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CBH Talk | Ray Madoff and Avery Trufelman Discuss “The Second Estate — Transcript

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0:05Good evening everybody.
0:07Good evening. Welcome.
0:10Welcome to the Center for Brooklyn
0:11History. My name is Marcia Eli and on
0:15behalf of all of my team here at the
0:18center and my colleagues at the Brooklyn
0:23Public Library, which we are part of, as
0:26well as the arts and culture team, BPL
0:28presents. It's my pleasure to greet you
0:31and say a few words of hello.
0:34Tonight we welcome an expert whose
0:37message could not be more timely for our
0:40city on this the day after a decisive
0:44mayoral election that put the issues of
0:47income inequality and free rides for the
0:50ultra wealthy front and center.
0:53[applause and cheering]
0:58According to a 2024 Henley and Partners
1:01report, there are almost 350,000
1:05millionaires in New York City. That is
1:08one in every 24 New Yorkers.
1:11As much as any other city in the world,
1:14the riches of capitalism are on full
1:17display in our hometown. And the rules
1:20of our tax code do a lot to exacerbate
1:24the disparities, allowing the wealthiest
1:27to hold on to their riches. Author and
1:31expert Ry Matto is a professor at Boston
1:34College Law School and the co-founder
1:36and director of the Boston College Forum
1:41on philanthropy and the public good. Her
1:44new book, The Second Estate: How the Tax
1:47Code Made an American Aristocracy,
1:50demystifies the opaque Kafka-esque codes
1:55that let wealthy people in the United
1:57States altogether avoid paying taxes.
2:01The book pulls the curtain back on the
2:03tricks, the workarounds, the loopholes
2:06in our tax code that benefit the ultra
2:08wealthy. It paints a very clear,
2:11irrefutable picture of a system severely
2:13broken.
2:15I am so excited that this conversation
2:18tonight will be led by acclaimed
2:21podcaster Avery Truffleman, the host
2:25[applause]
2:28the host and producer of Articles of
2:30Interest, which was named one of the
2:33best podcasts of the year by the New
2:35Yorker, the New York Times, The
2:37Atlantic, and many others. and her new
2:40podcast, Gear, not as in Richard, Ge,
2:45Gear,
2:47uh, just dropped.
2:49Following their conversation, we're
2:51going to turn to you and your questions.
2:53Our ushers will bring the mic to you at
2:56your seat. Just please help us out by
2:58standing and uh, when you speak and
3:01keeping your questions as brief as
3:03possible.
3:05And of course, the second estate is on
3:08sale. You may have seen it at the CBH
3:10shop over there in the corner where you
3:12walked in. Ray will sign copies at a
3:15table in the front.
3:17On a personal note, it's especially fun
3:21for me to welcome two friends to CBH.
3:24Thank you so much for being here. I
3:27can't wait to hear your conversation.
3:30Now, please help me welcome Ray Matto
3:33and Avery Truffleman to the stage.
3:36[applause]
3:46Thank you.
3:48>> Oh, okay. These working all right.
3:50>> Thanks for coming everyone. Okay, so I'm
3:55going to make this about clothes because
3:56I'm like a fashion writer. I I first
3:59want to talk about what we're talking
4:01about when we talk about rich people.
4:04Cuz I remember when people were trying
4:07to dig up dirt on Zoron, they were like,
4:09"Zoron mom Donnie was caught eating at a
4:13fancy restaurant." And there's always
4:16like, "Oh, so and so has a fancy car."
4:19It's like, "Who's rich? Are we rich? Who
4:22are we talking about when we're talking
4:24about rich people?"
4:25>> Yeah. So there's a lot of ways of
4:28defining the rich as you say and of
4:31course a lot of it is the rich is anyone
4:33who is richer than we are. Um so uh
4:36that's one definition but the for
4:39purposes of this book um the rich are pe
4:42anybody who doesn't need a salary. If
4:46somebody can get by without earning
4:48money they have enough money that they
4:50can live off of. those are the people
4:52who are able to uh continue to grow
4:55their money taxfree and so those are the
4:57ones that I'm concerned about in this
4:59book.
4:59>> So just as a point and we'll get into
5:01this but like you also talk about there
5:03is there are rich people who do pay
5:05taxes but they're they're totally okay
5:08like we like them.
5:10>> Yeah. Because the truth is um
5:15there is a huge difference between
5:18people who work for their money even if
5:21they're getting a very big salary and
5:23people who don't have to work for their
5:25money. People who work for their money
5:27generally pay quite a bit of taxes and
5:30particularly here in New York dare I say
5:33there are income taxes at the absolute
5:36highest level of all of our taxes. So
5:38those come in at as high as 37%. And
5:41then there's also um payroll taxes which
5:44are as high as 15.3%.
5:47And that's just on the federal level.
5:49Then of course we have state taxes and
5:52city taxes and maybe a little bit more
5:53city taxes coming our way. Um and uh and
5:57you know perhaps appropriately so for
5:58all the needs of New York. But um but
6:01people who earn money pay very high
6:03taxes whereas people who have money
6:08don't. And so uh and that's really where
6:11I think the problem lay.
6:13>> And so once upon a time as you write in
6:16your book, it used to be extremely clear
6:20who these people were, who these rich
6:22people were in the guilded age. they uh
6:25announced it uh sort of around the time
6:28that the term conspicuous consumption
6:31was coined.
6:32>> Uh can you tell me about how one used to
6:35know in New York City who the rich
6:37people were?
6:38>> Yeah, so the rich people wanted you to
6:40know that they were rich and they did
6:43things like first of all they built all
6:45of these fantastic
6:47palaces right up Fifth Avenue and then
6:50they went out to Newport. They built
6:52palaces out there.
6:53>> We're talking like 1890s.
6:55>> Uh 1890s,
6:571910s, and then they threw these
6:59unbelievable parties, but not off on a
7:03private island, you can't come parties.
7:05They had their parties like they had
7:08glass doors, glass walls so that the the
7:12regular people can actually see these
7:14elaborate parties that were going on
7:16because the way they showed their status
7:18was through conspicuous consumption.
7:21That's why that term was developed. It
7:24was it was like okay this is how people
7:26showed that they are big time. They also
7:29wore clothes that were very different,
7:31right? They wore top hats and fancy
7:33things, tons of jewels. And uh Cornelius
7:37Vanderbilt uh the daughter of Cornelia
7:41Cornel Cornelius
7:43>> Cornelius Canora. Anyway, the daughter
7:45also named
7:47>> Cornelius, I think. Uh anyway, she
7:50actually wore crowns. She wore a crown
7:54walking around New York City because it
7:56was all about being royalty.
7:58>> [laughter]
7:59>> I'm like, man, they don't make rich
8:01people like that anymore. That's so And
8:02you were talking about like they would
8:03hand out cigars wrapped in $100
8:06>> at their parties. Yes. At the parties,
8:08they had like elephants. They would each
8:10they would outdo each other. They'd be
8:13written on the society pages. It was
8:15back then the 400. Before it was the
8:19Forbes 400 richest people, it was the
8:21400, these are the elite of New York.
8:24and and so they proudly announced
8:28themselves as being the elite and they
8:30wanted everyone to see just how very
8:32rich they were.
8:33>> And this is at I mean it's not like
8:38I mean this is at the same time as how
8:40the other half lives like New York was
8:42not in like a better place.
8:44>> That's right then. And actually and at
8:46the time there was work that was being
8:48done. That was when um you know you had
8:50a lot of these journalists the muckreers
8:52and they were also writing about um
8:56about how poor people were being
8:58completely uh you know taken advantage
9:01of and their horrible working
9:03conditions, their horrible living
9:04conditions. So it was very much uh these
9:07two worlds were sort of being presented
9:09at the same time. And and this is of
9:11course um concerning because it at the
9:16time that it raised potential for a lot
9:18of social instability. And so uh uh that
9:22too laid the groundwork for da da da
9:26taxes.
9:28Go on. [laughter]
9:30Don't leave us hanging. Well, so you had
9:33these super rich people and you had a
9:36lot of people who weren't doing well at
9:37all and um and a lot of people began to
9:41be concerned that the people that
9:43weren't doing well would not be so happy
9:45with this system of capitalism and at
9:48the time there were actual alternatives
9:51because socialism was really quite big
9:53and was sort of sweeping parts of Europe
9:56and
9:57>> it's how McKinley was assassinated. It
9:59was like a real real threat. It was a
10:01real threat. And um and so because of
10:04that, because of the threat of
10:06socialism,
10:08people that wanted to keep capitalism
10:10felt they needed to show that capitalism
10:13could serve the public well. And so that
10:16was one of the reasons why even the
10:18conservative Wall Street Journal
10:20advocated for heavy taxes on
10:23particularly on people with inherited
10:25wealth. They thought these people,
10:26they're a bunch of lazy
10:29layabouts. They don't do anything. They
10:31they live these lavish lifestyles. And
10:34>> we're giving cigars out
10:35>> cigars out wrapped in $100 bills and all
10:38of this is a big problem. And therefore,
10:40we need to have taxes on inheritances,
10:42quite heavy taxes on inheritances. And
10:44actually back then, Andrew Carnegie in
10:47his famous gospel of wealth wrote, "We
10:49have to have heavy taxes on inheritance
10:52because all of these rich people running
10:54around living on their inherited wealth
10:56is a problem." Um and so uh so part of
11:00those were laid the groundwork for why
11:02we um why there was a push from lots of
11:06different people to create a modern tax
11:09system.
11:11>> So that sounds like a happy ending.
11:14[laughter]
11:14>> Well to bring this back to close for a
11:16second. I mean the interesting thing is
11:18you say now like back then everybody was
11:20wearing the you know rich people it was
11:22easy to tell who was rich. You know,
11:23they had these tiaras. They were
11:25throwing these parties where they had
11:26elephants serving champagne. Now
11:30>> they're just wearing hoodies and looking
11:31at their phones like everybody else.
11:33Warren Buffett has these frayed ties.
11:36They're like, "Don't look at me." You
11:37know,
11:39>> how did we get to this like quiet luxury
11:41place where you can't tell where the
11:44rich like don't want to draw attention
11:46to themselves and they don't really want
11:47to stand out and they're trying not to
11:50get noticed, right,
11:52>> perhaps? So, yeah. How did we get from
11:54this era?
11:54>> Conspicuous consumption to stealth
11:56wealth.
11:56>> Yeah. Yeah.
11:57>> Yeah. So the stealth wealth phase um and
12:01probably you know better how we got here
12:02than I do. But what I can say is that
12:05>> I think taxes explain it.
12:06>> Yeah. Ah I think is that the t is that
12:08the stealth wealth phase I would say is
12:11one reason that um some say that we have
12:17um less of a uh less of a disconnect.
12:20There's less there's when we see our
12:22wealthy particularly the wealthy that
12:24that have come about in the last 20 or
12:2730 years our tech wealthy right they are
12:29very much just like the rest of us and I
12:33think that just like the rest of us look
12:35of the very wealthy has served a
12:38protective function so you know you see
12:40Elon Musk and he's smoking pot on with
12:44whose hean
12:45>> with Joe Rogan you know he's just a
12:48regular guy don't go thinking he's
12:50somebody fancy or somebody rich. He's
12:53just like you and me or, you know,
12:55everybody in their t-shirts and hoodies
12:57and everything else. And so, um, we no
13:00longer when we see our rich, they do
13:03look like us. And so, they seem less
13:06alien. And um and one of the things that
13:09um that I I think that's important to
13:11note is how people with high incomes
13:15often think that their peer group
13:19somehow are people with high wealth.
13:21Right? They're that's where their
13:22interests lay. But in fact, people with
13:25high incomes
13:27tax- wise have nothing to do with people
13:30with high wealth. Indeed, people with
13:32high income are much more likely are
13:35much more factually aligned with people
13:38with low and moderate amount of income
13:41in that we all pay a lot of taxes. And
13:44people with a lot of income do indeed
13:46pay more taxes than people with lower
13:49income, but people with huge amounts of
13:51wealth don't have to pay taxes at all.
13:54>> So, okay,
13:56how do how do they do it? Like it seems
13:58like so the thing that happened in the
13:59in the intermediate is that like
14:01something happened. The tax code got
14:03scooped out. None of us realized it. How
14:05is it that so many people get away so
14:08many extremely wealthy people get away
14:09with not paying any taxes at all? So
14:11let's start with the first transition
14:13that that caused the wealthy to be
14:16subject to taxes because
14:19in the time when uh we had all of this
14:22you know lavish wealth and lots of poor
14:25people the tax system that we had was
14:29tariffs
14:30something we've been hearing a lot about
14:32today. Um tariffs were taxes that were
14:36basically borne by consumers and farmers
14:40because in the form of higher prices and
14:43businesses, people who had businesses,
14:45they got to benefit when there were
14:46tariffs. not only because um their
14:50businesses, you know, they were
14:52producers and they weren't subject to
14:54tariffs, but also when uh when other
14:57imports were subject to higher prices,
15:00it allowed domestic providers to raise
15:03their prices too. So they was like a
15:05very happy system for the industrialists
15:08and not so great for consumers and
15:11everyone else. So because there was this
15:13concern about um about showing the
15:16legitimacy of the tax system that
15:19capitalism could work for everyone in
15:221913 and in 1916
15:25Congress enacted rules that were
15:27designed to tax the richest Americans.
15:29In 1913 it was the income tax, the
15:32modern income tax. And in 1916 it was an
15:36additional estate tax. The estate tax is
15:39the tax that is applies to transfers of
15:42property at death. And then in 1924 they
15:44added the gift tax. So they took care of
15:47the rich people. And in fact when the
15:50these taxes were first enacted they only
15:53applied to the richest 5% of Americans.
15:55Nobody else paid any taxes at all. Then
15:59over time it uh the income tax as we all
16:02know became applicable to pretty much
16:05all Americans. And as they said, it was
16:08a transition from a class tax to a mass
16:11tax. And for a while, the systems worked
16:14very well. We had a progressive income
16:16tax, right, that had higher rates for
16:19those who had higher income. And we had
16:21an additional estate tax. And together,
16:23they imposed, you know, quite a heavy
16:26burden on people with a lot of with a
16:28lot of income and a lot of wealth. The
16:31other thing that we had that took place
16:33in that next in that period let's say
16:35from like the 30s to the 70s was we had
16:38a lot of government programs that lifted
16:40up the middle class. That's why some
16:42refer to that time in the 70s as the
16:45great compression, the time of the least
16:48inequality when the richest 1% owned the
16:50least percentage of the country's wealth
16:53and there was uh and we had a sort of a
16:55robust middle class that had developed.
16:58>> Can I can I butt in for a second? So, I
17:00want to ask about this decision to make
17:02everybody pay income income taxes.
17:04>> Yeah.
17:05>> Um,
17:06>> so this was kind of a controversial
17:07decision
17:08>> to make everybody Well, especially to
17:10make everybody cuz I think Okay, you
17:13talk about how this is a bit of a
17:14mystery to a lot of people. This is
17:16hidden from a lot of us. The fact that
17:19we all pay these taxes and that it's not
17:22like marked. It's not like, hey, these
17:24are your this is this is this is a huge
17:27source of um No, sorry, not income
17:29taxes. Payroll taxes. Oh, payroll tax.
17:31>> Sorry. Sorry, not income taxes.
17:32>> You're the tax expert. I'm just a
17:34fashionist.
17:35>> The payroll taxes. Sorry. We have income
17:38taxes and we have payroll taxes. Payroll
17:40taxes are what comes out of our pay.
17:42>> And it's like hidden from most people.
17:44>> Yeah.
17:45>> That this happens at all. I mean, I'm a
17:47freelancer, so I watch it go. I see it.
17:51But if you are employed by someone, it
17:54just sort of goes away. So why is it
17:57like hidden from us when it's actually
17:59quite a lot of money,
18:00>> right?
18:01>> And why did this get instated?
18:02>> Right? So
18:05we're going to keep our stories
18:06straight, right? So we have one story
18:09which is how is it that we got this
18:11income tax and this estate tax and they
18:14did all this stuff that we're familiar
18:16with. We're going to later on come to
18:18the story about how those disappeared.
18:20But before we do, we're going to stop
18:22and talk about payroll taxes. Sorry.
18:24Yes.
18:24>> Yes. Which came in along the way. Okay.
18:27>> So, payroll taxes. Um payroll taxes. Um
18:32the story of the payroll taxes in the
18:34book starts with the story of Coxy's
18:37army. Um which uh which was a I was a
18:41particular How many of you have heard
18:42the story of Coxy's army? I know at
18:44least a few people have. Yes. That's my
18:47brother. Uh [laughter]
18:50[gasps] because my mother had a phrase
18:52in the house.
18:54We haven't I have to not blast everyone
18:56up. She had a very blasty voice. We have
18:59enough food to feed Coxy's army.
19:03We're from Boston and that's about how
19:05she sounded. Uh, and Coxy's army, I was
19:09intrigued to learn, was one of the early
19:13stories of the modern social security
19:15system and the current payroll taxes.
19:18Coxy's army was an army that uh was a
19:22group that formed. Um, there was a a
19:25depression that occurred, I wish I could
19:27remember the year uh in the early part
19:30of the century. Um there was a a great
19:33um it was called the panic of
19:371893 maybe it was in the late part
19:39anyway horrible situation joblessness
19:41banks failure a big crisis and Coxy's
19:46army was because they there was no money
19:49to help all of these people who lost
19:50their jobs and Coxy came up with this
19:53guy Jacob Coxy came up with this idea of
19:56like we're going to march to Washington
19:58and we're going to get all these
19:59able-bodied men and we're going to go
20:01from
20:03Ohio to Washington DC all and we're
20:06going to pick up able-bodied men along
20:08the way and it was an unbelievable
20:10thing. The news stories followed it. It
20:12was huge. Nelly Bllye a f a person I she
20:16Nelly Bllye was a famous journalist. She
20:19joined in the march of Coxy's army and
20:22they showed up in Washington to demand
20:26jobs. They wanted some sort of federal
20:28jobs program and basically Coxy was
20:32arrested for walking on the grass. The
20:34whole thing was a huge failure. Um
20:38because um basically the feeling was the
20:42government takes money but the
20:44government doesn't provide money and
20:46there was no protections for people from
20:50uh problems of unemployment or old age.
20:54Fast forward another 30 years and we
20:56have the next great financial crisis
20:59called the depression. And they called
21:01it the depression because they didn't
21:03want to scare people by calling it the
21:06panic.
21:07>> It's a little depressing.
21:08>> It's just a depression. Just a tiniest
21:10bit. Down, up, not a big deal, right? Um
21:14so we sometimes see this now, right? We
21:16don't want to use the word depression
21:17now because it turned out that that that
21:19word no longer feels so safe to us. Uh
21:21but they thought this is be so much
21:23better. Nobody will be scared at all. Um
21:26and the same thing happened right
21:27massive joblessness. But at the time FDR
21:31was like oh no no we got to we got to do
21:34something about this because this is a
21:36problem for the whole country. And
21:37there's a number of reasons that shifted
21:40things. I mean one of course is the fact
21:42that with massive industrialization
21:45people didn't live near their families
21:47anymore. So they couldn't rely on that
21:49first line of charity of you know the
21:51the kids will take in the parents or
21:53whatever. Um but the other problem was
21:56there was a tremendous threat again of
21:59communism that and they did not want the
22:01country to turn to communism. So he
22:03wanted to show that capitalism could do
22:06its thing. And so he created this system
22:09of social security benefits and
22:11unemployment benefits, old age benefits
22:13and unemployment benefits. And this
22:15system was funded. He wanted it to look
22:18not like taxes. He wanted it to look
22:21like an insurance program. And so they
22:24did all of these things to make it seem
22:26like they weren't taxes, but they are
22:29very much taxes. Today, it is money that
22:32is taken out out of current workers to
22:34pay the retirement benefits of current
22:37retirees. Only there's a lot of ways
22:39that it's hidden from the public, right?
22:41It's called FICA. They use words like
22:43contributions, making you think like
22:44you're doing it voluntarily, you know,
22:47like, oh, look what I'm contributing.
22:49It's very odd, you know, but it's
22:51intentionally done that way to make it
22:54politically um strong. And it and it was
22:57made politically strong, right? It's
22:59social security is sort of more
23:01protective because people do feel that
23:03they've paid into the system. They've
23:05somehow earned it. On the other hand, by
23:08not calling it taxes, by not calling it
23:10what it was, they made it easier for
23:13these to these taxes to increase and
23:16increase and for us to call people who
23:18pay who pay payroll taxes but not income
23:21taxes non-payers. You might remember
23:24Mitt Romney and the 47% right of takers
23:28not makers, right? Those were people who
23:30he said they don't pay income taxes. The
23:33most recent number is 40% that don't pay
23:35income taxes. But the vast majority of
23:38that group pay significant payroll taxes
23:41um at quite high rates. And one other
23:43thing to note about payroll taxes since
23:44you got me started is that uh although
23:47um although tax rates have come down
23:51over the past 50 years for um estate and
23:54gift tax rates have come down from like
23:5690% to 40% and and ordinary income rates
23:59have come down from like 70% to 37%.
24:03Right? They've all come down. Payroll
24:05taxes have like more than doubled over
24:08that time. So they're much higher than
24:11uh than people see and they are really
24:13quite burdensome particularly for Avery
24:16and other self-employed workers who have
24:18to pay the full 15.3%
24:21themselves. But even when the employers
24:23pay the half of it like which they do
24:25for people who have uh jobs um
24:28economists believe that that is actually
24:31money that would otherwise go in the
24:32form of higher salaries to people. So
24:35they think that uh actually employees
24:36are paying that half too. Um so
24:39>> so so mid-century the common the common
24:41the common person the common worker is
24:43just paying more taxes generally.
24:46>> Yeah. They're broad. Yep.
24:47>> So they're paying more pay they're
24:49paying payroll taxes whether or not they
24:51can see it. They're paying income taxes.
24:53Everyone's paying income taxes. Yeah. So
24:56>> then how do how do rich people wriggle
24:59out of it?
25:00>> Yeah. Okay. So what happened is
25:03beginning in 1970s 1980s things began to
25:06change and there were and there was a a
25:09couple of key things that that happened
25:12but and I think to to understand it we
25:14need to step back a little bit and just
25:17talk about like how do rich people avoid
25:18taxes today because some people might be
25:20wondering how do they avoid taxes and
25:22can I avoid taxes too because that's
25:25usually the question that uh that I get
25:27from people like okay like what are
25:29their tricks Um, so I'm going to tell
25:32you what the tricks are, and I'm going
25:34to forewarn you, chances are you can't
25:36do them. Um, so the first step of the
25:40tax avoidance playbook is to avoid
25:44salaries. Anyone who's getting a salary,
25:48complete sucker, right? You're paying
25:50you payroll tax,
25:52>> but you're paying income taxes, you're
25:54paying payroll taxes. It's all being
25:56withheld. You can't avoid it, right? So,
25:58anyone who gets in and the government is
26:00told by your employer, anytime anyone
26:02pays you, they tell you about it. Right?
26:04So, our richest Americans,
26:08they're like, "No, this is not for us."
26:10Uh, so Warren Buffett, uh, you know, the
26:13guy like, "Oh, I should be taxed more,
26:15right?" He takes $100,000 in combined
26:18salary and bonus, never more than that.
26:20And actually, he reduces it even a
26:22little bit more because he uses the
26:24office space for some of his personal
26:26work. So he has So he reduces his
26:28payment a little bit lower than that. Um
26:31>> Mark Zuckerberg makes a a dollar.
26:33>> Mark Zuckerberg makes a dollar. Jeff
26:35Bezos makes 82,000 enough for him to
26:37claim the child tax credit, which he
26:40does. Uh and uh and and lots of these
26:43guys, Larry Ellison, dollar a year guys.
26:45Now Elon Musk, people might say, "What
26:47about Elon Musk?" Yes, it's true. Elon
26:49Musk is he wants to be paid a trillion
26:51dollars. Um, and so, you know, one one
26:53could say he does sometimes pay taxes
26:55too by um by exercising his stock
26:58options. Um, but
27:00>> didn't he violate California labor laws
27:02by
27:03>> Yes.
27:04salary so low that the California
27:07Department of Labor said like you're not
27:09paying this guy enough. You got to pay
27:11him a little bit more. Okay. But uh so
27:14but they are not like just forgoing
27:16salary. Instead, they are being
27:18compensated through the enormous growth
27:22in value of their stock. And I mean,
27:24just over the past couple of years, the
27:26numbers are incredible. So, uh,
27:28Buffett's wealth has grown by 50 billion
27:31dollars over the past two to three
27:33years. Uh, Zuckerberg's has grown by a
27:35hundred billion. Larry Ellison's has
27:38grown by more than 200 billion. Okay,
27:40this is just over the past couple of
27:42years. And the thing is that this
27:44growing wealth, so if you have this
27:47growing wealth, you should do what they
27:49do, which is don't sell. And that's how
27:53you avoid taxes on the growing wealth.
27:55Uh they have lots and lots of wealth.
27:58They don't sell. It enables them to
28:00continue to control their companies, but
28:03it also enables them to avoid taxes
28:06because under our tax system, you do not
28:09pay any taxes unless you sell. Now, this
28:12doesn't have to be the way. Um, both
28:15Richard Nixon and Barack Obama said,
28:18"Well, it's fine. Like, maybe you should
28:20you pay taxes when you sell, but you
28:22should also pay taxes when you give it
28:23away or when you pass it on at death.
28:26You should pay taxes on that gain." And
28:28Canada thought it was such a good idea
28:30that they adopted that rule, and it's
28:32the rule in Canada today, but not the
28:34rule here. Here, wealthy people can
28:36avoid taxes by not selling. Now you
28:38might say, "But yes, they must sell
28:40though because they want to support
28:42their lavish lifestyles." How else is
28:44Larry Ellison going to buy his island of
28:46Lai and uh which he owns all the
28:50businesses, all the real estate, he's
28:53everybody's tenant, he's everybody's
28:55landlord and boss. Um but um the way
28:59that they do it is they borrow against
29:01those funds and borrowing is entirely
29:03tax-free. So uh and now you might say
29:06well yes but surely they have to sell
29:08when they pay back but they don't really
29:11have to pay back because there is always
29:13somebody available to lend them money at
29:16quite favorable rates and as long as
29:18their wealth grows faster than that rate
29:20of interest that they're charged which
29:22it does uh then they just always end up
29:25ahead.
29:25>> So you take out a loan to pay the loan
29:28to pay the loan
29:28>> or they just or whoever first lent it to
29:30you is happy to keep lending it to you.
29:33They don't actually even need to get the
29:34principal because they're carrying a
29:36loan for which they're being paid.
29:38>> Wow. And then like does someone just
29:39take them aside at the Bohemian Grove
29:41and tell them this? Like how do they
29:42learn this stuff or is this just like
29:44well known really?
29:46>> Well, it's certainly well known now. Uh
29:49uh, you know, I mean, they don't want to
29:51sell because they do want to maintain
29:52control. So, they probably and but you
29:55know, a lot like Larry Ellison, he was
29:57borrowing even before he had a lot of
29:59money. A lot of these guys do borrow
30:01heavily and um and they just count on
30:03the growth and you know a lot of them
30:05have have won that. And then the third
30:07way of avoiding taxes. So these are the
30:10two ways. First you can not take a
30:11salary. Then you can have some asset
30:14that grows tremendously in value and
30:16just don't sell it. Uh and then the
30:18third way is that you can inherit
30:20wealth, acquire money the oldfashioned
30:22way. Uh and and inherit massive wealth.
30:25Um because under our income tax system,
30:28no matter how much you inherit, you
30:30don't pay any income taxes on it. It's
30:33entirely excluded from income taxes.
30:35Gifts, inheritances, and life insurance
30:37is all excluded from income taxes. And
30:41um and uh you don't even have to tell
30:44anyone. You don't have to report it. You
30:45don't have to do anything. But some of
30:47you may not know this. If you find 20
30:50bucks on the street as you leave here,
30:52you're supposed to tell the IRS. Uh,
30:56also, and pay taxes on it also, if you
30:59do any barter exchange, right? If you
31:01set up a website for somebody and they
31:04like paint your room or something like
31:06that, you're both supposed to report
31:08that as taxable income, the value of
31:11whatever it is that you receive. So, we
31:12have this really comprehensive income
31:14tax system except inherited. You inherit
31:17$100 million. Ah, don't worry about it.
31:20Life insurance of a billion. Nah, that's
31:23yours. Right? So, we have a very
31:26different system for people who inherit
31:28wealth. So, why is that the case?
31:30>> Well, because the rules were put in
31:32place on the assumption that we have a
31:34robust estate tax. And for a long time,
31:37we had a pretty decent estate tax. And
31:41Congress did a really good job of
31:43closing loopholes. So I'll just give you
31:45a couple of examples like so one problem
31:48that we had in our estate tax system is
31:50people would create long-term
31:52intergenerational trust. They would pass
31:54from generation to generation to
31:56generation and people could avoid some
31:59of the taxes in between. So in 1976 and
32:02then again in 1986, Congress enacted the
32:06generation skipping transfer tax, a
32:09subject I just taught my students last
32:11week and they're looking forward, I'm
32:13sure, to finishing it up tomorrow. Uh so
32:16the generation skipping transfer tax is
32:18an additional tax imposed at the maximum
32:21rate that we impose our estate tax at
32:24for people who try to skip a generation.
32:26They don't give it to their children,
32:28they give it to their grandchildren
32:29because the idea was the tax is supposed
32:32to be imposed at every generation. So
32:35they enacted it in 1976. Didn't work so
32:38well. So they did a new one in 1986.
32:41Four years later they realized, wait,
32:43people are doing all these gaming
32:45techniques. These they're setting up
32:47trusts, complex trusts, and they're
32:49hiding value. We got to do something
32:52about this. And so they enacted four new
32:55code sections called the special
32:56valuation rules. And they were designed
32:59to close those loopholes. Both of these
33:01happened under Republican presidents.
33:04Okay? Regular loophole closing. And yet
33:08since 1990, since the adoption of those
33:11special valuation rules, there has not
33:14been a single provision enacted to close
33:18a loophole in the estate tax. So while
33:21estate planners, my students, others are
33:25developing techniques, grats and
33:27gratuts, crats and cruts, nimcrats and
33:29flipc, q dots, dynasty trusts, these are
33:32some of the terms we have to keep
33:34ourselves entertained somehow. Uh,
33:36[laughter] and we do it with Dr. Seuss
33:38sounding names. Um, so uh, tax planners
33:41have developed all of these schemes,
33:44right? And Congress is like, what is
33:46something happening here? They're
33:48literally doing nothing. Whether the
33:49Democrats or Republicans have have
33:52control, Congress has engaged in
33:54complete quiet quitting and has done
33:56nothing to close any loophole since
33:581990. And as a result, the estate tax is
34:01really just a tax and name only that
34:04really provides cover for the wealthy
34:06and no real burden.
34:08>> And when you say cover, in what way does
34:10the estate tax provide cover for the
34:11wealthy? Yeah, because uh anybody of a
34:14certain age and maybe even just anybody
34:17has pro How many of you have heard the
34:18phrase I I got one call out for Coxy's
34:21army. I'm hoping for more on this one.
34:22How many of you have heard the phrase
34:24death tax? You can raise a hand. Yes,
34:27death. Exactly. The death tax. And what
34:30about a double tax that hurts family
34:31farms and businesses? Have you heard
34:33that phrase? Yeah. Okay. So,
34:37um, this is all a result of a campaign
34:40that was funded by 18 of the country's
34:42richest families, the Cokes, the
34:44Waltons, the Mars family. The Mars
34:47family are big players in this story
34:49that who knew candy was so profitable.
34:52Although then you read like they also do
34:54pet food. I'm like, okay, that's crazy.
34:56These people have so many, many, many
34:59billions. Um but uh anyway, these
35:02families got together because they were
35:04like, "Enough already with this [snorts]
35:08generation skipping transfer tax and
35:10special valuation rules. We got to get
35:12rid of this estate tax because it's
35:14killing us." And so they funded this
35:17campaign to get rid of the estate tax.
35:19They hired this guy by the name of Frank
35:21Luntz that some of you might have heard
35:23of. He was a a pollster who specialized
35:26in words. Um, if you've ever noticed um
35:30how we have changed, we no longer talk
35:32about um global warm. Remember when we
35:35used to talk about global warming and
35:38remember how scary that was? It's
35:39getting hotter. It's awful, right? Frank
35:42Lunts gave us climate change.
35:44>> No,
35:45>> it's just different. Not necessarily
35:47worse. It's It's just a change.
35:49>> He's a genius.
35:50>> He's a genius. Anyway, he is the one
35:52that came up with this phrase death tax
35:55and and he told the Republicans, you
35:58never use the word estate tax again
36:00because when he did his polling like,
36:02you know, like 10% of Americans wanted
36:04to get rid of an estate tax, but like
36:0790% wanted to get rid of a death tax
36:09because a death tax sounded both scary
36:13and mean. I mean, it was really and like
36:16it comes for everybody like death,
36:18right? And so, it was a very effective
36:20technique. It was so effective that it
36:22it occurred it I realized how effective
36:24it was. So for a while um I did work
36:26where I was um writing about the estate
36:30tax, the importance of the estate tax,
36:31why we need an estate tax. I was
36:33testifying about the estate tax and um
36:35and I got a call from a journalist to
36:38who was talking about something and he
36:40was from some lefty type place but he
36:44said but he said the estate tax goes but
36:46isn't that like an unfair double tax
36:48that hurts family farms and businesses
36:51and I'm like at two lefty journalist uh
36:54you know because I just but it's really
36:57it has infiltrated the public so much
37:00that everybody feels that It's just
37:03somehow there's something wrong with it
37:05and it used to be quite innocuous. Um,
37:08so sad that's the sad story of the
37:10estate tax.
37:11>> Okay, but this is this was my question
37:12to you is like can't we just like Gavin
37:14Newsome this give him give Frank Lent a
37:16taste of his own medicine and like you
37:19know PR the estate tax back? Like if you
37:22could do a campaign to like enliven a
37:27movement for the estate tax.
37:29>> Yeah.
37:29>> What would it be? So, here's the problem
37:31with the estate tax. The estate tax has
37:34an Achilles heel to it, which is the tax
37:37is imposed on the deedants's estate, the
37:42dead person's estate. And for some
37:44people, it will indeed be a second tax
37:48on money on which they have paid tax.
37:50Right? If you had a salary your whole
37:53life and your salary somehow got you up
37:55to more than $30 million, which is what
37:58the exemption amount is now, right? Uh
38:01that's a whole separate story. But if
38:03you did, then you will have you'll be
38:05paying a double tax because you'll have
38:07paid income taxes, right? 37% and now
38:10you have an additional estate tax. The
38:14problem is that it's not really the dead
38:17person who is paying the tax, right?
38:19They are
38:20kind of gone.
38:23[laughter] I don't want to be delicate
38:24here. Uh but it really falls on the
38:26heirs and and the issue is why are we
38:29giving the heirs absolute tax-free
38:32treatment? So I don't think we should
38:34save the estate tax. Personally, I think
38:36we need to abandon the estate tax, but I
38:38would propose that we have some
38:39statement like let's simplify the system
38:42and have one system for everyone.
38:44Something like that. And I need a
38:45wordsmith to help me make it a little
38:46punchier, but that's the idea. And you
38:49mean the system being one
38:52>> income tax system? Basically, what we
38:54need to do is we need to bring in
38:57inheritances and investment income into
39:00our income tax system just the way we do
39:03uh salaries.
39:05>> But how could you make rich people make
39:07an income?
39:09>> They Oh, they're not going to. What we
39:11would do is say that basically we'd
39:12adopt that rule that said that their
39:14investments are subject to tax whenever
39:16they transfer property. And by the way,
39:18there is an enormous amount of transfer
39:21of wealth going on into trusts,
39:25grantor trusts, dynasty trusts, all of
39:27these types of all those names of things
39:29I said, those are all trusts. Those are
39:30all things I teach my students to do.
39:32And um and there's a right now in New
39:36York City, there is an enormous amount
39:38of gifting going on all the time. And
39:40but nobody is recognizing gains on those
39:42transfers. But if we adopt the rule that
39:44uh Nixon and Obama
39:47proposed at different times. Um it would
39:50be the rule uh that when they transfer
39:52the property they recognize the gain
39:54because after all they they're now
39:56getting rid of it. They enjoy that rise
39:58in profits.
40:00>> So just to be perfectly clear
40:01>> and then inheritances should also be
40:03brought into the income tax system.
40:04Sorry, the second one which is that we
40:06could say that everyone can inherit even
40:08a million dollars taxfree but after that
40:11they should pay income taxes on it the
40:13way we pay income taxes on found money
40:16or lottery winnings or anything else.
40:19>> And I do love how you have it this like
40:20come into this it's like this
40:22invitation.
40:23>> Yeah. So fun. The water's fine.
40:25>> And not like this tax the rich anchor.
40:26It's like come come rich. Come join us.
40:29>> And yeah because No, go on. Well, I was
40:32going to say it's not like it's not like
40:34you like paying taxes, right?
40:36>> No, nobody likes paying taxes. And
40:39sometimes people say, "I don't want to
40:42tax the rich because I'm going to be
40:45rich someday and then I don't want to
40:48have to pay taxes." But the thing is
40:50what people don't realize when they say
40:51that is that their likelihood of
40:54becoming rich is significantly limited
40:58by the fact that whenever they move two
41:00steps forward they have to move one step
41:03back because they have to pay taxes
41:05right so people who have salaries or
41:08other gig workers or anything right
41:10they're moving two steps forward one
41:12step back two steps forward one step
41:13back two steps forward one step back
41:15meanwhile the richest Americans are
41:17moving two steps forward four steps
41:19forward, six steps forward, 100 steps
41:20forward, a thousand steps forward,
41:22right? And that is how we're getting
41:23growing wealth inequality. So some
41:25system that like I believe I'm going to
41:28get up there and then I'm going to enjoy
41:30th those hion days that these are
41:32delusional for most people, I'd say.
41:36>> Thank you so much. I think we're ready
41:38for questions.
41:39>> Oh, we've already have talked over
41:41questions.
41:41>> Does anyone have any questions?
41:44>> Oh, there's a
41:49Must I stand?
41:52>> Okay. Hi.
41:54>> Hello.
41:54>> Thank you for the conversation. Um, how
41:58about passive income that was developed
42:01over couple of decades, meaning
42:04investing? I put in a fair amount of uh
42:08taxes when I had a W2 income, but I was
42:12fortunate enough to uh retire early. And
42:15like a lot of uh associates and friends,
42:18they in turn did the same. And how about
42:23those people who don't have a W2 income?
42:27Uh why should they, you know, be frowned
42:30upon?
42:31>> I was
42:32>> because they do pay capital gain tax and
42:35that's a whole other issue because the
42:37capital gain tax is built where it's a
42:40much lower rate.
42:42But before when you made if you don't
42:45make income and the definition of what
42:48is income because there is passive
42:50income and yet people pay capital gains
42:52tax.
42:53>> So the people that I'm talking about
42:57>> don't pay capital gains tax because they
42:59don't sell their property.
43:02>> Yeah.
43:07>> I just have a technical question.
43:12How do they pay back the loans? I I I
43:14still don't get that piece.
43:16>> They pay they pay back first of all,
43:18there is not a um if somebody lends
43:22Larry Ellison $100 million and Larry
43:24Ellison is paying them the whatever
43:27interest rate they want, they don't
43:29really need to give that principle back,
43:32right? They're happy. These are people
43:34in the business of making loans and
43:36they're happy to keep those loans
43:38outstanding.
43:38>> They pay interest. They pay interest.
43:40Sure.
43:43>> Oh.
43:44>> Oh. Where do they get the cash? The
43:46interest is I mean I think that the in
43:49they they have some money from which
43:51they can pay the interest but paying the
43:52interest is you know a very they get
43:56quite favorable rates and it is
43:58>> much cheaper than taxes.
44:00>> Much cheaper than taxes. Yes.
44:05>> So they have to sell something.
44:08They do very little selling. So I mean I
44:11I don't know what
44:13>> Yeah.
44:16>> Yeah. Hi. I'm over here.
44:19>> I'll stand.
44:20>> You are? Hello.
44:21>> Hi. How are you guys? I'm wondering if
44:23you could talk, Ray, more about your
44:24work on philanthropy and inequality and
44:26how the tax code allows for philanthropy
44:29to sort of be a site of influence for
44:30super rich people.
44:32>> Thanks.
44:32>> Thank you so much. Yes. So, one thing
44:35that we didn't get a chance to talk
44:36about is about philanthropy. And of
44:38course, um the story that we're told is
44:42it doesn't matter if the rich pay taxes
44:45because they give philanthropy. They
44:47create their foundations and it's so
44:50great and we all benefit. Um and one of
44:53the things that concerns me about this
44:56is that uh how we allocate the tax
44:59benefits for charitable giving is deeply
45:02unfair. Um, so charities, let me start
45:05with the most important thing. Charities
45:07are essential to American life. Uh, not
45:10just the Brooklyn Society, historical
45:13society, but uh, the libraries, the
45:16everything that makes our lives rich,
45:18right? Charities um, play a big role and
45:21are very important. Our tax system is
45:24supposed to encourage charitable giving,
45:26but it does so the way it does so in
45:29real life is in very peculiar ways,
45:31which is that 90% of Americans get no
45:34tax benefits for their charitable
45:35giving. Um, so that's one way that it
45:38that it does it. The uh the new tax bill
45:42has some provisions where there's like
45:44provide a small benefit for Americans to
45:46give, but it's not great. On the other
45:50hand, for the richest Americans who do
45:53smart charitable giving, they donate
45:55their appreciated assets, they avoid
45:57estate taxes, they get income tax
45:59benefits, their benefits can be worth as
46:01much as 74% of their donations. What
46:04that means is that when somebody gives
46:07$100 million,
46:09they are the government is foregoing up
46:13to $74 million in taxes. We are all
46:17partners in their charitable giving. And
46:21uh and it's the richest Americans that
46:22get all of those benefits.
46:26The the additional problem though, the
46:28one that I'm particularly concerned
46:30about is what we get for that money. And
46:32that's because the wealthiest Americans
46:34don't typically do their giving directly
46:37to charities. Instead, they give to
46:40their own donor created private
46:43foundations and donor advised funds. And
46:45these rules were originally supposed to
46:47provide regular payment to charities.
46:50So, private foundations had a rule that
46:535% had to be spent every year, right?
46:56Because we want to make sure and it has
46:58to be public. We have to know so
47:00everybody can look up and see where that
47:02money is going. However, um due to the
47:06rise of something called donor adise
47:08funds, that system has been completely
47:11undermined because donor adise funds,
47:14these are the charities that are created
47:16by Fidelity Charitable Schwab, Vanguard
47:18Community Foundations. And basically,
47:20they are ways for people to put money
47:22aside, get the tax benefits upfront, but
47:26there's no payout requirement at all.
47:29>> So, they can just park it.
47:30>> You can just park it. and and the
47:33financial institutions benefit when you
47:35don't spend it. So they encourage you.
47:37They're like, "Create a legacy of this.
47:40Name your children as the future givers,
47:42right? They have every incentive for you
47:44not to spend." And the problem is that
47:46donor adise funds have no payout
47:48requirement. And private foundations can
47:51meet their payout requirement by giving
47:53to a donor advised fund.
47:56And there's complete privacy now because
47:58nobody has to private a donor a private
48:01foundation doesn't want you to know the
48:02types of things they're supporting. You
48:04just run it through a donor advice fund
48:06and you don't have and have to have
48:08anybody see it. So we have these rules
48:10that are like pretending to do something
48:12that they're not. And so I think that we
48:14need to do some reform both to make sure
48:17that um that our allocation of benefits
48:20is more fair but certainly to make sure
48:22that this money actually goes to
48:24charitable ends.
48:25>> And then you have events like the the
48:26giving pledge. That was my favorite
48:28thing.
48:28>> Yes. Exactly. Uh in the book I talk
48:31about the story of the giving pledge and
48:33how it began with um three billionaires
48:36getting together at a time when the
48:38country was suffering a massive
48:40financial crisis and they're like, "Oh
48:42my god, we've got to do something about
48:45it." And the people that they looked for
48:46to circle back to the beginning of this
48:48was the Forbes 400, right? The richest
48:52400 Americans. They're like, "We got a
48:53target on our back. It's being published
48:55how much money we have. What are we
48:57going to do?" They took a year. They had
48:59dinners, secret dinners all over the
49:01place. And they came up with this idea.
49:03I know what we'll do. We'll promise,
49:06we'll make a non-binding promise to give
49:09half our money for anything, whatever we
49:12think is good.
49:13>> Not binding, not anything particular to
49:17something
49:18>> to something and we'll make a big deal
49:20about it. And so, uh, that's kind of
49:21what they did. We just celebrated 15
49:24years of the giving pledge.
49:27By the way, at the time,
49:30I I'm curious if those people thought
49:33about what happened in other times of
49:35financial crisis in our country's
49:37history, uh, which was
49:41higher taxes, right? So, when they're
49:44like, we got to do something about this,
49:45I I would be surprised if they didn't at
49:48least have some thought about that
49:49history.
49:50>> Yeah.
49:52Wait, is it another question? I have
49:54>> Oh, yeah. over there.
49:55>> We have a Who's our uh right there? Oh,
49:57do you have the microphone? Who has Oh,
49:59I'm not We're not calling that people.
50:01>> You have the microphone. Hello.
50:02>> Hi. Um so, thank you so much for this.
50:04I'm sorry to say that. Is that Steve
50:06Dean?
50:06>> It is Steve Dean.
50:07>> It's Steve and Dean, our own expert on
50:09philanthropy right here.
50:11>> It's my co-author Dana here as well. So,
50:13we got the whole team.
50:14>> Super. Nice to see you guys.
50:16>> Great to see you. Congratulations on the
50:18book and
50:18>> thank you for coming.
50:20>> So, I'm curious. So, you know that I'm
50:21also uh interested in corporate tax. Um,
50:24>> yeah.
50:25>> I And because Amazon canled my uh uh
50:28delivery of the book, I haven't had a
50:29chance to read it yet. It's still
50:30coming, but I I don't
50:31>> I have to bring up something about that
50:33if I may.
50:33>> You think you think this is like a Bezos
50:35thing?
50:35>> That's what Well, I was going to ask the
50:37crowd. So, here's the weird thing, and
50:39then I'm going to get to your question,
50:40I promise. Here's the weird thing. Amaz
50:44Amazon like next day delivery, right?
50:45That's the meaning of Amazon. Somehow
50:48they refuse to order enough books to be
50:51able to deliver it on time. No matter
50:52how many times we contact them to be
50:54like, "We have books for you. Do you
50:56want the books? Do you want the books?"
50:57They're like, "No, we're good." We're
50:58like, "No, you're not good. There's
51:00orders there. You're not filling them."
51:02So,
51:03>> I placed the order months ago and still
51:05I the the order went in weeks ago and I
51:07still haven't gotten it. So, yeah.
51:08>> Yeah. Do you think it's possible that
51:09Bezos is sick of me saying that he takes
51:12the child tax credit?
51:15>> I I I personally find it plausible. So,
51:18so my question is um so if most of the
51:21folks you're talking about earn all
51:22their money through corporations,
51:24>> right? That's part of the story. Uh and
51:26I don't know whether you talk about this
51:27in the book.
51:28>> Um one way to get at this would be to
51:31tax those corporations, right? And
51:33everybody could get behind that I think.
51:35Uh nobody likes taxing death, but you
51:37know, maybe people like taxing
51:38corporations. Um, but if you look at the
51:41the percentage of uh revenues generated
51:45by uh corporate taxes since the early
51:481950s, it's just been like a straight
51:49line down. The kind of chart you never
51:51want to see.
51:51>> Is that part of the story you tell in
51:53the book about the uh benefit the
51:56disparity between the impact of the
51:57corporate tax and the individual income
51:59tax?
51:59>> Yeah, I don't for a couple of reasons.
52:02Um, one of them is that um, corporate
52:06taxes, there's a lot of divergent views
52:09about who in fact pays corporate taxes,
52:12right? And one of the things that's
52:13interesting is that the rich when they
52:16want to avoid corporate taxes, they say
52:20corporate taxes, that's just a cost on
52:23consumers and employees both who suffer.
52:27When a corporation has to pay taxes,
52:29then they can't pay as much to their
52:30employees. they can't do as much R&D.
52:33They can't do as much um they can't do
52:36as much uh um they can't keep their
52:39prices down because they have to raise
52:41it to pay taxes, right? So, when they
52:42want to fight corporate taxes, that's
52:44what they say. When they want to say
52:46they're paying taxes, they're like,
52:48"We're paying all these corporate
52:50taxes." And so, it's a But when you
52:53think about who actually bears the cost,
52:55it's one of those questions that one can
52:56never really answer because we we don't
53:00know. It's a counterfactual, right? What
53:01would happen if the corporations had
53:03more or less taxes to pay? So, and then
53:06the other reason I stay clear from it is
53:08because of the growing number of pass
53:10through entities that don't have taxes.
53:12So, we already kind of have um this kind
53:15of two-tier system on the business side.
53:18So,
53:19>> can I just ask Hi. Um thank you very
53:22much. I think I have many more questions
53:24now than when you started.
53:26>> Oh, I did. Uh
53:26>> oh. and [laughter] I'll reserve most of
53:28them. But my burning question is what
53:31happens if when Sally Moneybags dies and
53:34she's got tons of money and she's put it
53:36into the donor adise fund. Yeah.
53:38>> Where does it go? What happens?
53:39>> She isn't as soon as you open up. And by
53:41the way,
53:43I assume most many people in this room
53:45have a donor advice fund. And I'm going
53:47to confess to this safe crowd that I
53:49myself have a donor advice fund because
53:51donor advised funds are a vehicle that
53:56facilitate getting tax benefits for
53:58charitable giving. So lots of people
54:01open donor advised funds because it
54:03makes sense financially to do so. So I'm
54:05not anti-donor advised funds. I'm only
54:08anti the current rules about donor
54:10advised funds. But when you open a donor
54:12advice fund, the very first thing they
54:14tell you to do is create a legacy of
54:17giving. Name somebody name somebody else
54:20to to uh give your money in the future.
54:22They want you to think about it as a
54:25very long-term vehicle. So they really
54:28encourage you to do that. And if you
54:29don't name it, then like for example,
54:32Fidelity on its own becomes the advisor
54:35of that money. And I can tell you as
54:37somebody who worked for philanthropy uh
54:39tax reform, uh I suspect a big chunk of
54:43that money was spent on funding the
54:45anti-reform efforts. Uh so I don't know
54:49if you necessarily want Fidelity
54:50Charitable to be giving away your money.
54:52Uh but they they did fund a lot of
54:54groups that did fight uh fight reform.
54:58So we have time for one more question
55:01and it's over here. Um, afterwards, as I
55:04mentioned, Rey will be signing books at
55:06the front. Please, um, help me
55:09[laughter] by letting me bring her to
55:11the front as opposed to coming to talk
55:13to her at the stage and then you can
55:15come and talk to her at the table at the
55:16front. So, here's the last question.
55:20>> Uh, I don't want to be confused with
55:22somebody who's rich, but uh, when you
55:24talked about taxing transfers, my uh,
55:27thinking is if let's say I transfer my
55:29house into a trust, there's no cash
55:31there. So, if you're throwing uh putting
55:33a tax on that transfer, how does that
55:35fit in with your scheme? And also, uh
55:38the word wealth tax has been thrown
55:40around lately. Do you have any comment
55:41on what that means?
55:42>> Yeah. So, I'm going to start with this
55:44second qu. First of all, when you
55:46transfer it to a trust, it depends on
55:47who the beneficiaries are. If you're
55:49transferring it away, um then, uh you
55:53know, there are ways that one can um
55:56there's a couple of different things to
55:58say about that. one is that if you're
56:00talking about transferring a house,
56:01those types of transfers, smaller
56:03transfers could be exempted from this.
56:06Um, if you're talking about
56:07transferring,
56:08you know, $50 million of stock, people
56:11can borrow to pay the taxes just as they
56:13borrow to support their lifestyle. So,
56:15there's lots of ways that taxes can be
56:17paid or one can take out a interest a
56:20loan from the government to pay it in
56:22the future. So, there are ways that one
56:23can do that. As for the wealth tax, um I
56:27am actually not a fan of the wealth tax
56:29and I think that um dare I I'm from
56:33Massachusetts. I'm a fan of Elizabeth
56:35Warren, but I think that the Democrats
56:36make a mistake in pushing for a wealth
56:39tax. One reason is that the uh Supreme
56:42Court is just they are really they have
56:47given a warning that they could very
56:49well find it unconstitutional and it
56:52doesn't take much to see how they act to
56:54think you know what given a chance they
56:56will definitely find it
56:57unconstitutional. So that's one concern.
57:00But a greater concern that I have is
57:02that um if you had an annual tax on
57:04wealth, a lot of people would want to
57:07move their money out of the publicly
57:09traded stock market with its
57:11readytovalue assets and into privately
57:14held interests and um and and that would
57:17be in order to make things that are very
57:19difficult to value. We have a very
57:21underfunded IRS. It's going to have a
57:24very hard time valuing these assets. You
57:26mean like art or what do you mean by
57:28that?
57:28>> The IRS has been totally defunded. So
57:31>> when you mean like private assets?
57:33>> Oh, private assets. So like partnership
57:35interest, things that are not created on
57:36a publicly market. Who knows what
57:38they're worth? And then they make
57:40they're these very complex partnerships.
57:42A really interesting paper by a guy
57:44Colombia,
57:45>> I think his name's Michael Love, says
57:47that you should be taxing complexity
57:49when when taxpayers create these super
57:52complex instruments with multiple layers
57:54of partnerships. I think it's a great
57:56idea because you can't because nobody
57:58can capture the value. So my concern is
58:01it would um that we'd see people pulling
58:03money out of the stock market which
58:05would affect all sorts of people who
58:06have their retirement money in there. So
58:08I am not a fan of wealth taxes.
58:12I know surprising.
58:14Uh anyway, is that
58:17>> well um can we have an thank you so much
58:22another round of applause please for a
58:24wonderful conversation. [applause]

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