How To Actually Tax The Rich — ft. Ray Madoff

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Especially, Markets are bigger than what you have here in the structure of changing the world's history. It's trash. Stocks look pretty attractive, something's going to break, we get about it. Ed? No joke today.

No joke. My Zap. Claire was giving me shit about our guests, showing up in 20 minutes, and I just didn't have time to find a offensive yet not too offensive jokes I'm going with, our constant self-promotion of the tour.

Promotions are very important, especially for all of our Chicago listeners and on Miami listeners.

“I think we need to pump crypto a little bit, if we're going to get all the Miami people”

to show up to the film more. I think that's something that we should maybe get into. We've got five days left to pump some old coins. Maybe we get into some com rocket, maybe some fart coin, maybe we'll just keep it simple and stick with Bitcoin.

This is just making it a whole lot of sense to me. It's all resonating. I told you I came up actually, this was my idea. This is who we're going to invite, although we're trying to track him down, but I think it'd be great if he said yes, so if he's listening, I think we should have Adam Newman.

It's not about idea. I agree.

You know, he's actually an incredible speaker and communicator.

Everything he says. Did I tell him a story about Adam Newman? I don't think so. Not coming to mind. So I was invited to the JP Morgan Alternative Investments Conference, which is literally one

of them. Just kind of second only to Davos in terms of what would happen to the GDP if all of a sudden the earth opened up and swallowed all the people there.

“They have me do my prediction saying, "I've done it twice, I think," and then they have”

me interviews and buddy. The first year, I'm up there, did my prediction saying, and I said, "Now I want to welcome to the state to Adam Newman." I interviewed him and he went into his whole rap about community and elevating the world's consciousness and everything else he figured out on a wild mushroom trip, that thought

he could turn into a public company. We did this thing and he was like wearing no socks, he looks like Jesus, he's very handsome, he's very compelling, he has a whole rap. Then there was a movie called WeCrashed where I played me, no, I didn't play me, Kelly

out coin from Billion's played me interviewing him.

Somebody got a hold of the transcript and the next year I was invited back and they had me interview some influencer who's come and gone, I don't remember a name, and at the end of the thing, I said, I said, "And by the way, you know who the last person I interviewed on the stage was," and she said, "What?" And the audience went, "Snow and Cold Silence," I said, "Adam Newman."

And I guess that was not the right thing to say according to JP Morgan executives, and I have not been invited back. I have not been invited back. Yeah. I've also been disinvited from another unbelievable gathering that I went to for the first

time last year because I've been saying that Elon Musk would lose his case and I guess the guy who heard Stephen, the event is butt buddies with Elon. That's a shame, but you were right.

“I mean, that's what we learned this week.”

You were right. I have that head, so that's all that really matters. Yeah. Yeah, I actually, I don't remember the story itself, but I remember watching, it wasn't a movie, it was a show, it was a series, an Apple WeCrashed.

Yeah, exactly. On Apple. With Jared Lee. And I remember seeing that scene. Yeah, with Kelly or Colin, who played you very, very well.

That was the, I believe it was on Billions, I want to say. Yeah, I mean, the dollar bill on Billions, he crushed that role. He nailed you. Yeah, he's been on a lot of stuff, I thought he was, he played a better me than me. We should have him stand in for you on this show at some point.

You know, I'm all for it because I'd like to go by, I'd like to go get topists right now. You got about 15 minutes, why are you order some room service, guys, help us snack? I did. It's sitting here.

I'm in this beautiful hotel that feels like some, I don't know, prints or someone lived here and then got beheaded, but yeah, it's beautiful. And then the Lisbon and a while. Very exciting. Well, we're going to learn all about princes in a second with our guests.

But before we do that, I'm just going to reiterate. We are heading to LA on the 28th, where we will have Ted Sarando's co-CEO of Netflix. He will be our special guest. We'll be in Miami on May 30th, that in Chicago on June 1st, Governor JB Pritzko is joining

Take it to still available to that show, also, still available for the Miami show. And then on June 2nd, we're finishing things off in New York City with the one and only Anthony Scaramucci.

“I think there might be a couple tickets left in New York City and might actually be sold”

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You'll ask some questions, we'll do our song and our dance, and we'll have some interesting voices on stage to discuss things with us as well. Very excited. ProftoryMarketsTour.com. Ed should we get on with the show?

Let's do it. Wealth inequality is reaching a breaking point in this country.

The top 1% now come on roughly a third of the nation's wealth, meanwhile the bottom half

of the Americans control only 3% and 1 in 10 Americans still live below the federal poverty line. One instrument that might have created this divide is the tax code. There are a number of loop holes in the tax code that have enabled America's wealthiest to increase their wealth.

And today, the average American is paying a higher tax rate than the wealthiest 400 people in the country. Meanwhile, audit rates, particularly of the ultra wealthy, have collapsed to a historic low. We've spent some time discussing these issues on the show, but we wanted to bring in someone

who has dedicated their career to studying how the tax code shapes inequality, and how the wealthiest Americans used it to preserve and to grow their wealth across generations. So this is our conversation with Ray Madolph, professor at Boston College Law School,

and author of the second estate, how the tax code made an American aristocracy.

Ray, thank you so much for joining us on the show. I'd like to start with a potential rebuttal to your thesis, which in so many words is that the wealthiest are not paying enough in taxes compared to the rest of us. And then we'll get into the conversation. But the rebuttal of the statistic that a lot of people use is the fact that the top 1%

of Americans pay 40% of the federal tax revenue in America. So if that is true, if the wealthiest are paying most of the taxes, then the first question is, what's the problem? First of all, thank you so much for having me. I know that the two of you talk a lot about taxes, and it's wonderful to have the chance to join you in conversation on this

“important topic, and I'm particularly grateful that you have started with that question.”

Because I call that the statistic that saves the rich from taxes, and we see it being published in lots of publications, Wall Street Journal, the Economist, the Washington Post has now joined in, and this is a statistic that is both true and highly misleading. And so the way it's described as the top 1% pay 40% of all income taxes. But what they're not saying there is, what do they mean by top 1%.

What they're actually talking about is the top 1% of income earners. Those with high taxable income, high paid lawyers, bankers, surgeons, anybody with a very high salary, and those people are indeed paying heavy taxes.

And however, the problem is that this says nothing about our wealthiest Americans.

And that is because our wealthiest Americans avoid income taxes by avoiding taxable income. And as a result, they are just just likely to be in the 40% of Americans who pay no income taxes, as they are in the top 1% that pay 40% of income taxes. So the statistic that we find quite fast in here is that Americans pay an average of effective tax rate of 30% and then among the 400 wealthiest Americans, the average effective

tax rate is 24%. And that goes back to what you have just laid out, which is the difference between making your money via income and then making your money via wealth via the appreciation of your assets. It's just so that we're all on the same page about what this difference is.

Could you lay out exactly what that difference is, how do the wealthiest, the very, very

“wealthiest, make their money compared to, let's say, just average wealthy?”

Or even average American? Or average American. Yeah. So let's start with the tax and the tax lives of most Americans. The tax lives of most Americans is that they earn their money through work.

As I imagine the two of you do and I do and most of our listeners do, right? And whether they work as independent contractors, whether they work for somebody else, they are subject to the heaviest taxes.

And payroll taxes at rates at 15.3% rates. And payroll taxes are paid there.

“We call them the hidden taxes because most Americans don't even realize that their taxes.”

They show up as things like FICA and FUDA are very hard to understand what they are. They're called contributions, not taxes. But they actually impose quite heavy taxes so that somebody who, a self-employed person who earned $60,000 will pay more than $13,000 in federal income and payroll taxes. That is a significant burden for somebody trying to get by on a $60,000 salary.

As people go up the income tax brackets, the taxes get even more burdensome. So a very high-income person will pay typically 50% in taxes. Maybe a little bit more if they're in a high tax state. And so they are paying significant amount of taxes. Now let's move over to our wealthiest Americans, all the names that we have all come to

know so well, Buffett, Bezos, Musk, all of those fellows. And for that group, they live a very different tax lifestyle. And that's because they acquire their wealth.

“They do not acquire their wealth from salaries.”

The one thing all of them have in common is that they take very low salaries. The most highest paid salary of all in that group is Warren Buffett.

And he has never made more than $100,000 in both salary and bonus combined.

I'm a little fan, yeah. Yes. And he even cuts it back a little bit to pay for the fact that he sometimes uses his office space for his personal investments. So he charges himself for that and further reduces his salary.

Bezos has always kept his salary at 82,000, which has enabled him to claim the child tax credit, which he has done in the past. And all the others are just dollar a year, guys. And so they take no salaries, so they don't pay payroll taxes, they don't pay income taxes, pay very minimum taxes on that side.

So then why were they not taking taxes? As you said, are they just being humble? No, what they are doing is they are counting on the growing value of their stocks. All of these people own significant amounts of their companies. And their stocks have appreciated extraordinarily in value.

So if you look just in 2023, there are many of their have seen stock growth between like

50 and 150 billion dollars just in the past three years.

It's been extraordinary, that amount of growth. So then the question becomes, I mean, if they're making their money because their stocks are going up, well, then how are they paying for their lifestyle?

“Like you can't buy a Louis Vuitton handbag with Amazon shares, you need to pay with dollars.”

So if they're not getting salary, then how are they paying for themselves? Exactly. And the key here is that they are using their stock and other assets as collateral for loans. And they are able to get very favorable rates on their loans because they have so

much wealth. So this is an extremely well secured loan and they borrow lots and lots of money to support their lifestyles. And they borrow enough money to cover the interest payments, which are usually pretty modest because of the fact that their loans are so well secured.

So they're able to support their lifestyles and their borrowing by borrowing. Now some Americans might think, yeah, but surely they've got to pay that money back because the rest of us are used to loans where we're given maybe even 20 years for a house loan or 30 years, but our other loans, they want them back in a set period of time. The difference is for the very wealthy, there are all sorts of people in the business

of lending money and when you have these very well secured loans, there's always people

ready to just lend you money and to keep lending your money on that loan because they get paid for that service of lending money. And so there's never a problem rolling over the loans or getting somebody else to give you a loan. These loans don't really have to be paid back because of the big market of people that

are in the business of lending money. I'm glad that you laid it all out for us, because I just want to make sure that all of us are on the same page here. We're not saying, or you're not saying, that the lawyer or the doctor who's making $300,000 a year isn't paying enough in taxes, those guys are paying as you say, 50% in taxes and in

many cases. What we're saying here is that there are a handful of billionaires who make their wealth via the appreciation of their assets and because of the way that the system is set

low interest rate, the more money you have, what it basically means is that you can get by as a billionaire paying almost nothing in taxes, and that's the point. The only tweak I'd like to make to that otherwise perfect description is that we're not just talking about a handful of billionaires.

Somebody who has $100 million could still do this, right?

And so it's a much larger group. I think it makes, we make a mistake when we describe this as a billionaire problem because the problem really is for anybody who has enough assets that they don't need to work, they can depend on the growing value of their assets, they too can avoid taxes.

“And that's where I, why our problem, that's why our system is so problematic is because”

it loses so many people, and that's the real problem. So professor, that'll bridge it nicely into, I think, possible solves, I want to propose to possible solves and get your response. I think what we want are taxes that are at least taxing, and one of my intellectual remodels is a guy named Daniel Kahneman, and it is really American psychologists who

writes a lot about money. And basically, he came to the conclusion that money does by happiness, but it flattens out at a certain point, which says to me, if we're in fact going to need to fund our navy and our parks, that the least taxing tax would be an alternative minimum tax. I think trying to redo the tax code, which has been weaponized by wealthy people and corporations,

would be a full-saren't. But an alternative minimum tax of, say, 40 or 50% on any income investment gain, or if you borrow against that, that's a trigger for capital as an event. And alternative minimum tax of, say, 40% on corporations, and then the second thing would

be to lower the estate exemption from 30 million to 1 million.

“And I believe no one gets hurt, no decline in the quality of life, and you can fund the”

programs that substantially increase the quality of life in general well-being and happiness, universal childcare, food stamps, tax credits for young people trying to buy homes. I would put forward to you, and I want you to nullify our value, my thesis, that the illusion of complexity has been weaponized by the incumbents. Get rid of the estate tax exemption, alternative minimum tax on any income above a million

dollars, or corporations making above a certain amount. I agree conceptually that we need to bring in investments and inheritances. I think that description is a little bit, I want to push back a little bit in the discipline because the alternative minimum tax is what that is, is it something that disallows deductions. Okay?

So you can't take a charitable deduction, you can't take a home interest deduction. It doesn't do anything about the problem that we have in our system of the failure to tax appreciation, which is a problem of realization that's separate from alternate from deductions and about the failure to tax inheritances, which again are subject to broad exclusion. So the problem that we have as I see it as a tax person, I share the desire for the solution,

which is we need to bring investments and inheritances into the tax system, but I disagree with the alternative minimum tax and estate tax framing. The alternative minimum tax for that reason that I say, the alternative minimum tax is really about deductions. And so it's not really about all these things that are written out of the system.

“You say, well, then we should write them into the system, so that's how I would focus”

on it. I agree. We should bring in appreciation.

The problem is, if you tax appreciation as it occurs currently each year, right, that's

which is, I don't know if you're proposing that. That was one of the, right, so how are we going to handle this appreciation, right? We have all these guys that walk in around with hundreds of billions of dollars. When are we going to tax those gains? And different proposals have been made, right?

Some say we should tax them each year as they occur. I think that's going to be too burdensome and too complex for people to understand. So what I think we should do is say that whenever the person transfers the property, whether they transfer by gift, whether they transfer it at death, whatever they do with it, once they no longer own it, then they should tally the gains and pay taxes on it then.

So that the person who earns that income earns those profits, pays taxes on them. Our failure is to not tax the appreciation to the person who earns it by letting them pass it tax free. In Canada, they have this rule, which says that whenever you transfer the property, we're going to tally the gains and I think we should have that rule here for purposes of investment

I 100% agree with that.

What you're basically saying is, what is the trigger for when something becomes

a capital event where it's subject to taxation? Yes. And the basic strategy now is buy, buy investing in your own company or buy a stock, borrow against it, and then die and get a step up and basis.

“So I think we're brothers from another mother here.”

I think the wealth tax is class, welfare. I think it makes for a speech. All you're going to do is fill the pockets of every accounting firm and trying to assess thought, I can't imagine what a boon it would be for a praises trying to convince you that one property is worth negative value and then try and figure, and it's, we've talked about this,

16 countries are proposed to wealth tax, 13 have repealed it. They typically just don't work very well, but the only, I think I would add to you in terms of it triggering a capital event that's taxable is when they borrow against it. And that's fine. I'd be perfectly happy to do it.

I think there are some problems because, first of all, you can borrow against any number of assets, right? You might have loss assets that you can borrow against. So it's not really clear, and also people's borrowing is very small in relation to their total wealth.

“So the only thing I'd be concerned about when we talk about taxing borrowing is I wouldn't”

want that to be seen as the solution to the problem.

Because when somebody has $200 billion, you can live a pretty good lifestyle with just

a billion dollars, hard to believe, and so then we don't want people to think they're solving the problem by taxing borrowing. So that would be my only hesitation as you and I are fine toening our tax systems. We'll be right back off to the break, and by the way, we're heading out on tour next week.

So for more info and get tickets to a show near you, head to propertymarkitstor.com. Hi, I'm Maria Sharapova, host of the Pretty Tough Podcasts. Each episode, I sit down with high-achieving women to discuss the pursuit of excellence without apology. This week on the show, comedian and best-selling author Chelsea Hamler gives her tips on

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So Ray, one of the things you propose here is that we don't see enough realization events for the appreciation of assets, and keep on borrowing, you borrow against your assets continually,

So you're saying anytime there's any transfer of any kind, if you donated, if you transfer it into New Account, that is a moment to say, okay, let's figure out how much the assets have appreciated and let's tax them. One thing that is confusing to me, though, is we do have a moment where rich people do transfer assets.

When they die, and they handed over to usually that children. And so the question for me is, and that is this is the estate tax, that's we tax those

“assets, why isn't that working, why is that a problem still?”

And that's a really important part of this conversation of understanding this issue, because we have all these seeming failures in our income tax system, right? We don't tax appreciation, we also don't tax money received by inheritance. So if you find a hundred dollars on the street, leave your office to find a hundred bucks, you are supposed to report that to the IRS and pay taxes on it.

However, if somebody hands you a million dollars or ten million dollars or even ten billion

dollars, you don't even have to report it. You don't have to tell anybody, you don't have to pay any taxes on it, and that also applies to money you receive by life insurance, and money you receive by gifts, all of that is entirely tax-free. Well, why do we have this enormous giveaway in the income tax system?

“The answer is because we count on a robust estate tax system, sweeping up and making sure”

that these untaxed forms of income are eventually subject to tax with what had previously been a pretty onerous tax. The estate tax was enacted just a couple of years after the income tax, 1916. We've had it a long time, and for a long time, it did its work. Basically, we had a tax, and we had a Congress that kept up with reforming the tax.

So in 1976 and 1986, we had a problem of these long-term trusts, and Congress enacted this whole additional tax, as a backup called the Generation Skipping Transfer Tax. And we had a problem with valuation gaming techniques. So four years later, Congress enacted special valuation rules, and the whole other group of a whole other section to the code.

And these were both enacted under Republican President. So this was broad bipartisan support, supported keeping this tax up to date.

“However, you and your listeners might remember, or, well, I guess, maybe, you might not”

remember it, but maybe you've heard about it. Well, for ten years. For ten years, you did, before you were born, there was in the early 1990s, a campaign funded by 18 of the country's richest families. And that campaign was designed to turn the public against the estate tax.

They sought a state tax repeal. And George W. Bush was a big carrier of the banner, and they're most effective thing that they did was they hired this guy by the name of Frank Lundz, who was a communications expert.

And he said, "Never call it the estate tax," because that sounds like something that's

for rich people. Instead, call it the death tax. And we'll bring this campaign, and we'll say it's unfair, and it's a double tax, and it hurts family farms and businesses, and we're going to run this campaign. And this campaign was extraordinarily effective.

Not for their goal that they sought to achieve, which was actual get rid of the estate tax from the books. But it was successful in a way that was ultimately, even, I'll argue, more successful, which is what they did is they were so successful in their campaign to make people feel uncomfortable with this idea of the estate tax that Congress stopped doing its job in terms of closing

loopholes. Indeed, the last time that Congress has closed a single loophole was in 1990, 36 years ago. And so as a result, over the past 36 years, there has been a proliferation of tax avoidance techniques that have been allowed to occur.

They all have this sort of doctor's suit-sounding names, crats and crats, clats and clats, grats and grats, coup purch, coup tips, coup dots, the whole panoply of them. And as all of these exclusions have developed, the estate tax has been completely corroded, so it no longer does anything.

Not because the exemption is too big, which it is big, it's 15 million, and it used to

And so to raise or lower the exemption or raise or lower the tax rate will not be effective, because this tax has been effectively killed. And so we're not going to start seeing all types of robust action with respect to the

“estate tax, and I think it's because the estate tax, it wasn't just, well, we're always”

vulnerable to rich people. I think the problem was that the estate tax had an Achilles heel. And that is that it was theoretically designed to be imposed on the donor. And so what the on the dead person, and so what it meant was for those individuals who indeed paid high income taxes, their whole lives, right, they paid lots of income taxes.

Now we're imposing a second tax on them, and it seemed kind of just punitive in some

weird way to the public. This was made easier because the public doesn't know very much about what happens on the income tax side. Most people don't know that money received by gifts and inheritances and all of those things are tax-free, and I know this is true because in this area a lot of people ask

me, well, if I give more than $19,000 to my kids, don't they have to pay income taxes on it? This is because of some gift tax exclusion amount, but people are confused about this. And so the estate tax is a kind of an awkward tax, and it made it easy for Congress to stop acting.

What's particularly interesting is that the estate tax has become so ineffective that I'm going to give you a number, which is truly shocking. When the top 1% of Americans had $55 trillion, which is how much they had in 2025, the total amount raised by the estate and gift tax, which is supposed to be a 40% tax on all transfers during life for a death, the total amount raised was $28 billion.

That's 0.06%. It's nothing, and it's not because of the exemption amount. It's not because of the lower rate, it's because people are able to avoid the tax altogether,

and that's what the problem is.

I was just about to ask you if there is a rough number that we can estimate on how much we are losing to this issue, to this estate tax loophole, and you've given us our answer there, north of 20 trillion dollars, close to 30 trillion dollars, it sounds like. Right, if you think about that we're designed, we're supposed to have a tax on the top 1% and that that percent has 55 trillion dollars.

By the way, this is a time where the total revenue raised by the federal government is like $5 trillion. So they have massive amounts of amounts of amounts of amounts, so when people say it doesn't matter if we tax the rich, that is just simply not true. It almost sounds as if this fixing this problem would solve a lot of our problems, and

this gets to something else that I'd like to get your views on. Okay, I had one more piece here before we came here.

“I think the thing that makes it most telling that the estate tax is actually something”

that now works as a cover for the rich rather than as a burden is the fact that in 2025, a time when the Republicans fully controlled that new tax bill, and they easily could have repealed the estate tax, they chose not to do it, no mention of it. It had been their number one issue, but now all of a sudden they didn't care, and that's because they wanted to preserve all of the income tax benefits they got when there was

an estate tax that provided cover. So Ray, this gets to one of my concerns about our future in America, I am becoming increasingly concerned about the possibility of what we're calling an inheritocracy, where we have been in so many ways ruled by the Elon Musk's and the Bezos's of the world, and that was especially true after Citizens United, and the billionaire spending on political campaigns

exploded, and they started to buy our elections, and that's not hyperbally that is literally

“what happened, and we're seeing a lot of blowback and push back to that, but I think that”

we're about to see something even worse, if we start to see that the world isn't run

by the guys who created these incredible tech companies, but by the children of the guys

who created these incredible tech companies, which by the way, we're already starting to see in the media world where power them out and one of the brothers discovery soon enough is about to be owned not by Larry Ellison, but by the guy who inherited the Larry Ellison fortune by David Ellison, we see this in the world of the Murdox, we'll see this with kind of Fitzgerald where the commerce secretary's sons are now running one of the most

a real loss of faith in the system itself, if we wake up one day, and suddenly we're rules

by all of these rich kids, I had always thought that maybe the state tax exemption is the way

to fix that, and the fact that we increased it with the big beautiful bill to me was like, well, that's obviously not the right direction, you're saying that, no, that's not the problem,

“it's these loop holes, my question is, what do we do about this then?”

So, I think the first thing that we need to do is we need to recognize that the estate tax has been really effectively killed, and as I mentioned, I think it is because it was easier to kill because of this vulnerability that it was imposed as a sort of a second tax on the person who dies, and so for a lot of reasons, I think that we have to understand that this is not a tax that's going to be resurrected, but it will actually help us more to get rid of the

tax than to keep it because when we get rid of the estate tax, we see about how our income tax system preferences inherited wealth, and we have a tax system, as I mentioned, that has the income tax system is designed to be very, very broad, it starts its idea that gross income includes all income from

“whatever source derived, and so many, so much so that even if two people do a barter exchange,”

somebody says, I paint your house in exchange for you filing my taxes, each of those people are supposed to pay taxes on the value of what they received for that exchange, really broad comprehensive tax, and then you look at this tax and you look at gifts and herodances, life and insurance, and they're all excluded, well there's no justification for having a broad exclusion of all of those sources of income when lottery winnings in every other type of acquisitions of

money is subject to tax, so by getting rid of the estate tax, it frees us up to bring inheritances, gifts and life insurance back into the income tax system where they belong, and there's a number

of advantages to that. First of all, the tax will be imposed on each person who receives the money

based on their appropriate income tax bracket, and so, and it will also give us a chance to get rid of all of those problematic aspects of the estate tax that allowed for so much tax evasion, right? We could do a tax on inheritances 2.0 that is more appropriately levied on the recipients of inherited wealth. When we do so, we're going to need to think directly about how much, if at all, do we want to subsidize inheritances? I do think inheritances have become increasingly

important for a lot of Americans, particularly as our young Americans are having a hard time getting jobs that are sufficient to support the lifestyle, what we used to consider a basic middle class lifestyle, things like owning a home, being able to send your kids to school, a lot of people are depending on inheritances to help them acquire those basics in life. And so,

“I think that we need to understand that we need to provide some exemption for”

for inheritances. But when we recognize that it is an actual exemption for inheritances, then we can come up with a reasonable amount, maybe each person should inherit, be able to inherit

one to two million dollars tax free. And after that, they'll pay ordinary income rates, all right?

We can have a more coherent system by bringing it into the income tax system. Beyond the loop holes, one thing that's also interesting, we would discuss in the difference between capital and labor. And outside of these loop holes and outside of borrowing, as the acidity reality is, the tax rate on capital gains is just significantly lower than the tax rate on income. And we have this chart here from this 2022 study, which shows that the tax rate on capital

actually used to be higher in America compared to the tax rate on labor and then recently it flipped. But also, I would point out that this has been the subject of debate on how exactly are you calculating what that tax rate is on labor versus capital, so Gabriel Zuckman, who's written a lot about this. He did a study and he said that it flipped as recently as 2018. So there's all this debate on what actually is the true tax rate on capital versus labor.

But the larger point being, should we really be taxing people's work, people's income, a higher rate than the income that they receive or the appreciation that is realized on the appreciation

increasing the capital gains tax? We absolutely should be increasing the capital gains tax and equalizing it with the ordinary income rate. There's a lot of, you know, you'll get 50 reasons about why people who want to keep that reduced rate, you know, all sorts of reasons that

“they have, but none of those 50 reasons actually stand up on their own. And so I believe absolutely”

we should be equalizing the rate. The one thing that I think that we could do is we could provide inflation adjustment for recognizing gains. So let's say that somebody buys a house a long time ago,

they buy it for $100,000, and now it's worth a million dollars. But inflation has gone up so much

that they're actual gain. They're not really better off by $900,000, because that money isn't going to buy as much anymore. Right? They can only just buy that same house, or buy a less good house, a night's playing this role. But a lot of that gain will be due to inflation. And so I think that we could equalize rates, but allow for adjustment for inflation of basis so that people are paying, are not paying taxes on the inflation gains. And that would be a

way of softening, of softening that as it applies to long-held assets. That seems like a great solution to me. Just make them equal capital gains and income tax just make them the same. The thing that has confused me though is that I'm not aware of any societies, or maybe western societies, maybe I'm just not looking hard enough, where that is the case. And I guess my question is why,

“why is it standard that capital gains are taxed at a significantly lower rate than standard income?”

Well, first of all, right here in the United States, they were taxed at the same rate in

1986. This was a tax bill. The 1986 tax act was put forth by President Ronald Reagan. And I think that what he did was he brought down top rates, but equalized capital gains and ordinary income. So it's definitely something that can be done. And one of the things I talk about in my book is how Andrew Mellon, who was one of the early Treasury Secretaries, and was very conservative, a staunch anti-tax the rich kind of guy, wrote himself that he saw no reason for taxing capital

less than labor. And indeed, he thought capital should be taxed much higher than labor, because capital is something that grows without anyone's effort. Whereas labor is something that

“requires a lot of work. And so I think that this is, it's definitely doable, and we've had it”

in our not so distant past. Is there an argument that maybe it reduces investment or that it could,

you know, just have an overall downward effect on, I guess, the stock market? One argument that you'll often hear is somebody will get very wonky, and they'll say, "The statistics show that if you raise capital gains rates above a certain amount, then you stop raising money because people stop selling their property." Something like that, right? But the reason that that is the case is because we allow people to avoid capital gains

by avoiding sales. The problem was that loophole. If you close that loophole, then people will not be able to avoid capital gains. And that is one of these arguments that looks and sounds really persuasive, but really isn't when you look at it. We'll be right back, and for even more markets content, sign up for our newsletter at proffgmarkets.com. Where exactly do US China relations stand? The Chinese side came in, feeling as if they had

figured out how to work both with and against Trump. He was inclined to try to create moments of crisis, and then if they stood up to him, they were almost uniquely capable of making him back down. I'm Preet Barara, and this week Evan Osnos of the New Yorker joined me to discuss the Trump She Summit, which he reported on from Beijing. The episode is out now. Search and follow stay tuned with Preet, wherever you get your podcasts. This week on Network and Chill, we're joined by Danielle

Robay, the journalist Forbes called the Queen of Questions and the Host behind Reese Witherspoon's Book Club podcast and her own show, "Question Everything." We're exploring a skill that can transform your career, relationships, and bank account knowing how to ask the right questions. Danielle breaks down the art of getting real answers and professional settings from coffee chats to career pivots, and shares the money conversations we should all be having but aren't.

asking better money questions with partners and friends, and the mindset shifts that separate people who stay stuck from people who keep growing. Listen wherever you get your podcasts or watch on youtube.com/yourrichbff We're back with Profty Markets. Professor, let's assume the administration comes to you and says, "Okay, we're going to cut some expenses. We need fiscal sanity here."

And we're going to cut some spending, but we need to raise revenues. What would be your two

“or three ideas for what I would refer to as the least taxing or most equitable taxing crisis?”

So the first thing that we talked about is to make sure that unrealized gains are have a time of realization, so that should be whenever the property is transferred. That's the first step, brings coherence to the system. So just let me press pause there. So what about 1031 exchanges or putting things into an LLC? Doesn't matter, as soon as we change this title it's taxed.

Absolutely. When you change title your subject to tax. And within hedge funds when you buy and sell stocks, they're also sometimes able to defer taxes. Any transaction with that go for equities and other property as well. Whenever somebody no longer owns that property, that's when the gains should be tallyed for that person. The second thing that I would do

is repeal the estate tax because it is providing cover for the rich and not imposing any taxes or raising any revenue. And we should decide how much we want to subsidize inheritances. Let's look, that's the question that we're asking, right? To what extent should somebody who would otherwise be subject to tax on all income that they acquire be able to inquire

and inheritance tax-free? Maybe it's a million dollars who knows what that amount would be.

But bring that into the income tax system. Bring inheritances into the income tax system. And when we do so, we'll have the chance to fix those, all of those various avoidance techniques that we have that have become so entrenched in the estate tax world. Because it'll be a clean slate and we'll be able to have a smarter tax that avoids those problems. And then the third would be to equalize the tax rates between capital gains and ordinary income.

“Love that. And then my fear, the only thing, and again, it's the only thing you said that I'm not”

100% in line with. But I find that the tax code's gone from something like 400 pages to 4,000 and that it's 3600. I think are mostly to agree the middle class by creating all sorts of

loopholes. When I sold my company the first 10 million was exempt. And I just don't see any reason

for that. I still think I'll turn it at minimum taxes the way to go because there's too many lobbyists who will figure out a way to keep inserting different loopholes. But we have an alternative minimum tax right now, and it's not doing its job. So it doesn't have any teeth. Exactly. The AMT doesn't have teeth. Well, it isn't because the AMT quite frankly isn't an AMT. It's an AMT that you can still stop the exemptions can still get around. Right. But if we can,

I mean, I think that what you're saying is we need to clean up the system and make it better. I totally agree. But I just think the use of the word AMT makes it sound like that is a single response to the problem rather than the problem is to actually do a more granular approach. To things like, for example, like that exemption, those exemptions for startup businesses that you

“God, you know, I think those all need to be cleaned up. But I think a lot of work can be done by”

invest by making sure that we're taxing investment gains and making sure that we're taxing inheritances. I was going to say, not on that list is a wealth tax, which is the most popular proposal in the political sphere right now, making ground in California as he has been talking

about it. Why no wealth tax? I think that we all understand now that the problem is that

wealth owners have enormous acquisitions of wealth and they're not paying tax. And so the answer, the obvious answer seems to be, let's tax their wealth. And particularly for people who have publicly traded stock where we can so easily see how much wealth they have. The problem is that these, sometimes these easy answers don't actually work. And I feel that's the case with the wealth tax. On a federal level, there's a very serious problem about whether the Supreme Court

would find it unconstitutional. We have every reason to think that the Supreme Court would, based on a recent case. And you know, they didn't have to go that way, but there was a recent case more where they basically said, well, yeah, we might very quite well find this unconstitutional. So on a federal level, there's a real problem. And then on state level, there's a problem because states people can easily move from one state to another. And we see this happening.

very easily because in Europe you have the EU, you have free transport and you don't have a unified

tax system. I do not think we're going to have a serious problem in the United States of people

“leaving the United States and becoming citizens of Qatar or other countries. Well, you have to turn”

in your passport and there's an exit tax. What I'm talking more about is corporations. Well, that's a separate, corporations is a whole separate issue. But I think that right now we're talking about individual taxes. To your point, a wealth tax is what I think my party does a lot. And that is they want to be right as opposed to effective. I think a wealth tax makes a lot of sense, but they don't work because wealthy people are incredibly mobile, capitals incredibly mobile.

And also, I think on the corporate side, and I'm curious, even going broader, don't you think

we're going to need some sort of and to her credit, Secretary Yellen was able to get this through, which I think that's right. Unless we get other nations to cooperate and you'll literally enforce some sort of corporate minimum tax, you're going to continue to see taxation not realized where it's or revenue is not recognized with or realized. There's still going to be all sorts of arbitrage internationally taking place now. I want to add one thing about

the estate tax. It makes the, I mean, the wealth tax. It makes the wealth tax particularly problematic, which is the problem of valuation, as you mentioned earlier. We tend to think of it as like publicly traded companies. But lots of people own these highly complex partnership interests that are like 50 levels deep of partners and people might own levels at all different places. And the idea that we're going to have a strong enough IRS to be able to do annual taxation on these

very complex interests, I think, is really problematic. And there's going to be a great incentive for people to move their assets out of the easy to value stock market to the difficult to value partnership interests. And that could impose a cost on all of us who have retirement and other savings that really depends on a robust stock market for our own savings. And so I think there's a lot of problems with the wealth tax. If we could get it done, let's say that our IRS was highly

effective and our appraisal systems worked. Do you think that it would be the right move if it were possible? I think if it were possible that it was constitutional, that people weren't going to move, that it could be effective, and that we could get the value. And we could get the

“public to not recoil at the idea that you have to report every single thing you own to the government,”

which I think is another potential problem with the wealth tax. Sure, I think it would be great. I think it does the most direct addressing of the problem. But those are a lot of ifs. And so I think we have to live in the world that we live in and not in a fantasy world where we're able to, in one step, curb the enormous power of the wealthiest Americans. I think it's a real problem that we have, which is we have people who have astronomical amounts of wealth and we want to get it

and we want to get it today and we want to address it. But we don't live in a political system where that is going to happen. And I think that we, and my concern is when we focus on that type of thing, we create a false narrative about what's going on. And it makes it seem like what we have to

punish the rich. When really the problem is that we have to bring the wealthy, their investments

and their inheritances into our income tax system, they should join us as fiscal citizens like everybody who earns money is already doing. So we mentioned the deficit earlier on this unbelievable national debt that is piling up in our huge problem. And it seems as though there's sort of this divide between the left and the right, where the right says that the problem is how much money we spend, I would also add that the right is actually the one that is more responsible for the irresponsible

fiscal spending. But that's maybe another conversation. But that's the argument on the right. The government, that's the area focused. The government's spending too much. Let's get doge. And let's make sure that there's, we see last wasteful spending. And then on the left, it's that we're not bringing in. We're not taxing rich people enough. We're not generating enough tax revenue. And so that's the thing that we got to focus on. My question view is, what is a big

a problem? Is it the spending or is it the tax revenue? It's the tax revenue without it out.

“It's the tech. It is, and I think that if you look at the numbers, as I say from, let's say”

2024, those are numbers I have in my book, right? The country took in $5 trillion from all sources, just under $5 trillion. That's income tax, payroll tax, corporate tax, estate and gift taxes,

We spent 6.8 trillion. So we had a shortfall. We had to add to our national debt. We had to borrow

“to make that $1.8 trillion deficit to cover it, causing huge problems to have this growing debt.”

Meanwhile, at the same time, the richest 1% of Americans owned $55 trillion. I say that, and we know that there are all sorts of ways that that wealthiest 1% not just the billionaires are able to avoid taxes, because they don't pay taxes on their most common sources of income, which is their investment gains and their inheritances. So the failure to bring them into the tax system. I find it hard to believe that we wouldn't have been able to easily cover that $1.8 trillion

shortfall by taxing people that owned $55 trillion. I've looked at some of the numbers in terms of tax revenue, the percentage of GDP, and what I found in the US over the last, on our few decades, is that it's actually relatively stable. We've had some dips for sure, but sort of at a very, very broad level, it hasn't really gone down or up in a significant way. And so I guess what you

would be asking of our nation is to make a significant change if the problem is the tax revenue,

would be to be making a significant change in terms of how much we are taxed overall. I don't think that's the case at all. I mean, if we're talking about, when you start using a number like the GDP, the GDP is enormous. So you can't really see the differences, right? I don't think the differences of raising 4.9 trillion and 7 trillion when you're talking about in relation to GDP

“is going to be a significant difference. So I don't think that that's what we're doing.”

I think one thing we haven't talked about is what I would describe is the biggest tax cut in history in the US and also the most elegant and that is new during the IRS. It's a travesty and it's a

giveaway and it is like I couldn't agree with you more. What is it $750 billion a year that goes the

tax gap that goes on collected? I'm short-sgraded than that. So I mean, we need to fix the tax code and we need to fix the IRS. The next big change in our economy is supposed to be likely to be AI with sitting this data centers go up all over the place. We've discussed sort of in general times about figuring out a way to tax this, maybe you tax the data centers. What do you think is the right taxation approach to the next big technology? AI is really going to cause a problem for our tax

system. If you think about it and it's interesting. I was at a program, the other day actually one where Scott got an award and I'm going to leave a ship now. Somebody was speaking an AI expert was speaking about how AI might very well be disruptive. We're going to replace a lot of workers

with AI agents. He said, "Well, the answer is going to have to be UBI universal basic income."

I'm thinking, "Who's paying for this universal basic income?" In fact, when you look at our income tax system, 85% of the revenue comes from individuals and labor and payroll taxes. If we remove workers, we're going to have massive capital growth. We're going to have a lot fewer workers. We're going to really suffer in the amount of revenue that we're raising under our

“existing system. I think it's a serious problem. One thing is that we need to address is by making sure”

that we are in fact taxing capital because under our current system we don't tax capital and that's of course where all the gains are occurring. As opposed to taxing companies, I think that we're going to have to figure out how to do it. I don't have the particular answer to it, but we're going to have to find a way of bringing this massive growing concentrations of wealth into our tax system as well. Either into corporate taxes, business taxes or special AI taxes.

The big problem in the political world is getting everyone to agree on this stuff. We can have the right answer, but if we can't get people to agree and get behind it, then doesn't matter, doesn't work. I'd love to get your thoughts on how we do that. What is the message? What is the argument that we can get everyone behind such that we do come up with the right solution and fix

As you started, you're very first question, right? People are being told that the rich people

“are already paying taxes and because our tax system is complicated, they think, all right? I guess”

I guess we're wrong, right? And because individuals are paying such burdensome taxes,

it never occurs to them that the rich aren't paying taxes. So the first step has to be

educating the public, which is one of the reasons I'm so happy that you guys had me on your show, right? You're already doing that work. You're already spreading the good word, but it's a pleasure

“for me to be able to join in that. The problem with our system is that we are heavily”

burdening work income and people who have investments and inheritances, we are giving them a free

pass. And the public can understand that. The public is clamoring to understand that. And once they understand that, then they understand that the solution involves making sure that we're taxing investments and inheritances just as we tax labor income. Right now, it's a professor at Boston

“College Law School where she teaches tax law and policy wills and trusts law and estate planning.”

She is co-founder and director of the Boston College Law School Forum on philanthropy and the public good, a non-poss and think tank that explores how the rules governing the charitable sector could best serve the public good. She was named one of times one hundred most influential people

in philanthropy in 2026 for her work critiquing the tax code and her most recent book, the second

estate, how the tax code made an American aristocracy is available now. Professor Maddoff, thank you so much for your time. Thank you so much for having me. I really enjoyed our conversation. We love your work, Professor. Keep it up. Oh, thank you. Have me back on another show's gone. I've been clamoring. I have enough of that. Thanks. Bye-bye. This episode was produced by Clay Miller and Alison Weiss and engineered by Benjamin Spencer.

Our video editor is Jorge Carty. Our research team is Dacheland Isabella Kinsel, Chris Noodon, Hugh and Mia Salvario, Jake McPherson is our social producer. Drew Barrow's is our technical director and Catherine Dillon is our executive producer. Thank you for listening to "Proft You Markets" from "Proft You Media" if you liked what you heard, give us a follow and join us for a fresh take on markets on Monday.

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