Taxes and Tariffs

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

• 0:00Avery Trufelman?

  Rich people dress so boring now.

• 0:03Speaker 01

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

• 0:16Avery Trufelman?

  Boston Law Professor Ray Madoff. We're talking live onstage at the Center for Brooklyn History.

• 0:21Speaker 01

  You see Elon Musk, he's just a regular guy. Don't go thinking he's somebody fancy or somebody rich. He's just like you and me.

• 0:30Avery Trufelman?

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

• 0:43Speaker 01

  They wore top hats and fancy things, tons of jewels.

• 0:47Avery Trufelman?

  The daughter of Cornelius Vanderbilt wore tiaras.

• 0:50Speaker 01

  She actually wore crowns. She wore a crown, walking around New York City.

• 0:56Avery Trufelman?

  I'm like, man, they don't make rich people like that anymore.

• 0:58Speaker 01

  No. And then they threw these unbelievable parties, but not off on a private island, you can't come parties. They had glass doors, glass walls, so that the regular people can actually see these elaborate parties that were going on.

• 1:14Avery Trufelman?

  And you were talking about like they would hand out cigars wrapped in $100 bills.

• 1:19Speaker 01

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

• 1:35Avery Trufelman?

  So, yeah, how did we get from this era to now?

• 1:38Speaker 01

  Conspicuous consumption to stealth wealth. Da-da-da. Taxes.

• 1:42Avery Trufelman?

  Yes, taxes. I know, taxes. You're like, ugh, taxes didn't just end it, I don't want to think about taxes. I know, no one likes to pay taxes, no one likes to think about taxes, but that's the thing, because they are so icky to confront, they really haven't been examined very closely.

• 2:00Speaker 01

  And that is how we're getting growing wealth inequality.

• 2:03Avery Trufelman?

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

• 2:13Speaker 01

  When we see our rich, they do look like us, and so, they seem less alien.

• 2:19Avery Trufelman?

  And they are alien, in that they are separate from us, because these ultra-rich...

• 2:26Avery Trufelman?

  Just don't pay taxes, almost none. And to be clear, when I'm talking about rich people, I'm not talking about like a doctor or a lawyer.

• 2:34Speaker 01

  For purposes of this book, the rich are anybody who doesn't need a salary.

• 2:40Avery Trufelman?

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

• 3:17Speaker 01

  If somebody can get by without earning money, they have enough money that they can live off of, those are the people who are able to grow their money tax-free.

• 3:26Avery Trufelman?

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

• 3:41Speaker 01

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

• 3:55Avery Trufelman?

  And this, in part, explains why we no longer see the top hats and the tiaras and the cigars wrapped in $100 bills. All that visible excess attracted too much attention.

• 4:06Speaker 01

  They thought, these people, they're a bunch of lazy, layabouts. They live these lavish lifestyles. And all of this is a big problem, and therefore, we need to have taxes on inheritances.

• 4:17Avery Trufelman?

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

• 4:38Speaker 01

  I think that, just like the rest of us look of the very wealthy, has served a protective function.

• 4:45Avery Trufelman?

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

• 4:52Speaker 01

  And sometimes people say, I don't want to tax the rich because I'm going to be rich someday and then I don't want to have to pay taxes. But the thing is, what people don't realize is that their likelihood of becoming rich is significantly limited by the fact that they have to pay taxes. People who have salaries or other gig workers or anything, right? They're moving two steps forward, one step back. Meanwhile, the richest Americans are moving two steps forward, four steps forward, six steps forward, 100 steps forward, 1,000 steps forward.

• 5:25Avery Trufelman?

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

• 5:48Speaker 02

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• 8:38Avery Trufelman?

  Back in the 1900s, when rich people used to wear tiaras and rent elephants for their parties at their huge mansions, it's not like it was the good old days.

• 8:47Speaker 01

  Poor people were being completely taken advantage of in their horrible working conditions, their horrible living conditions.

• 8:54Avery Trufelman?

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

• 9:08Speaker 01

  These two worlds were being presented at the same time.

• 9:12Avery Trufelman?

  There was extreme excess right next to utter destitution in the same city.

• 9:16Speaker 01

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

• 9:33Avery Trufelman?

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

• 10:02Speaker 03

  A tariff is a tax that is imposed on the product that is imported.

• 10:07Avery Trufelman?

  This is Steve Lamar. We're just gonna call him a tariff expert for now. I'll tell you his real job in a little bit.

• 10:12Speaker 03

  Tariffs have played a big role in American history. For many, many years, up until the beginning of the last century, tariffs were the primary way that the US government collected revenue. We financed our entire government through tariff collection.

• 10:28Avery Trufelman?

  Tariffs are a really simple system for a scrappy, poorer country. Like Alexander Hamilton could just send 1,000 people with muskets to a US port, and they'd be like, "Nothing's coming through until you pay."

• 10:39Speaker 03

  It just seems like a very easy thing to do. "I'm gonna impose a tariff. I'm gonna put it on this other country because the other country is gonna pay the tariffs." That's the rhetoric, that's the narrative. And it's gonna appear to be something that's not gonna hurt the US.

• 10:51Avery Trufelman?

  This was, of course, super appealing to the founding fathers because taxation was a touchy subject at the beginning of the country.

• 10:59Speaker 03

  We fought a war over it. Quite literally, the whole reason we fought the Revolutionary War is we had taxation without representation. I mean, these words are drummed into our souls.

• 11:09Avery Trufelman?

  So tariffs were a nice, simple system. "Our country will be funded by imports." Great, put it in the Constitution.

• 11:15Speaker 03

  This is why the founders put tariffs in Article 1, Section 8.

• 11:19Avery Trufelman?

  And what was seen as an added benefit was that tariffs- Made foreign goods more expensive. So then our goods could be more expensive.

• 11:27Speaker 01

  People who had businesses, they got to benefit when there were tariffs. It allowed domestic providers to raise their prices, too.

• 11:35Avery Trufelman?

  Professor Ray Madoff again.

• 11:36Speaker 01

  So it was like a very happy system for the industrialists and not so great for consumers and everyone else.

• 11:44Avery Trufelman?

  So everything got expensive. And then, once you had the cigars being passed around with $100 bills, it was clear who the tariff system was benefiting.

• 11:54Speaker 01

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

• 12:11Avery Trufelman?

  This is back when there were options out of capitalism.

• 12:14Speaker 01

  Socialism was really quite big and was sweeping parts of Europe.

• 12:18Avery Trufelman?

  I think it's so ironic today that capitalism suffers from a lack of competition.

• 12:22Speaker 01

  Because of the threat of socialism, people that wanted to keep capitalism felt they needed to show that capitalism could serve the public well.

• 12:31Avery Trufelman?

  The way to keep capitalism competitive and to show that it could serve the public would be taxes, a lot of them.

• 12:38Speaker 01

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

• 12:57Avery Trufelman?

  There was this push from lots of different people across the political spectrum to create the modern tax system.

• 13:03Speaker 01

  Congress enacted rules that were designed to tax the richest Americans.

• 13:08Avery Trufelman?

  In 1913, the income tax became a standard, regular part of American life.

• 13:13Speaker 01

  And in fact, only applied to the richest 5% of Americans. Nobody else paid any taxes at all. Over time, the income tax, as we all know, became applicable to pretty much all Americans. We had a progressive income tax that had higher rates for those who had higher income.

• 13:29Avery Trufelman?

  And this was all meant specifically to rein in The rich people.

• 13:33Speaker 01

  And in 1916, it was an additional estate tax.

• 13:37Avery Trufelman?

  This is a tax on inherited properties.

• 13:39Speaker 01

  And for a while, the systems worked very well.

• 13:42Avery Trufelman?

  And in fact, the system kept growing to continue to compete with socialism. Like when FDR created Social Security, this was his way of being like capitalism can take care of people.

• 13:51Speaker 01

  With massive industrialization, people didn't live near their families anymore. So they couldn't rely on the kids will take in the parents or whatever. And so he created this system of Social Security benefits and unemployment benefits, old age benefits and unemployment benefits.

• 14:08Avery Trufelman?

  When FDR created Social Security, he wanted all Americans to feel a buy-in so that it wouldn't feel like a charity.

• 14:13Speaker 01

  He wanted it to look like an insurance program.

• 14:16Avery Trufelman?

  Which meant all Americans had to chip in to funding it.

• 14:19Speaker 01

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

• 14:32Avery Trufelman?

  The systems of Social Security and Medicare are paid for by payroll taxes, which are really quite hidden. If you work for an employer, the payroll taxes are taken right out of your paycheck.

• 14:43Speaker 04

  I earned this. I wiped tables for it, I steamed milk for it, and it was totally not worth it.

• 14:49Avery Trufelman?

  Like that moment in Friends when Rachel got her first paycheck.

• 14:53Speaker 04

  Who's FICA? Why is he getting all my money?

• 14:55Avery Trufelman?

  FICA is the Federal Insurance Contributions Act. That's the payroll tax.

• 14:59Speaker 01

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

• 15:31Avery Trufelman?

  Payroll taxes are the second largest source of federal taxes, right after income taxes.

• 15:36Speaker 01

  So they're much higher than people see. And they are really quite burdensome, particularly for... Avery and other self-employed workers who have to pay the full 15.3% themselves. I mean, I'm a freelancer, so I watch it go. I see it. But even when the employers pay the half of it, which they do for people who have jobs, economists believe that that is actually money that would otherwise go in the form of higher salaries to people. You might remember Mitt Romney and the 47% of takers, not makers.

• 16:10Avery Trufelman?

  In 2012, Mitt Romney was caught saying this at a fundraiser.

• 16:13Speaker 05

  47% of Americans pay no income tax. And so I'll never be next. They should take first in responsibility and care for their lives.

• 16:20Avery Trufelman?

  Oh, come on.

• 16:21Speaker 01

  He said they don't pay income taxes. The most recent number is 40% that don't pay income taxes, but the vast majority of that group pays significant payroll taxes at quite high rates.

• 16:33Avery Trufelman?

  So, working people are paying the income tax, the payroll tax, and get this, working people are still paying most of the tariffs left over from that old outdated system.

• 16:46Speaker 03

  We often say that tariffs are the hidden tax.

• 16:49Avery Trufelman?

  This is our tariff expert, Steve Lamarr, again.

• 16:51Speaker 03

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

• 16:59Avery Trufelman?

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

• 17:15Speaker 03

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

• 17:37Avery Trufelman?

  And the ways that we, buyers of stuff, feel the effects of tariffs is not always simply in raised prices.

• 17:44Speaker 03

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

• 18:00Avery Trufelman?

  And there is one category of products that was and is particularly subject to tariffs.

• 18:07Speaker 03

  We're the most heavily tariffed industry.

• 18:10Avery Trufelman?

  Steve Lamar, our tariff expert, is actually CEO of the American Apparel and Footwear Association.

• 18:16Speaker 03

  This is the trade association for the apparel, footwear, industry, textiles, really the whole ecosystem of producers, suppliers, service providers that helped you get dressed this morning. We are still the most heavily tariffed industry.

• 18:32Avery Trufelman?

  This is what gets tariffed: clothing. One Bloomberg estimate from 2015 claimed that 75% of tariffs that US households pay are from apparel.

• 18:42Speaker 06

  We've had a very high tariff system for clothing since the Tariff Act of 1816.

• 18:48Avery Trufelman?

  Ed Gresser, Vice President of the Progressive Policy Institute.

• 18:51Speaker 06

  And so for over several decades, the system evolved into a very, very kind of ugly way. And as you say, it developed into mainly a way to tax clothes and shoes.

• 19:02Avery Trufelman?

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

• 19:23Speaker 06

  The industrial revolution businesses, Rhode Island in Massachusetts and sometime New York, felt that they needed a kind of very heavy level of tariff protection to get started and they never gave it up.

• 19:35Avery Trufelman?

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

• 19:42Speaker 06

  What's the material of your shirt, may I ask?

• 19:44Avery Trufelman?

  Oh, it's denim, I think.

• 19:47Speaker 06

  Denim, okay, that's probably, there's a 16% tariff included in that.

• 19:51Avery Trufelman?

  But luxury items have almost no tariff, while cheaper items do.

• 19:57Speaker 06

  Cheap mass market things are tariffed very heavily, and expensive luxuries, very lightly. So like my shirt, this is cotton and it's also 16%. If it were silk, it would be 0.9%, and if it were polyester, it would be 32%. And that is very, very typical.

• 20:12Avery Trufelman?

  Cheap sneakers have a 48% tariff, while leather dress shoes have only an 8.5% tariff. Acrylic sweaters have a 32% tariff, cashmere sweaters, only 4%. A canvas bag has a 16% tariff, snakeskin leather, 5.3. You get it.

• 20:29Speaker 06

  The type of system we have is not a good one. And the more I looked at it, the more shocked I was, like, how did we let this happen?

• 20:35Avery Trufelman?

  Why, who decides this? Why is this?

• 20:38Speaker 06

  Why is inattention more than it is like maliciousness?

• 20:43Avery Trufelman?

  Really?

• 20:44Speaker 06

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

• 21:05Avery Trufelman?

  Like, you don't buy cashmere sweaters or silk shirts for the bargain. You buy them because they're a fancy, expensive product.

• 21:12Speaker 06

  They're competing on image and kind of glamour.

• 21:16Avery Trufelman?

  Right.

• 21:16Speaker 06

  Whereas people who make polyester shirts are competing kind of only on price. And anything they could do to keep their competitors' price high, they would want to keep that.

• 21:26Avery Trufelman?

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

• 21:41Speaker 06

  If you say heavy tariff on clothing, also heavy tariff on sewing machines and building materials and dyes, this isn't gonna work. All you're doing is raising costs across the board.

• 21:54Avery Trufelman?

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

• 22:02Speaker 06

  If you pass a law banning imports of clothes, you know, people will need to buy clothes and there will be businesses that show up to make them. But it'll be very expensive and there'll be a large drop in living standards in the United States.

• 22:14Avery Trufelman?

  And I also have to admit, like when the Trump tariffs were beginning, I was like, oh, maybe these tariffs will end overconsumption and fast fashion. But that's really elitist. Like tariffs are not the way to do that.

• 22:24Speaker 06

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

• 22:42Avery Trufelman?

  Tariffs, Ed Gresser would argue, are not the way to address these larger, deeper problems. Tariffs tend to hurt any industry that makes stuff.

• 22:51Speaker 06

  Farmers, manufacturers, restaurants, retail, and construction pay a lot.

• 22:55Avery Trufelman?

  More than stockbrokers, yes.

• 22:58Speaker 06

  Lawyers, stockbrokers, media companies.

• 23:00Avery Trufelman?

  Intangible, white-collar industries are not impacted as much.

• 23:04Speaker 06

  It's a very inequitable sort of tax.

• 23:06Avery Trufelman?

  And not just on a business level, on an individual level.

• 23:09Speaker 06

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

• 23:26Avery Trufelman?

  Can I ask about that? Why is it that lower-income people buy more stuff? Like, don't rich people also need food and clothing and materials?

• 23:34Speaker 06

  Uh, yeah. Rich people spend more in dollar terms than poor people. But the money that wealthy people spend is much more likely to go to vacations and education and entertainment, and poor people typically have less money for those things. So it's going to hit the poor people harder.

• 23:53Avery Trufelman?

  Oh, and also, this tariff system is overtly misogynist.

• 23:57Speaker 06

  Men's silk underwear, 0.9%. Women's, 2.1%. Cotton, 7.4% for men, 7.7% for women. Polyester is 14.49% for men, 16% for women. Is this okay? Or I guess this is no, this is awful.

• 24:10Avery Trufelman?

  On average, there is a 3%. 3% tariff gap between women's and men's clothes.

• 24:14Speaker 06

  And that translates to about $2.5 billion extracted from women each year.

• 24:20Avery Trufelman?

  And again, Ed Gresser doesn't think this was malicious.

• 24:22Speaker 06

  I think it's less like a group of people think we're really going to stick it to women and we can high five each other. Businesses making women's clothes were more aggressive in defense of tariffs than those making men's clothes. They weren't really thinking about what the outcome was going to be.

• 24:38Avery Trufelman?

  But these tariffs are outdated and no one in Congress has thought to be like, well, maybe we should reconsider them.

• 24:44Speaker 06

  There weren't that many people who were interested in this. I think for a long time, most people thought tariffs were boring and hard to understand.

• 24:52Avery Trufelman?

  I mean, in Ferris Bueller's Day Off, it's what the teacher was droning on and on about.

• 24:57Speaker 05

  Anyone? A tariff bill? Anyone?

• 25:00Avery Trufelman?

  Generally, people don't want to really think about these boring tariffs, although Trump's abuse of tariffs has really brought attention to them.

• 25:08Speaker 06

  There's not been this type of interest in tariff policy even to public in many, probably more than 100 years.

• 25:15Avery Trufelman?

  And now there's a proposed bill in Congress called the Pink Study Act.

• 25:19Speaker 06

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

• 25:29Avery Trufelman?

  But in the meantime, all the tariffs are still there on clothing.

• 25:32Speaker 06

  If you want to avoid high tariffs and buy silks and cashmere, that's, that will work.

• 25:37Avery Trufelman?

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

• 25:59Speaker 01

  Some people might be wondering, how do rich people avoid taxes? And can I avoid taxes too? I'm going to tell you what the tricks are and I'm going to forewarn you, chances are you can't do them.

• 26:09Avery Trufelman?

  After the break.

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• 26:55Avery Trufelman?

  become his daily pair. And I don't think he ever would have found it without Zenni. That scratched up pair has done its job. Upgrade today with Zenni. Go to zenni.com/podcast and use code PODCAST15 for 15% off your first order, plus free shipping on all US orders over $65. The styles sell out, so don't sit on it. That's Z E N N I dot com slash podcast. Promo code PODCAST15.

• 27:26Speaker 02

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• 27:55Avery Trufelman?

  I first heard about The RealReal, I think, a decade ago. Suddenly, it was this place where you could get Prada pumps and Burberry jackets and Gucci handbags for a song. Like, I recently got this vintage 90s Yoji Yamamoto skirt that I wear constantly. The RealReal is adding thousands and thousands of items every single day. So it really does still feel like a treasure hunt, even though it has all the convenience of shopping online. And I periodically use it to clean out my closet. They make it so easy. The RealReal sends a representative to my tiny apartment to pick up my things and assess them for me, and then it's done. Money just appears in my account. The RealReal is the most trusted name in authenticated luxury resale. With over 10,000 new arrivals daily, no one does

• 28:40Avery Trufelman?

  resale like The RealReal. And now, get $25 off your first purchase when you go to therealreal.com/articles. That's therealreal.com/articles to get your $25 off. Start shopping now at therealreal.com/articles.

• 28:59Avery Trufelman?

  I hate paying taxes. Even though I'm a good little liberal and I believe in more paved roads and universal healthcare and big government, I still don't like it. It's not like you like paying taxes, right?

• 29:11Speaker 01

  No, nobody likes paying taxes.

• 29:14Avery Trufelman?

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

• 29:39Speaker 01

  Right? And Congress is like, "What, is something happening here?" They're literally doing nothing. Congress is engaged in complete quiet quitting and has done nothing to close any loophole since 1990.

• 29:52Avery Trufelman?

  Here is how the wealthiest Americans pay no taxes.

• 29:56Speaker 01

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

• 30:12Avery Trufelman?

  Some of the richest Americans only take a small salary. I mean, it's small for them. It's only a tiny percentage of what their companies are worth.

• 30:20Speaker 01

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

• 30:33Avery Trufelman?

  Mark Zuckerberg makes a dollar.

• 30:35Speaker 01

  Mark Zuckerberg makes a dollar.

• 30:36Avery Trufelman?

  Larry Ellison also paid himself a dollar a year. Elon Musk once violated California labor laws by paying himself too little.

• 30:45Speaker 01

  But they are not, like, just foregoing salary. Instead, they are being compensated through the enormous growth in value of their stock.

• 30:54Avery Trufelman?

  Enormous growth.

• 30:56Speaker 01

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

• 31:09Avery Trufelman?

  And all this accumulated wealth is just sitting there in their investments, and they do not sell their stock.

• 31:16Speaker 01

  They don't sell. It enables them to continue to control their companies, but it also enables them to avoid taxes. Because under our tax system, you do not pay any taxes unless you sell.

• 31:28Avery Trufelman?

  So these guys are worth a lot, but it's all just sort of hoarded.

• 31:32Speaker 01

  Now, you might say, but yes, they must sell, though, because they want to support their lavish lifestyles. How else is Larry Ellison going to buy his island of Lanai, which he owns, all the businesses, all the real estate?

• 31:46Avery Trufelman?

  Here is how they own all their fancy stuff. They borrow money.

• 31:50Speaker 01

  The way that they do it is they borrow against those funds, because there is always somebody available to lend them money at quite favorable rates. And borrowing is entirely tax-free.

• 32:01Avery Trufelman?

  A lender is delighted to loan to Larry Ellison or Elon Musk.

• 32:05Speaker 01

  And as long as their wealth grows faster than that rate of interest that they're charged, which it does, then they just always end up ahead.

• 32:12Avery Trufelman?

  So you take out a loan to pay the loan?

• 32:14Speaker 01

  Yeah.

• 32:15Avery Trufelman?

  To pay the loan?

• 32:15Speaker 01

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

• 32:35Avery Trufelman?

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

• 32:46Speaker 01

  A lot of these guys do borrow heavily. They get quite favorable rates, and paying the interest is much cheaper than taxes.

• 32:54Avery Trufelman?

  The other way to have a lot of money without paying taxes is...

• 32:57Speaker 01

  Acquire money the old-fashioned way and inherit massive wealth.

• 33:00Avery Trufelman?

  Inheritance is tax-free.

• 33:03Speaker 01

  Because under our income tax system... No matter how much you inherit, you don't pay any income taxes on it. It's entirely excluded from income taxes.

• 33:13Avery Trufelman?

  Someone who inherits $10 million or $100 million or even $100 billion doesn't have to report it on their income tax returns.

• 33:20Speaker 01

  So we have this really comprehensive income tax system, except inherited, you inherit $100 million? Ah, don't worry about it, right? So we have a very different system for people who inherit wealth.

• 33:32Avery Trufelman?

  So why is that the case?

• 33:34Speaker 01

  Well, because the rules were put in place on the assumption that we have a robust estate tax.

• 33:40Avery Trufelman?

  That tax on inherited property, the estate tax. But it doesn't actually work. It has become functionally eliminated. It's just there, a ghost of itself.

• 33:51Speaker 01

  Estate and gift tax rates have come down from like 90% to 40%.

• 33:55Avery Trufelman?

  Payroll taxes have gone up and tariffs have gone way up. And meanwhile, the shrinking, ineffectual estate taxes over there pretending to level the playing field.

• 34:04Speaker 01

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

• 34:37Avery Trufelman?

  An amazingly effective campaign.

• 34:39Speaker 01

  They hired this guy by the name of Frank Luntz. Remember when we used to talk about global warming? And remember how scary that was? It's getting hotter. It's awful, right? Frank Luntz gave us climate change.

• 34:49Avery Trufelman?

  No.

• 34:50Speaker 01

  It's just different, not necessarily worse. It's, it's just a change. He's a genius. Anyway, he is the one that came up with this phrase, "death tax."

• 35:01Avery Trufelman?

  He rebranded the estate tax as "the death tax."

• 35:06Speaker 01

  Because a death tax sounded both scary and mean. You know, like 10% of Americans wanted to get rid of an estate tax, but like 90% wanted to get rid of a death tax.

• 35:18Avery Trufelman?

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

• 35:56Speaker 01

  The estate tax is really just a tax in name only that really provides cover for the wealthy and no real burden.

• 36:03Avery Trufelman?

  Ray Madoff thinks this is kind of a lost cause. It's not worth trying to fight to make the estate tax robust again.

• 36:10Speaker 01

  So I don't think we should save the estate tax. Personally, I think we need to abandon the estate tax.

• 36:14Avery Trufelman?

  Because it makes rich people look good. It makes them look like they are paying their share. Just like all the charities rich people give to.

• 36:24Speaker 01

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

• 36:53Avery Trufelman?

  So they can just park it?

• 36:54Speaker 01

  You can just park it. And the financial institutions benefit when you don't spend it. They have every incentive for you not to spend.

• 37:01Avery Trufelman?

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

• 37:12Speaker 01

  So we have these rules that are like pretending to do something that they're not.

• 37:16Avery Trufelman?

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

• 38:01Speaker 01

  Let's simplify the system and have one system for everyone.

• 38:05Avery Trufelman?

  The government can bring gifts, inheritances, and life insurance into the income tax system, where they belong. Rich people should have to report that stuff.

• 38:13Speaker 01

  What we need to do is we need to bring in inheritances and investment income into our income tax system, just the way we do salaries.

• 38:23Avery Trufelman?

  It should be that when you inherit property, or wealth, or stocks, you get taxed.

• 38:28Speaker 01

  We could say that everyone can inherit even a million dollars tax-free, but after that, they should pay income taxes on it, the way we pay income taxes on lottery winnings or anything else.

• 38:39Avery Trufelman?

  And I do love how you have this like, come into this, it's like this invitation.

• 38:43Speaker 01

  Yeah, so fine, the water's fine.

• 38:46Avery Trufelman?

  This is the proposal for the super rich. Join the rest of America, pay what we all pay, feel what we all feel, and be a part of our society. You're not supposed to like it, none of us do. And then, once you do start paying in, you're totally allowed to go back to wearing tiaras and renting elephants again. By all means, please do that.

• 39:15Avery Trufelman?

  Articles of Interest is made by me, Avery Trufelman, with very, very special thanks to Ray Madoff and Ed Gresser, not only for your insights that you shared in the story, but also for listening and fact-checking this piece to make sure I got things right. Music by Ray Royal, Sasami and Lulatone. If you'd like to get an idea of how much wealthier Jeff Bezos is than a doctor, or a lawyer, or a hedge fund manager, or even Beyonce, he's so much richer than you could imagine. I'll have a visualizer up at articlesofinterest.substack.com.

• 39:47Avery Trufelman?

  Radiotopia.

• 39:50Avery Trufelman?

  From PRX.