It's as if we had a system that said, people who live in Pennsylvania don't have to pay tax, right? We shouldn't have a discussion that says, well, some of the people in Pennsylvania are good. Maybe it's okay they don't pay tax, right? It's wrong as a matter of principle. It's wrong because we need their money. It's wrong as a matter of fairness. It is wrong for so many reasons.

• 54:53Speaker 01

  And I think the big problem is, goes back to your earlier question, which is that the public is misled into thinking the wealthy are paying more taxes than they are with this 1% paying 40%, right? Most of the public doesn't know that the wealthiest Americans are able to avoid taxes by paying taxable income. And if they knew, they wouldn't want that system.

• 55:46Ezra Klein?

  I find what you're telling me here to both track what people I know who have worked on crafting wealth taxes tell me, but that I find very frustrating, which is that it seems like it should be possible. And the more you get into it, the harder it becomes, both constitutionally, which is one dimension of it, but the valuing and the continuous valuing and the worrying about people moving things into harder to value assets.

• 56:11Ezra Klein?

  Becomes a problem. And I don't know, I have wanted there to be a wealth tax as long as I've been aware of taxation. And the thing that I feel we're losing if we can't do something like it, which I just think is worth naming, is that wealth creates power. It creates a tremendous amount of power. And we're operating in this era when it's not that the rich were necessarily the super rich so shy about using their wealth to wield power. I mean, you mentioned the anti estate tax campaign that was heavily funded by 18 of the richest families. But the level of like, direct engagement that

• 56:55Ezra Klein?

  you're seeing now from people like Elon Musk.

• 56:57Speaker 01

  Yeah.

• 56:58Ezra Klein?

  Like, they are really making the long running fear that if you have enormous wealth, concentrations of wealth, you will have like, unmanageable concentrations of political power manifest. And you can design, and presumably we'll, we'll talk about it, a tax code, you know, that taxes this money eventually. But it doesn't solve the political power question in a way that I think a lot of people want to use a tax code to do so. And I'm curious how you think about that.

• 57:28Speaker 01

  Yeah, I think it's a real problem and it's a real concern. I mean, people controlling massive amounts of wealth have tremendous power in our society. And so, and I understand that in some fantasy world, a powerful enough wealth tax will be enacted to make a sufficient enough dent in the wealth of the wealthiest people where it is brought down to a level where they no longer have this power. However, from where I sit, that just looks like a fantasy world. That's not going to happen. It's not going to be significant enough. The public isn't going to buy it generally. And I think one of the reasons the public isn't going to buy it generally is because there's something we talked about earlier, which

• 58:12Speaker 01

  is that to the extent it is a special tax focused on the richest people, like, we have to punish the richest people. I don't think everybody in the country agrees with that. A lot of people in the country think that people who have acquired their wealth have done so because they've done great things. They've started great companies. And sometimes they have. Sometimes they have done great things. And so, it paints too broad a brush. The problem with it is that we have to live in the world that we actually live in. And in the world we actually live in, I don't see that as being a solution that's going to deliver that result.

• 58:50Ezra Klein?

  I think there's also another dimension to why you should want to make sure the richest people are paying taxes. And that is that people do what other people do.

• 59:00Speaker 01

  Yes.

• 59:01Ezra Klein?

  I was thinking about this while reading your book and preparing for this. I pay taxes. I don't mind paying taxes. I think that is part of living in a society, living in America's been good to me.

• 59:12Ezra Klein?

  It does piss me off that people above me are not paying taxes.

• 59:18Speaker 01

  Yeah.

• 59:19Ezra Klein?

  And what I hear sometimes, I'm talking about their weird strategies and I'm not talking about set to billionaires here, just, you know, people who spend more time on tax avoidance. You think, oh, like, oh, am I being a sucker?

• 59:28Speaker 01

  Yeah.

• 59:29Ezra Klein?

  And the fact that at these very high levels, the very richest are making the rich people right underneath them feel like suckers. People don't want to be suckers. They don't want to feel that other people are getting a deal they're not getting.

• 59:43Speaker 01

  Yeah.

• 59:43Ezra Klein?

  Now, on one hand, you might think it would be good if this made more rich people, you know, advocate for a better tax system, which it doesn't seem to have done, to, to shut down the ability of people above them to do this. But I do think that it's very corrosive.

• 59:56Speaker 01

  I totally agree.

• 59:57Ezra Klein?

  To social solidarity, to have this sense that there are people out there getting a way better deal than you are.

• 1:00:03Speaker 01

  I couldn't agree more. And that's why I think a lot of that has to do with the fact that people feel like, this point that you made before, well, the regular people are always going to lose out. The rich are always going to have their way. It's always going to be to their advantage. But that is not always the case. And that's why I think it's important to think back in history to different times. So one of the times I think is particularly interesting is the Tax Reform Act of 1986. That is the last time that we actually have had any really meaningful reform in the tax system. It was under President Reagan, which was kind of surprising, but it adopted principles that had been around under both parties. And what it did...

• 1:00:44Speaker 01

  When we talk about high income earners and the inability of high income earners to avoid taxes, that is because of changes that occurred in 1986. Prior to 1986, we had a flourishing tax shelter business. And high-paid, your high-paid surgeon would have not paid taxes on their income because they would have been able to do their, invest in tax shelters and offset all of their income.

• 1:01:13Ezra Klein?

  People always talk about the very high mid-century, World War II, post-World War II income tax rates. But I think this is important because some of these were not actually as real by 1986.

• 1:01:21Speaker 01

  Exactly.

• 1:01:22Ezra Klein?

  This is a look on a chart.

• 1:01:23Speaker 01

  Exactly. So you had these high rates, but you had massive avoidance by high income earners. And the 1986 Act did something very interesting, and I think something that we should be doing today, which is it broadened the base by getting rid of those tax shelters. And they so effectively got rid of those tax shelters that we don't have them today, right? Our high-income people, people with lots of salaries, they are paying lots of taxes. There's really very little reason or ways for them to avoid taxes. And they were a politically powerful group. So it can happen if you have people that really care about making it happen. It's not like it's impossible to make happen. And I think that that is the only way to go.

• 1:02:06Speaker 01

  Our only way forward as a country is if we figure out how to have a fair tax system. And I think that imperative, that moral imperative, is also a financial imperative. Because right now, our national debt is so great that interest payments on the national debt are the third highest expense after Social Security and Medicare. We are spending a trillion dollars just to carry the debt this year, more than we're spending in the military. And, you know, that is not sustainable. So we're going to have to find a way to bring everybody into the tax system.

• 1:02:41Ezra Klein?

  And then always our final question. What are three books you'd recommend to the audience?

• 1:02:45Speaker 01

  The first book is The Age of Extraction by Tim Wu. This is a fantastic book that talks about how many of our companies that used to do a lot of good for the world are now, rather than producing wealth, they are doing wealth extraction, and that's not good for any of us. And it's relevant for these issues of taxing individuals and taxing companies. The other is the book The Rise and Fall of the Neoliberal Order by Gary Gerstle.

• 1:03:14Ezra Klein?

  I like this. All past guests of the show, Tim Wu, Gary Gerstle. Yeah, I love them. Yeah, these are great books.

• 1:03:18Speaker 01

  Okay. That is a fantastic book, and I will say that the title is a bit daunting, but the book itself is so readable, and it makes this incredibly important point, that the country used to have one vision of the role of government versus markets, and now we, through the rise of neoliberalism, it now it's switched to this thing of it's all about let the market run free. But the point is that it is a fantastic illustration of the swings that can occur. And pendulums swing both ways, as we have seen loud and clear in recent years. And I think it's a really good reminder that when people despair of all of the problems

• 1:04:03Speaker 01

  of the day, there is an opportunity for pendulums to swing back and for better systems to take hold. And the last book is a book of fiction, the book Crossroads by Jonathan Franzen. Fiction at any time, and particularly in these times, is just a fantastic place to live, to explore other things than the world that we're living in. And I'd say Jonathan Franzen, better than almost anyone I know, presents people's internal psychological dramas. You feel like you're watching a documentary. His writing is so real, and my only disappointment is that I am waiting desperately for his next book to come out. This is Crossroads is supposed to be the first book in the trilogy, and I'm sure I'm not alone in constantly checking for that second book to come up.

• 1:04:47Ezra Klein?

  Ray Madoff, thank you very much.

• 1:04:49Speaker 01

  Thank you so much for having me.

• 1:04:54Speaker 01

  All right, that was great. Thank you so much. We have fixed the tax code. Yes.

• 1:05:01Ezra Klein?

  This episode of The Esso Clan show is produced by Roland Hu. Fact checking by Michelle Harris. Our senior audio engineer is Jeff Geld with additional mixing by Aman Sahota. Our executive producer is Claire Gordon. The show's production team also includes Annie Galvin, Marie Cassillon, Marina King, Jack McCordick, Kristin Lynn, Emma Kehlbeck, and Jan Kobal. Original music by Aman Sahota and Pat McCusker. Audience strategy by Kristina Semeluski and Shannon Busta. The director of New York Times recording audio is Annie Rose Strasser. Special thanks to Edward Fox.