Block 8, Article 5 — Buy, Borrow, Die
Fifty-five of the largest companies in America paid zero federal income tax in at least one profitable year between 2018 and 2022. Not a loophole nobody noticed. Not an accident of a badly drafted bill. Every exit was written into the code by the people who would use it, the same way the royalty rate on the oil beneath public land was written by the industries that would pay it.
The rest of this block has shown how the room was purchased — the think tanks, the judges, the dark money, the franchise bills. This article shows what the purchasers did with the treasury once they had it.
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The room used to run on the commons itself
From 1789 to 1861 the federal government had no income tax and no corporate tax. It ran almost entirely on tariffs and the proceeds of public land sales — the commons, sold and taxed, funding the government directly. Block 10’s balance sheet documents where that arrangement led once the land itself ran out. What matters here is what came next.
The first federal income tax arrived in 1861, a war measure to fund the Union Army — progressive by design, 3 percent above $800, higher rates on higher incomes. It was repealed in 1872. The railroad barons, steel magnates, and war contractors who had built fortunes during the war funded the campaigns that ended the tax that might have reached those fortunes. The emergency that justified it ended. The wealth it might have taxed did not go anywhere. Only the tax did.
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The Court protects what the vote could not
By the 1890s industrial wealth had concentrated enough to produce a genuine political crisis, and the Populist movement forced Congress’s hand: a 2 percent tax on incomes above $4,000, passed in 1894, aimed squarely at the wealthy. The Supreme Court struck it down the following year.
Pollock v. Farmers’ Loan and Trust Co. held that a tax on income from property was a direct tax requiring apportionment among the states — a technicality that made taxing concentrated wealth effectively unconstitutional without amending the Constitution itself.
The justices who wrote that decision were appointed by presidents whose campaigns had been funded by the same industrial fortunes the tax would have reached. Justice Harlan dissented, calling the ruling a disaster for working people and a shield for accumulated wealth. He was outvoted 5 to 4. The people who wrote the ruling were protected by it. The wages that would later replace the tax those fortunes escaped were never put to a comparable vote — payroll withholding asks no permission — while the fortunes themselves kept funding the campaigns that produced the bench that ruled in their favor. This is the template — a judicial outcome that protects the financial interests of the people who produced it — that runs from Pollock in 1895 to Citizens United in 2010, a straight line through everything Block 7 already documented about this bench.
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The twenty years it actually worked
It took a constitutional amendment to get around Pollock. The 16th Amendment passed in 1913 after that two-decade fight, and the tax structure that followed briefly did what it was designed to do. The top marginal rate reached 77 percent by 1918, aimed explicitly at wartime profiteers. By the Eisenhower administration it stood at 91 percent. Corporate rates ran above 50 percent through the 1950s. The estate tax was strengthened under Roosevelt specifically to prevent dynastic accumulation.
That period — 1945 to 1975 — was also the highest sustained period of middle-class income growth in American history. The correlation is not incidental. High marginal rates reduced the incentive to hoard past a certain point and increased the incentive to pay workers and reinvest in production. The tax structure shaped the economy it taxed. Everything the rest of this series documents as dismantled was built, in part, on top of that structure.
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The first reversal has a name
Andrew Mellon ran the Treasury from 1921 to 1932 — one of the wealthiest men in the country, whose family’s aluminum and banking fortune sat directly in the path of the rates he was in charge of setting. He cut the top marginal rate from 77 percent to 25 percent inside four years. He cut corporate rates alongside it. The argument was that high rates discouraged investment. The unstated fact was that his own fortune, and the industrial class he came from, would keep substantially more of it.
This is the first large-scale, documented instance of the exact pattern this series prosecutes everywhere else: the people writing the rules write them in their own interest, using the authority the Constitution grants them, and frame the private benefit as public good. The 1920s boomed, which was called vindication. Then 1929 happened, and the revenue base that could have cushioned it had already been dismantled. The New Deal rebuilt the progressive structure that Eisenhower would later inherit. The lesson was learned once. It did not stay learned.
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The apparatus this block already documented did it again
Reagan cut the top rate from 70 percent to 50 percent in 1981, then to 28 percent by 1986. Corporate rates fell. Depreciation schedules accelerated. The estate tax exemption grew. The intellectual cover — supply-side economics, the Laffer curve, trickle-down growth — came out of the same think tank infrastructure Article 2 already documented Powell’s memo commissioning. Forty years of evidence followed: wages for the bottom half stagnated, corporate profits hit records, the gap between the top 1 percent and the bottom half widened every decade running. The theory did not survive contact with the data it was supposed to produce. The tax cuts survived anyway, because the people who benefited from them funded the campaigns of the people who kept voting for them.
The 2017 Tax Cuts and Jobs Act ran the identical play with better documentation. The Congressional Budget Office scored the bill before passage and confirmed the benefit ran overwhelmingly to the top 1 percent and to corporations, with individual cuts structured to expire while the corporate cut was made permanent. The bill passed anyway. Fifty-five major corporations paying zero federal tax in a profitable year, between 2018 and 2022, is not a glitch in that bill. It is the bill working.
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The hinge nobody votes on
The rate cuts get the headlines. The more consequential change was quieter: the gap between what labor pays and what capital pays. Wages are taxed as ordinary income, up to 37 percent at the top bracket. Capital gains — profit from selling an asset held more than a year — top out at 23.8 percent including the investment surtax. Roughly half the rate, for the same hundred thousand dollars, depending only on whether you earned it or owned it.
Carried interest sharpens the point further. It is the fee private equity and hedge fund managers earn for managing other people’s money — plainly compensation — and it is taxed at capital gains rates anyway, a preference written into the code by the people who collect it, through a Congress their industry funds heavily. Every administration in the last thirty years, both parties, has proposed closing it. None has. The people it protects fund the campaigns of the people who would have to vote it away.
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The tax that only touches work
Franklin Roosevelt built Social Security’s payroll tax deliberately, and said so plainly: tying benefits to a dedicated tax gave workers “a legal, moral, and political right” to collect them, so that “no damn politician” could ever take the program away. The design worked exactly as intended — Social Security has survived every attempt to dismantle it since.
But the tax he built as a shield became the most regressive piece of the federal system. It applies to every dollar of wages from the first one earned — 15.3 percent, split on paper between worker and employer, borne in practice by the worker as a cost of employment. It does not touch capital income at all. A billionaire living on dividends and realized gains pays nothing in payroll tax no matter the total. A worker earning $40,000 pays 7.65 percent of every dollar. Both funds pay for programs that serve everyone, including the billionaire. Only one side of the economy is asked to fund them.
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The shearing runs on a schedule
Every reform in this article followed an identical sequence. A real problem produced a genuine reform, publicly justified. Then the people with resources — lawyers, accountants, lobbyists, the same think tanks documented in Article 2 — found the exits. Depletion allowances. Stepped-up basis. Carried interest. Accelerated depreciation. Offshore structuring. Each exit was written into the code by the people who would use it, each one described as a technical correction or an investment incentive. The workers and small owners the reform was meant to help had no lobbyist writing exits on their behalf. They paid the rate as written.
The Alternative Minimum Tax is the case study in miniature. Congress created it in 1969 after discovering that 155 of the highest-income Americans had paid zero federal income tax in 1966 — legally, using provisions written for exactly that purpose. The public outrage produced a parallel minimum-tax system aimed at those 155 filers. Within twenty years it had drifted down the income scale until it was catching upper-middle-class families with children, state taxes, and mortgage interest — not the wealthy the AMT was built to reach, who had already found the next exit. A tax designed to make the very wealthy pay something became a tax on the professional class instead. The people who wrote the exits were never the people who got shorn.
The Alternative Minimum Tax was framed as a floor beneath the wealthiest filers, ensuring the 155 who paid nothing in 1966 could never do so again. The exits those same filers would find next — and the middle-class families who would inherit the tax meant to catch them — were not in the frame.
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The extraction industries never needed a separate tax code — the royalty structure already was one
The oil and gas depletion allowance dates to 1926, the same era the mining royalty rate was frozen at 12.5 percent. It lets a company deduct a share of gross income from a producing well as a tax-free “return of capital” — the theory being that the oil itself is a depreciating asset. Follow the chain: the public owns the land, grants extraction rights at a below-market royalty already documented in Block 10, and then subsidizes the extraction of its own resource a second time through the tax code. The public pays twice. The company collects twice.
Agricultural subsidies run the identical shape at a different scale. Direct payments, crop insurance, and conservation payments flow disproportionately to large agribusiness, mostly exempt from the income caps that would otherwise limit them — including, in places, to the same operations drawing the Ogallala Aquifer down at documented unsustainable rates, insured against the risk of depleting water that costs them nothing to begin with. The tax code and the royalty structure are not two systems. They are the same mechanism, wearing two different names.
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The exit that needs no loophole at all
Every mechanism in this article requires selling something eventually — a stock, a business, a depletion-eligible well — and paying tax on the gain when you do. The wealthiest households mostly don’t. They borrow against appreciated assets instead of selling them: a portfolio worth $500 million can collateralize a loan at a fraction of that value, at interest far below what the capital gains tax on a sale would cost, with no sale and therefore no taxable event at all. The loan funds the yacht, the house, the lifestyle. The stock keeps appreciating, untaxed, inside the loan. When the borrower dies, the “stepped-up basis” rule resets the asset’s cost basis to its value at death — erasing the entire lifetime of gain for tax purposes in a single stroke. The heirs inherit appreciated wealth that has never been taxed and, if they sell immediately, may owe nothing at all.
Buy, borrow, die. No loophole was closed to make this possible, because none needed to exist in the first place — the mechanism is just the ordinary tax code, used exactly as written, by people with enough collateral to make borrowing cheaper than selling. It is the logical endpoint of every exit documented in this article: not evading the tax, but arranging never to trigger it.
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Ninety-one percent under Eisenhower. Twenty-three-point-eight percent on capital gains today. Zero, repeatedly, for corporations profitable enough to owe billions. The treasury that once ran on the commons itself now runs on whoever didn’t have a lobbyist in the room when the code was written. The room that built this treasury is the same room the rest of this block has already shown you — and the states are still competing to build the next version of it. That is Article 6.
Look up the Congressional Budget Office’s most recent distributional analysis of federal tax law and compare the share of benefit going to the top 1 percent against your own bracket’s share. The data is public. The comparison takes five minutes.
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Steve Sagnotti
is a serious amateur photographer, writer, and technologist based in Oregon. With his camera he tries to capture common images not often seen, leading to common questions not often asked.
© 2026 Steve Sagnotti
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Sources
1. Revenue Act of 1861, 12 Stat. 292. Income tax repeal, Act of June 6, 1872, ch. 315, 17 Stat. 230.
2. Historical Statistics of the United States, Cambridge University Press.
3. Pollock v. Farmers’ Loan and Trust Co., 158 U.S. 601 (1895). supreme.justia.com
4. Harlan dissent, Pollock v. Farmers’ Loan and Trust Co. en.wikisource.org
5. 16th Amendment, ratified February 3, 1913. archives.gov
6. War Revenue Act of 1917, 40 Stat. 300.
7. Top marginal rates 1945–1975: Tax Policy Center, “Historical Highest Marginal Income Tax Rates.” taxpolicycenter.org
8. Mellon Treasury tenure 1921–1932; rate reduction. Federal Reserve History. federalreservehistory.org
9. Economic Recovery Tax Act of 1981, Pub.L. 97-34. Tax Reform Act of 1986, Pub.L. 99-514. Tax Cuts and Jobs Act of 2017, Pub.L. 115-97. congress.gov
10. 55 corporations paid zero tax: Institute on Taxation and Economic Policy, “Corporate Tax Avoidance in the First Five Years of the Trump Tax Law,” February 2023. itep.org
11. CBO distributional analysis, TCJA: CBO, “The Distribution of Household Income, 2017,” November 2020. cbo.gov
12. Capital gains rates: IRS Publication 550. Net investment income surtax: IRC § 1411. Carried interest: IRC § 1(h), § 1231. law.cornell.edu
13. Roosevelt payroll tax quote. ssa.gov/history/Gulick.html
14. Payroll tax rates: IRC § 3101, § 3111. law.cornell.edu
15. Jennifer Harris fiscal mechanism: New York Times, April 8, 2026.
16. AMT creation: Tax Reform Act of 1969, Pub.L. 91-172.
17. Oil and gas depletion allowance: IRC § 613, § 613A. law.cornell.edu
18. Agricultural subsidy concentration: Environmental Working Group Farm Subsidy Database, 2024. farm.ewg.org
19. Buy-borrow-die mechanism: stepped-up basis at IRC § 1014. law.cornell.edu
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