In pre-revolutionary France, the aristocracy (known as The Second Estate) was not obligated to pay taxes.
Similarly, in recent years in the US, Elon Musk, Warren Buffett, Jeff Bezos, Michael Bloomberg, and other billionares have paid no income tax despite enormous increases in their wealth.
How do we know this? Because a whistleblower named Charles Littlejohn worked for the IRS and leaked tax returns to ProPublica, who published an article in 2021 entitled The Secret IRS Files: Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax.
In 2025, law professor Ray D. Madoff took these findings and many others and wrote a book entitled The Second Estate: How the Tax Code Made an American Aristocracy, which I just finished reading and highly recommend.
If you are not outraged by how the 1% are not paying their fair share, you should be. In the US we have extreme, growing wealth inequality and spiralling national debt.
How do the 1% get away with not paying their fair share? In a nutshell, they avoid income taxes by avoiding taxable income. Rather than drawing a salary, they support their lifestyle by borrowing against their assets. For example, Larry Ellison bought most of Lanai, Hawaii’s 6th largest island, through debt-financed spending (page 50).
To offset capital gains taxes and gift taxes, the 1% donate money to private family foundations or donor-advised funds that don’t impose a time frame for the funds to be spent for charity. Their wealth grows tax-free and is passed to the next generation without being taxed because the estate tax (the death tax) has been eviscerated.
If the 1% are not paying their fair share, who is left paying for the country’s expenses? You and me. If you look at the sources of federal revenue and page 112 of Madoff’s book, you’ll see this breakdown of revenue from 2023:
49% Individual income taxes
35% Payroll taxes
11% Corportate taxes
5% Misc. duties and excise taxes
<1% Estate and gift taxes
Even the desperately poor who don’t owe income tax are required to file returns and pay payroll tax if they earn as little as $400 (page 110), which makes it a highly regressive tax. What’s more, payroll taxes more than doubled from 6.9% in 1970 to 15.3% today (page 110).
Most of us, the 99%, need to work to live. We need to earn income. By paying both income and payroll taxes, we, the working people, are shouldering most of the burden of the country’s expenses.
What happened? How did things get so out of whack? There are a few factors.
The 1% used to contribute a lot more in taxes because they were taxed on dividends, cash payouts to investors based on a company’s profits, which are treated as capital gains. However, in 1982 stock buybacks were made completely legal, whereas before they were considered market manipulation. Companies made the switch. “From 1990 to 2020, less than 17 percent of investors’ returns came from dividends (as compared to 73 percent in the 1970s) (page 48)”.
As mentioned above, the estate tax (the death tax), has been eviscerated, and is no longer effective.
At a high level, we are allowing the 1%’s wealth to accumulate tax-free and be passed tax-free from generation to generation.
What should we do? Here are Madoff’s suggestions:
- Repeal the estate tax (the death tax) because it isn’t working anyway and Americans have been duped into believing it does.
- Bring inheritance and investments into the income tax system.
- Repeal the exclusion for inheritances and gifts.
- Tax unrealized gains at death, like Canada does.
- Impose meaningful payout rules for charities, in line with what the 1969 rules intended (but were gamed and subverted by donor-advised fund accounts).
Congress used to continually tweak the tax system to close loopholes the 1% exploit. “But since 1990, members of Congress have engaged in a form of quiet quitting, sitting on their legislative hands while taxpayers and their advisors remain hard at work finding new workarounds (page 93).”
Nobody likes paying taxes, myself included, but the tax system should be fair. The 1% should pay their fair share.