Income and wealth inequality are at their highest rates in 60 years, and Trump’s next term will likely see those rates jump even higher. The Trump administration will likely move quickly to extend the 2017 Tax and Jobs Act which expanded the budget deficit and gave hefty tax cuts to the rich. Under Trump 2.0, billionaires will have one of their own looking out for their interests —namely, making sure that the tax loopholes enabling them to hoard their wealth stay intact. Because if there’s one thing billionaires are invested in, it’s [clap] hoarding [clap] their [clap] wealth.

Ultra high net worth individuals, as they’re called IN THE BIZ, have expensive teams of specialized accountants, lawyers, and financial managers working YEAR-ROUND to keep their tax bills as low as possible— all while keeping everything above board. Because even though tax avoidance seems like it should be criminal, the carefully crafted loopholes the rich love to exploit are LEGAL parts of our tax code. Yet another example of what happens when money is allowed to dominate politics. Because while the rest of us — the VAST majority of us— dutifully pay taxes to support the things that keep society functioning like bridges, schools, and roads our wealthiest citizens are gaming the system to sidestep this collective sacrifice. Do I think the government does a perfect job of spending my tax dollars? Certainly not. But that doesn’t mean I’m in favor of starving much-needed public services in the name of hoarding as much wealth as possible. Today, we’re digging into how rich people avoid paying their fair share of taxes and ensure their wealth continues multiplying to infinity and beyond. From business expenses to Peter Thiel’s baffling $5 billion Roth IRA, this is how rich people avoid paying taxes. Let’s get into it.

We know that tax cuts are a central part of Trump’s plan, and the ultra-rich know it, so they’re trying to get on his good side now even before he takes office.

This recent report from Axios talks about this, using the headline “Tech titans scramble to be inside Trump’s tent”

One of the biggest challenges in today’s media landscape is the tendency to consume only the news that aligns with your views, creating information bubbles. With the Ground News browser extension, I can identify Axios’s left-leaning bias and easily explore how other perspectives are framing the same story by clicking into the full coverage feature.

On the Ground News website you can see that there are 144 sources around the world covering this topic

Among them, the far left World Socialist Web Site uses the headline: At New York Times’ Dealbook Summit, Jeff Bezos and other billionaires salivate over money to be made under Trump, while the right-leaning Townhall frames it as: Another Trump Miracle: Will Jeff Bezos join Elon Musk in promoting his DOGE Regulatory Purge. Very different takes, and if you’re only reading content that skews left or right, you may not know how the other side is interpreting the situation.

This is where Ground News comes in - and why I've been using them for over a year. Today’s partner Ground News is an app and website that offers tools to help you critically analyze the news you read, providing context to understand the full picture.

If you scroll down you can see the overall reliability of sources ranging from low to very high factuality and also see who owns which source so you can follow the money.

I’ve also seen many comments from people asking for insights into “what the other side is saying.” And I’ve been using the Ground News’s Blindspot feature to help me, they highlight stories that one side of the political spectrum is covering more heavily than the other. It’s a great way to understand where your Uncle Rick, who only watches Fox News, is getting his talking points—so you’re ready for those debates over the holidays.

Using Ground News makes me feel more informed and confident in understanding the complexities of current events without being swayed by a single narrative.

I’m always really impressed with Ground News and genuinely think they’re a great resource. If you want to stay informed on US Politics you can subscribe or gift Ground News to your friends or family for the holidays. Scan my QR code, or click the link in the description or go to ground dot news slash leeja to get 50% off the same Vantage plan I use which comes to about $5/month. Subscribing supports my channel and an independent team working to keep the media transparent. Thanks Ground News!

Thirty years ago, the middle class commanded twice as much wealth as the top 1%. The wealthiest Americans used to pay 70% of their annual income to the federal government. But thanks to, say it with me, Ronald fuckin’ Reagan, who ruined everything, you can buy these tshirts at leejamillermerch.com, the top federal income tax rate was reduced to just 28%. Reagan also passed major tax breaks for corporations and estates — all in the name of smaller government and the bunk philosophy of “trickle-down economics”. And while yes, MANY Presidents since Reagan have helped cut taxes for the wealthiest Americans, he started it!!!!

One of the most infuriating things about most of the tax loopholes we’ll discuss today is that knowing about them won’t do you (or I) any good. Wealth is a prerequisite for pulling off most of these tax avoidance strategies. They were designed to ensure that the most prosperous among us can sit back and watch their fortunes multiply, untouched and untaxed, while the rest of us play by an entirely different set of rules. But whether or not we can USE these loopholes ourselves, it’s worth understanding how they work — if only to get a handle on the SCOPE of the injustice and to know what policies to advocate for. Up first is the capital income loophole— a boring name for the pretty interesting reason many founder-CEOs AVOID large salaries.

Ultra-wealthy tax loophole #1 — minimize salary

Don’t get me wrong, CEO pay IS out of control— in 2021, CEOs earned around 400 times more than the average worker. But there’s a strange exception to the trend. For years, there’s been a weird competition among elite founder-CEOs, especially in tech, to see who can take the lowest salary. Steve Jobs took $1 in salary upon returning to Apple in the 1990s, and ever since, executives including Meta's Mark Zuckerberg, Oracle’s Larry Ellison, and Google’s Larry Page have followed suit. But it’s not the ~humble gesture~ it might seem at first glance.

Wages, the money you make from working at a job, are taxed at a fairly high rate - between 10 and 37 percent, depending on a person’s income bracket. Most people make the bulk of their income in a year from wages—from their labor. But the people at the tip-top have inverted this norm, arranging their affairs so that most of the money they make in a year comes from selling assets. [awesome chart to recreate 2:24] The profits on assets are called capital gains and they’re taxed at a maximum rate of 20%. This is part of why investments are a key to building wealth— When you work for yourself the money is subject to up to 37% tax but when your money is working for you it’s only 20% if you sell it and get income in the form of capital gains. So if you’re the founder and CEO of a tech startup that you truly believe is going to be the Next Big Thing, you’d much rather have stock than a big salary. That way, not only do you limit the amount of money subject to wage tax, but you’re following the ultra-wealthy loophole number two — keeping the bulk of their net worth in the form of assets (like stock, yachts, or homes), instead of in “liquid” or cash form.

Now why wouldn’t someone want cash? wHell, that 20% capital gains tax only applies to “realized” gains, meaning profits on an actual transaction. Superficially, this makes sense, because up until the moment of sale, the value of ANYTHING is technically theoretical. The problem is that the theoretical value — the UNtaxed, UNrealized capital gains —contributes to a person’s net worth in a way that has very real value. Specifically to the bankers evaluating how much money they’re willing to loan someone and at how favorable of an interest rate.

The distinction between “realized” and “unrealized” gains was codified into US law more than 100 years ago by the Supreme Court in Eisener v Macomber, and from the moment the ruling came down, experts warned that it was a bad idea. Congressman Cordell Hull, who was a leading advocate of the income tax, predicted the exact tax avoidance scheme that’s now considered a cornerstone of the ultra-wealthy’s approach to finances— a strategy known as “buy, borrow, die”.

Buy, Borrow, Die

The phrase, “buy, borrow, die,” was coined in the 1990s by a tax law professor explaining how the rich were getting SO stinkin’ wealthy, and staying that way generation after generation. It works like this:

First, BUY — turn as much cash into assets as possible. Those assets could be stocks, real estate, fine art, a yacht, a sports team — most likely a healthy mix of things if the wealth manager is doing their job. The point is that assets increase in value, or, appreciate, over time. Well, usually. Sometimes you want to pick losers. Let me explain.

While you may think that rich people are always trying to MAKE more money, making money isn’t their problem so much as holding on to as much of it as possible. One way they do this is by tax-loss harvesting — accumulating losses to offset gains and neutralize the rich person’s overall tax responsibility.

So let’s say we have an imaginary rich friend named Paul, and Paul buys Pepsi stock, which tanks. So he decides, yuck, let’s sell the Pepsi stock at a loss. Paul also owns Coca-Cola stock, and because Coke is so much better than Pepsi, the stock grows and Paul sells it at a profit. But the loss he took on his Pepsi stock erased some (or sometimes all, depending on how good his accountant is) of the taxes owed on the gains made on the Coke stock. Helpfully, capital losses don’t have to be applied in the year they occurred — they can be banked to help offset gains the following year.

And when it comes to the stock market, wealthy people hedge their bets and play both sides to come out on top. Billionaire GOP donor and TikTok investor Jeff Yass has battled the IRS (and won) over his shady habit of betting against his own stocks to get a more favorable tax rate — a ploy that’s estimated to have saved him around $1 billion in taxes between 2013 and 2018 alone. Yass has also mastered Uber Rich Person rule #3 —everything is a business expense. Lots of expensive and luxurious hobbies of the ultra-rich ~coincidentally~ double as business expenses. Yachts. Racehorses. Golf courses. Private jets. The asset in question just has to be used “mostly” for business to become a write-off. This is the reason many rich people make their yachts and private planes available for leasing— thus fulfilling a clear definition of “business use,” while helping them generate more tax deductions than revenue. For example, California billionaire real estate developer George Argyros leased his aircraft through his own chartering company for decades, but between 2002 and 2019, the company reported a profit just twice. Overall, he deducted more than $50 million in net losses over that period.

Yet another loss leader favored by the ultra-wealthy is sports teams. Because when someone buys a business, they can deduct almost the entire sale price against their income during the ensuing years. The logic is that the purchase price was composed of assets like buildings and equipment that will degrade over time and should thus be counted as expenses. About 90% of a team’s purchase price winds up being amortizable, meaning it’s treated like an asset that loses value over time…and can be expensed as such. So even though a team’s franchise rights never expire, they’re treated as though they have a finite life span. When former Microsoft CEO Steve Ballmer bought the Clippers in 2014, he gained access to a nearly $2 billion tax deduction. Add to that ongoing expenses like player salaries and health insurance, and not only is Ballmer shielded from having to pay tax on real-world Clippers profits, but he can also use the tax write-off to offset his OTHER income. IRS records obtained by ProPublica showed that the Clippers reported $700 million in losses on their taxes in recent years, even as the team was turning a profit. Indeed, owners frequently report incomes for their teams that are millions below their real-world earnings. In the last two decades, the average value of basketball, football, baseball, and hockey teams has grown by more than 500%.

While those numbers are staggering, you still can’t EAT The Clippers, so like…what are rich people living on if all their money is tied up in assets? Debt. Millions and millions of dollars of debt.

Remember: Buy, Borrow, Die. We’ve covered buy, now we’re on Borrow.

Let’s check back in with our pretend rich guy, Paul. Paul has a stock portfolio worth around $1 billion. And one day, he decides to buy a new home that costs, idk $50 million [insert arrested dev sound what could it cost]. Paul could easily sell $50 million of stocks to pay for the house outright. And for a lot of us, that scenario sounds like the American dream — having the cash on hand to cover a major purchase in full, and walking away owing nothin’ to no one. But remember, turning $50 million worth of stocks into $50 million doll-hairs that can be used to buy a home, would cost an additional 20% in capital gains taxes. Not to mention, Paul would then LOSE control of those stocks, which may have gained exponential value had he just held on to them *just a bit longer*.

So Paul decides to keep his stocks and instead takes out a $50 million loan to buy that house, using his billion-dollar stock portfolio as collateral. Now, because Paul’s net worth is many times greater than the value of the loan, whatever bank he approaches will not only be super confident that he’ll be able to pay them back in full, but they’ll be extremely eager to win his business. “Ultra-high net-worth individuals” like Paul are highly coveted clients and banks roll out the red carpet to keep them happy. Note that I said, “clients,” not customers. Customers call a 1-800 number when they need help. Clients have their personal banker’s home number.

Some perks an ultra-wealthy borrower might enjoy include: not having a deadline to pay down their principal, meaning that as long as Paul keeps paying interest on the loan, the bank will be happy to float that $50 million indefinitely— again, because they’re THAT confident that they could recoup the money if and when they really needed to. And speaking of interest — let’s talk about the interest rate. Because if you were a regular customer, (first of all you’d never be able to access a loan for $50 million, but second of all) you’re probably looking at interest rates anywhere from 9 or 10% up to 20-25% depending on where you’re getting the loan from.. Our friend Paul, on the other hand, might be able to negotiate an interest rate as low as 1 percent. According to the Wall Street Journal, in 2021, clients with $100 million or more could get interest rates as low as 0.87 percent at Merrill Lynch.

And this feels really counterintuitive for us schmucks down here worth less than hundreds of millions of dollars. Anyone who’s part of the lower or middle class has been conditioned pretty much from birth to feel like debt is bad. And you are bad if you have it and you should feel guilty. Not so for the uber wealthy. Because consider this: by leaving his stocks alone, Paul avoids paying the capital gains tax AND gives those stocks more time to continue growing. Historically, the stock market has increased by about 11% every year. So if Paul owes 1% a year on the $50 million loan but then makes 11% on the $50 million of stocks that he didn’t sell as they continue sitting in the market, at the end of the year, Paul will have netted 10% free and clear — adding $5 million to his net worth — tax-free.

Even better, the loan payments Paul makes on his house are likely tax-deductible, reducing his bill even further. So, by taking out the loan instead of selling the stock, Paul gets his $50 million house, keeps control of his growing stocks, avoids paying capital gains tax, continues earning 11% on those stocks year over year, AND gets to write off his loan payments — all because he started out being wealthy enough to pull it off. The easiest way to stay wealthy is to START wealthy. And that brings us to the last step—die.

If our imaginary billionaire Paul sold some stock, even one minute before his death, he’d be taxed on the profits (the amount he sold it for, minus his original investment). But, if Paul sits on the stock until he dies and gives it to say, his son Lil Pauly, then Lil Pauly will only have to pay capital gains on the amount it appreciates AFTER the transfer - leaving all the original gains untaxed.

This is known as the “stepped-up basis loophole,” and it’s widely recognized by experts across the political spectrum as a flaw in the tax code. At the time of a person’s death, their assets are “stepped up” to their current market value, allowing whoever inherits those assets to sidestep all the capital gains accrued during the original holder’s lifetime. So if Paul bought a stock for $1 and it’s worth $1,000 when he dies, his son, Lil Pauly, gets to sidestep $999 worth of capital gains taxes. If Lil Pauly then goes on to sell the stock for $1,002, he’d only pay capital gains taxes on the $2 increase from the time he inherited it. As you can imagine, this loophole enables huge and growing concentrations of wealth to pass from generation to generation without ever being taxed. Former Secretary of Labor Robert Reich estimates that closing the stepped-up basis loophole could bring in $105 billion in tax revenue over a decade.

And though we do have a 40% estate tax, which is MEANT to give the government a bite of all those unrealized gains that the wealthiest Americans accumulate over their lifetimes, ProPublica found that with careful planning and well-placed trusts, the rich can easily avoid turning in almost half the value of their estates.

Charitable foundations are another handy tool for bypassing the estate tax. I made a whole episode about how philanthropy is ruining America so I won’t get too far into the weeds here — check out the deep dive after this. But suffice it to say that philanthropy is a fucking racket. Ultra wealthy loophole #4 — charity pays.

One popular mechanism involves putting money into something called a donor-advised fund which is managed by someone who’s supposed to ~eventually~ distribute it to good causes. But even if the money hasn’t actually GONE to a good cause yet, donors can take the tax deduction immediately. And anyway, the definition of a “good cause” can be stretched beyond recognition. Trump once used money from his foundation to buy a $60,000 painting of HIMSELF.

Another popular philanthropic scam has to do with inflating the value of donated items. It’s a trick that’s possible with all kinds of donated assets, including fine art— if Trump ever donates that portrait of himself he’ll likely inflate the value by millions of dollars simply because he owned it, and now that makes it historical. And, now that I’m saying it, that’s actually one of the better reasons for inflating a piece of artwork. Most of the time it’s a lot more arbitrary, like a wealthy person will just find an appraiser willing to say their vase is worth four times as much as it is and then that’s what goes on the donation deduction form.

And here’s a bonus rich-person loophole for you: exploiting the tax benefits that were specifically written to benefit lower and middle class workers.

Let’s talk about how Peter Thiel turned a working-class retirement account into a $5 billion 60th birthday present to himself.

The Roth IRA is a retirement savings vehicle established in 1997 to help hard-working middle-class Americans squirrel away some tax-free funds for retirement. Like a traditional IRA, Roths offer tax-free growth on both the contributions made AND the earnings accrued over the years. The key difference is that with a Roth IRA, you pay taxes on whatever you contribute BEFORE it goes in, so there’s no tax penalty on the other end (as long as you’ve had the account for at least 5 years and you are at least 59 and a half years old).

In the ‘90s, Roth contributions were capped at $2,000 per year and were reserved for people making less than $110,000. In 1999, Peter Thiel reported making just $73,263 in income, therefore making him eligible to open a Roth, which he did. But instead of cash, Thiel contributed $1700 worth of shares of a company he had recently co-founded, called PayPal. The catch was, he’d valued those stocks at the impossible price of one-tenth of a penny per share— so his $1700 contribution represented 1.7 MILLION shares. The next year, the value of those shares increased 227,490%, making his Roth worth $3.8 million, just one year after he opened it. When eBay bought PayPal in 2002, Thiel sold the shares—still inside his Roth—and millions more in tax-free proceeds poured into his account. By the end of 2002, Thiel’s Roth was worth $28.5 million. He’s since pulled similar stunts, using his Roth to buy cheap shares of his data analytics company Palantir, YEARS before it went public. And Thiel isn’t the only rich person to abuse the Roth IRA.

In 2006, the Bush administration and Republican-controlled Congress wanted to cut capital gains taxes but didn’t know how to cover the lost revenue. They decided to make up for the cuts by lifting the income cap banning wealthy people from converting other retirement accounts into Roth IRAs. Because Roths require taxes to be paid upfront, they counted as “revenue” in the short-term congressional budget. The result of this incredibly shortsighted decision is that there are now hedge fund managers walking around with $30 million Roth IRAs that they’ll be able to cash in, tax-free (meaning, subsidized by taxpayers like you and me) when they turn 59 and a half. In about two years, Peter Thiel is set up to walk away with more than 5 billion dollars — tax-free. But he doesn’t have to. He can leave it alone to grow for as long as he wants, and then die and pass it on to his next of kin, thus completing the buy borrow die cycle.

And I don’t know about you, but it really grinds my fucking gears when billionaires exploit mechanisms that were intended to support and sustain the middle class— ON TOP of all the loopholes and avoidance schemes they have exclusive access to. But it’s not really about the money, it’s about the power money can buy. And in our society, where money is speech protected by the first amendment, hoarding wealth is just a way of keeping power concentrated in the fewest number of hands possible. That’s another reason they don’t need cash— the dollars don’t have to actually exist to confer value. Power is the real currency. Which is infuriating because for most of us currency is currency and currency is how we pay our rent and go to the doctor.

So are there solutions? During her campaign, Vice President Harris floated the idea of a new unrealized capital gains tax of around 25% on people whose net worth is over $100 million. The idea would be to tax these ultra-high-net-worth individuals based on their unrealized capital gains and appreciated assets. According to UC Berkeley economists, of the estimated $4.25 trillion in total wealth held by US billionaires, around $2.7 trillion is unrealized. All that to say, the money is enormous and well worth going after. But, calculating unrealized gains would be challenging. Implementing a “wealth tax” would require the IRS to create a way to measure the change in the value of private businesses and real estate on an annual basis — neither of which it currently tracks. Even if Harris had been elected with a Democrat-controlled Congress, getting a wealth tax passed would have been an incredibly tough sell. In addition to the monied interests naturally opposed to such a tax (and well-positioned to fight it in court), regular people tend to get jumpy about any unprecedented taxation as well, fearing that taxes will somehow “trickle down” and hurt them. People in America also tend to have the syndrome where they think they’re just temporarily embarrassed millionaires and that somehow an unrealized capital gains tax on people worth over $100 million applies to them.

Under Trump 2.0, we can forget about wealth taxes or closing the stepped-up basis loophole. Trump will likely extend the Tax Cuts and Jobs Act he passed in 2017, which is set to expire in 2025. Experts estimate this will cost more than $4 trillion over the coming decade. The 2017 tax bill lowered taxes especially for the highest quintile of earners. Fun fact, it even included a perk for private plane buyers called “bonus depreciation” — wherein the full price of a plane could be deducted in the first year. In the next four years, we’d do well to pay attention to the fine print in new legislation, as it’s likely new loopholes like this will be snuck into plenty of bills.

And if you’re interested in working with me directly, learning more about eating the rich and building solidarity, I invite you to join me over on Patreon, where I’m launching the Why, America? Co-Learning Lab on January 1st–get self-paced syllabi curated by me, plus guided discussions, and tangible action items for building solidarity and taking political action in this new gilded age. Plus you get ad free and uncensored versions of these videos as well. Go to patreon dot com slash leejamiller to join. Thank you to my multi-platinum patrons, Conn Conagher, Art, David, R_H, Tee, L’Etranger (Lukus), Joshua Cole, Thomas Johnson, and Tay. Your generosity makes this channel what it is, so thank you!

If you enjoyed this episode, you’ll also like the one I made about how philanthropy is ruining America. Thanks so much for watching buh byeee!

Leeja Miller

How Billionaires Avoid Taxes

Get ad-free, uncensored versions of these videos on Patreon!

Sources

Transcript

MAGA Is Splitting Apart

“President Musk” And The Dangers of Plutocracy