NOTES FROM THE FIELD – Dispatch 6
Tax Day just passed. If you work for a living, you noticed.
If you earn a salary — if you’re a nurse, a teacher, a contractor, an accountant, a surgeon — a meaningful share of what you made last year went to the federal government before you ever saw it. Federal income tax, up to 37 percent. Payroll taxes on top of that, up to another 15 percent. It adds up. For a high-earning professional, the effective tax rate on their labor can exceed 50 percent.
Meanwhile, in 2021, ProPublica obtained and published the actual tax returns of the wealthiest Americans. Warren Buffett’s true tax rate that year: 0.1 percent. Jeff Bezos: 0.98 percent. Michael Bloomberg: 1.3 percent.
This is not a coincidence. It is not an oversight. Here is how it works.
Step one: Don’t take a salary.
Jeff Bezos has paid himself $82,000 a year for more than two decades. Elon Musk has famously taken $1. The rationale offered publicly is that this aligns their interests with shareholders — they only profit if the company succeeds.
That’s a cover story. The actual reason is simpler: salaries are taxable. When you earn wages, the government taxes them immediately, at the full income rate, plus payroll taxes. Bezos looked at that arrangement and declined.
Instead, he holds stock. Amazon grows. His wealth grows with it — by tens of billions of dollars over the years. Under current tax law, none of that growth is taxable until the stock is sold. There is no clock running. No deadline. The appreciation just accumulates, year after year, entirely outside the tax system.
Step two: Don’t sell the stock.
If Bezos sold stock to fund his lifestyle, he’d owe capital gains tax — around 23 percent. Still lower than a salary, but a taxable event. He doesn’t need to do that either.
Instead, he borrows against the stock. He walks into a private lender and says: I have hundreds of billions in Amazon stock. Lend me a few billion. The lender says yes immediately, at favorable rates, because the loan is essentially risk-free. If Bezos somehow couldn’t pay, they’d just take the Amazon stock.
The loan proceeds are not income. They are debt. The IRS does not tax debt. So Bezos funds his yacht, his properties, his private space program — entirely with borrowed money, tax-free.
Step three: Never pay the loans back. Just roll them.
This is the part that breaks people’s intuition. Loans have to be repaid — that’s the basic logic of borrowing.
But when your collateral is worth hundreds of billions of dollars, and the loan you need to fund your lifestyle is a rounding error relative to that collateral, you don’t pay the loan back. You take out a new loan to cover the old one. Lenders are happy to keep lending to you indefinitely — they’re in the business of having their money deployed, and a permanent loan to Jeff Bezos against Amazon stock is about as safe as lending gets.
The technical name for this sequence is buy-borrow-die. You buy the appreciating asset. You borrow against it to live. You die holding it.
Step four: Die.
This is where the system closes the loop.
When an ordinary person inherits stock, they pay capital gains tax on the appreciation since their parents bought it. That’s the rule.
Except it isn’t, for assets held at death. When a billionaire dies holding Amazon stock that was worth $1 when Bezos founded the company and worth $200 billion when he dies, the heir’s cost basis is reset to whatever the stock is worth on the day of death. The entire lifetime of appreciation — the full $200 billion in this example — is wiped clean. Never taxed. Gone forever from the government’s books.
This is called stepped-up basis. Tax scholars and economists consider it the single most consequential provision in the tax code for perpetuating inherited wealth. It is almost completely unknown to the public.
The estate tax was supposed to catch wealth transfers at death — a 40 percent tax on estates over $15 million. But it has been so effectively hollowed out through decades of loopholes that in 2024, the richest 1 percent of Americans controlled $50 trillion in wealth, and the estate tax collected $30 billion. That’s not a typo. Thirty billion against fifty trillion. The estate tax is not a tax. It is a line item in a press release.
The surgeon and the founder
To understand why this matters, hold two people in your head.
A Beverly Hills surgeon earns $2 million a year. She pays over 50 percent in combined taxes on that income. She works hard. She saves. She accumulates wealth the ordinary way — from income she earned, already taxed.
A tech founder holds $180 million in company stock and takes $1 in salary. He has never paid taxes on that $180 million. He doesn’t need to sell it, doesn’t need to borrow more than a fraction of it, and when he dies, his heirs will inherit it with the gains erased. The $180 million was built entirely inside the tax-free zone.
Two wealthy people. Entirely different systems.
The surgeon is in the top 1 percent of income earners. She pays a lot in taxes. She is, in fact, the person politicians are pointing at when they say “the top 1 percent pay 40 percent of income taxes.” That statistic is true and it is misleading: it conflates income wealth with ownership wealth. The people who show up in the 0.1 percent and 0.98 percent true tax rate figures are not in the surgeon’s cohort. They are in a different system entirely.
What the payroll tax cap means for the rest of us
There’s a quieter piece of this that affects everyone below the billionaire line.
Payroll taxes fund Social Security. They are 15.3 percent of wages — split nominally between employee and employer, but economists generally agree the employee bears most of the cost. They apply from the first dollar you earn.
They stop at $168,000.
The surgeon pays payroll tax on $168,000 of her $2 million income. The rest is exempt. Bezos pays payroll tax on his $82,000 salary and nothing above that. The schoolteacher and the warehouse worker pay payroll taxes on every dollar they earn. Eighty percent of Americans pay more in payroll taxes than in income taxes.
The people who depend most on Social Security are the ones funding it at the highest rate, relative to their income. The people with the most wealth fund it on the smallest slice.
It has been fixed before.
In 1986, a bipartisan Congress passed the Tax Reform Act. Ronald Reagan signed it. It broadened the tax base by eliminating the tax shelter industry that had allowed high-income earners — surgeons, lawyers, finance professionals — to paper over their income with investment losses. It worked. Those shelters are gone today. High earners with salaries genuinely do pay high taxes, and they have since 1986.
That reform did not close the buy-borrow-die loop. That gap remained. And in the decades since, the estate tax has been progressively defanged — exemptions raised, rates cut, loopholes layered in — through a sustained, funded campaign by the families who stood to benefit most. The last meaningful reform of the estate tax was 1990.
The mechanism hasn’t been hidden. Tax scholars have known about it for decades. The ProPublica investigation in 2021 confirmed it with actual returns. It is documented, understood, and unaddressed.
A number worth sitting with.
This year, the federal government will spend more than $1 trillion just on interest payments on the national debt. That exceeds what we will spend on the military. The nonpartisan Congressional Budget Office projects that figure more than doubles — to $2.1 trillion — by 2036.
The scorekeepers say the trajectory is not sustainable. The Federal Reserve chair said it publicly in March: the path will not end well if something doesn’t change fairly soon.
What would change it is a broader tax base — more revenue from the wealth that has been accumulating, untaxed, for decades. The mechanism for that has always existed. It has been the question of whether the people who would need to act have any reason to act.
That’s the next dispatch.
Sources: Ray Madoff, “Our Tax System Should Make You Furious,” The Ezra Klein Show / New York Times, April 17, 2026. ProPublica, “The Secret IRS Files,” 2021. Congressional Budget Office, Budget and Economic Outlook 2026–2036, February 2026. Jerome Powell remarks at Harvard University, March 30, 2026.
