Your tough Tacoma is here. Your powerful 4Runner. Your stylish Camry. Your versatile RAV4. Even your fully electric VZ4X. Your new Toyota car, truck or SUV is available now. So see your Toyota dealer today. We make it easy. Toyota. Let's go places. Welcome to Radical Personal Finance, a show dedicated to providing you with the knowledge, skills, insight and encouragement you need to live a rich and meaningful life now, while building a plan for financial freedom in 10 years or less.

My name is Joshua Sheets. I'm your host. And today on the show, we're going to talk about the recent ProPublica article called "The Secret IRS Files, Trove of Never-Before-Seen Records Reveal How the Wealthiest Avoid Income Tax." In today's show, we're going to analyze this article, going to speak extensively about some of the points that this article brings up, and walk you through how I approach this particular subject and some of the thoughts that I have on it.

I don't expect today's show to be short, so I'm going to give you an overview of the article right here at the beginning, and then you can decide how deep into this particular rabbit hole you prefer to go. In essence, if you're a longtime listener of Radical Personal Finance, you should simply know how the wealthiest avoid income tax.

I'll give you a moment to think about it. How do the wealthiest avoid income tax? The answer should be immediately obvious. You avoid income. And that is simply at the heart of this particular article. The wealthiest among us – in this particular case, the journalists are analyzing the tax returns of the 25 wealthiest people in the United States of America, evidently – the wealthiest among us avoid income.

In exactly the same way that I teach you to avoid income, except when it's convenient or taxed in an appropriately reasonable way, that's what the wealthiest people do. So there, I just saved you 12 pages of reading and thinking about it. And we'll analyze this in some more depth, but what I find most striking about this particular article is its relative lack of newsworthiness.

We'll talk in a moment about the public release of this confidential tax data. ProPublica is making the argument that it is in all of our best interests to actually know the exact figures and facts from these particular individuals' confidential tax records. Time will tell. But what's remarkable about this particular article is there are no allegations within it of any of these wealthiest billionaires committing any form of tax fraud.

There's no articles of tax – there's no allegations of tax evasion. There's no allegations of tax fraud. There's not even any allegations in this particular article of influence peddling – it's a concern that I have personally – of people buying political donations, although that's alluded to in the article.

The article basically simply shows that the wealthiest people are doing what you and I as moderately well-educated financial payers' attention – people pay attention – are doing what we would say. Build your wealth in capital assets that don't create income that you don't need. If you do create income, do your best to shelter that income through the use of appropriate investment losses and/or appropriate charitable donations, and then pay the levels of tax that are legally required of you.

And remarkably, that's what these billionaires have done. I think we should pause a moment before we get into the meat of the article and acknowledge how remarkable that is. I think that's something well worth noting and celebrating, that in the United States of America, a journalist was given unrestricted access to perhaps decades of confidential tax records of the wealthiest people in the country.

And they don't come out making any allegations of fraud, any allegations of abuse, etc. This is strikingly similar to the tax returns of President Trump when that story was quite big over the last year and a half, I guess it was, when President Trump's tax returns were leaked. New York Times reported extensively on them, and basically at its heart, the story came out and said, "Yeah, President Trump owns a lot of real estate, and there was a very lovely change in the deductibility of losses that happened at a fortuitous time when his income increased due to not investing in real estate but to running a highly successful TV show, and it was just a fortuitous change in the tax code." But even in that article, there were no clear allegations or proof of any kind of tax evasion, there were no allegations of fraud.

I examined that carefully, and you couldn't come away with that saying anything other than, "This man's a real estate investor." Remarkable. I'd like to begin by pointing that out. That is, to me, remarkable. And in many ways, it is emblematic of really the way that most US American taxpayers conduct their affairs.

Even though there is much argument, much public vitriol around the subject of taxes, most of the tax research institutes, at least the data that I have reviewed of the people who've tried to study the level of tax evasion, report that the level of tax evasion by US Americans is substantially lower than even other leading countries, such as several European countries.

Now, in the ProPublica article, they link to a paywalled academic article on tax evasion, alleging that billionaires are engaging in tax evasion. I did not pay the fee to read that particular article, but in this article that they have produced based upon their data, they do not allege that, and I think that is remarkable.

Now, let's talk first about the leak, then we'll get into the substance of the article. This is, as far as I'm concerned, as I know, a fairly unprecedented move for a journalist to have access to the most confidential data of the wealthiest people in the United States of America.

For that data to be leaked to a journalist is a very, very legal – significant legal breach of privacy, and I think very significantly a breach of trust. Now, this is an interesting thing to analyze, because whenever you have a whistleblower, somebody who comes along and intentionally leaks information, publishes documents, sends those to a journalist, your response to that whistleblower will generally be driven by your personal ideological makeup.

If the data goes against your opponents, usually you say, "Man, this shouldn't have been leaked, but I'm kind of glad it was because it paints this guy in a bad light." If the data is in favor of your – or against your side, then you're angry and scheduling lawsuits and everything against, "How is this data leaked?" One can easily understand when you absorb the contents of this article why ProPublica has taken this step to release this data, to write this analysis.

You can certainly understand why they have done it, because they're trying to advance a cause and spark a conversation about their overall system, the tax system. Time will tell what the long-term effects of this wind up being. I think that we are in a place where more and more people are realizing that their most sensitive secrets can and perhaps will be exposed quite publicly.

I don't ever write anything to anybody. I don't write a text message. I don't write a DM. I don't write an email. I don't write anything that I don't assume that it will be published live on the Internet. I don't put down anything on paper or write anything in my computer notes that I don't assume will be published on the Internet.

And I don't put anything on a tax return that I don't assume will be published on the Internet. And I think it's important to realize that for your own sake, simply to acknowledge the fact that we live in a situation where privacy, on some ways privacy is high, but there are people who will feel that they're forwarding the better good, the public good, by advancing privacy.

And so here we just see a very high-level indication of that. Be very careful and make sure that you always prepare a completely truthful tax return and that you always pay the taxes that are required of you. Make sure that you would not break out in cold sweats if your phone starts dinging with notifications from your friends saying, "Hey, you were published in this article." Will the transparency be good in the long term?

Well, will the source who released this to ProPublica be treated like Julian Assange or – I'm blanking on the guy's name – Edward Snowden? Time will tell. But we live in a world in which any individual can impact the flow of history by releasing confidential data. So always be very careful with what data you ever prepare and create.

The only place that confidential things are safe is in your head. Not spoken, not written, anything like that. And so be very careful about the numbers that ever get put down and make sure that you're living a life that is authentic, where if data and information would be published, then you wouldn't be embarrassed of it.

One of the points of this article – it's towards the latter half of the article – but one of the things that was interesting that I appreciated was prior to publishing this piece, the ProPublica team reached out to the individuals that they were going to be profiling for comment.

And Warren Buffett replied with a two-page letter and then followed with a number of attachments, putting together his responses. And then he sent that, and the ProPublica journalists were excellent enough to link to that. So it was quite fascinating to read Warren Buffett's letter in response to the journalist.

And also my favorite was they reached out to Elon Musk for comment. And according to what the journalist put in the article, when they wrote to Elon Musk, they sent him the first email and he responded with a single character, a question mark, back to them. They replied again and they never received anything else.

And what I love about those two stories is that both of those men, their responses are perfectly in character. I don't think either Warren Buffett or Elon Musk is particularly embarrassed by having all of their tax data released. There's no skeleton found therein. There's no fraud, no evasion. Warren Buffett's comments to the reporters were consistent with things that he has said for years.

And then Elon Musk's personality, as expressed to the reporter, is consistent with who I perceive him to be as an individual. It just made me smile in reading about that. So I think here the benefit in the modern world is of being a consistent, authentic person. So that if your public or if your private messages or your private conversations are revealed in public, the goal I think that is an appropriate goal to have is to be a truly authentic person.

So there would be no surprises. It's an ambition that I personally have is that if you meet me and you talk to me personally, I should hope that I'm the same person that you know in my public persona. Because then I can sleep well at night knowing that I'm not hiding anything.

Let's go to the article now. In general, I think that this article is fair. I don't think it is skewed, etc. But I'm going to point out to you a couple of things that are usually the unasked questions. This is where my brain works pretty well is of thinking, "Okay, but what's the other side?" And I would encourage you, develop this skill of saying, "What's the other side?" Because if you can't develop it, you can often be bamboozled.

You can also often be deceived by people who are telling you one side of the story. And you want to upgrade your analytical skills well enough to understand the counter arguments. And this is especially a challenge in the world of finance, which is legally complex and full of all kinds of industry jargon that if you don't understand the exact definition of it, will often seem to you as the meaning of it will often flow right by you.

And an expert can always play on your ignorance by doing this, by talking to you and just pointing out one side of the argument. And you might not be educated enough or sophisticated enough to see the other side of the argument. The example I always give is this. I can make for you a presentation about, say, your IRA.

I can come to you and I can say, "Listen, did you know that you can invest your IRA into real estate? Did you know that you can put all this real estate in your IRA and never pay tax on it as it grows?" Well, is that true? Sort of, right?

Or maybe another example. Maybe I can come to you and I can say, "Listen, if you buy this variable universal life insurance policy, you can do all of your stock investing tax-free. After all, the mutual funds in this variable life insurance policy will grow. They'll be tax-free. And you can take them out and you don't pay tax when you loan them out, etc." Now, is that true?

Both of those things are absolutely true. You can put real estate in your IRA. You could put real estate in your Roth IRA and you could defer the tax for the rest of your life. You could buy mutual funds inside of a variable universal life insurance policy and defer the tax for the rest of your life.

If I only talk about the benefits, you might, however, get an inaccurate understanding of your options. Only a trained expert will go on and say, "Wait a second. Why would I turn a capital gains asset into income?" Because in both of those situations, we've taken a very lightly taxed asset, meaning a capital gains asset such as a house or a capital gains asset such as a stock/mutual fund, which is generally lightly taxed, and we've turned it into a heavily taxed asset.

Because we transform those capital gains tax rates, which at least up until now have been favorable, into an unfavorable tax rate, namely ordinary income. And so you want to be always thoughtful and recognize that sometimes someone will tell you the truth, but they're deceiving you by only telling you one side of the truth.

And here you see that in the very first paragraph of this article. Let me read it to you. In 2007, Jeff Bezos, then a multi-billionaire and now the world's richest man, did not pay a penny in federal income taxes. He achieved the feat again in 2011. In 2018, Tesla founder Elon Musk, the second richest person in the world, also paid no federal income taxes.

Michael Bloomberg managed to do the same in recent years. Billionaire investor Carl Icahn did it twice. George Soros paid no federal income tax three years in a row. Now I'm going to pause for a moment. I want to point this out to you, that the first question you should have is, "Okay, let me assume that what you're saying is true, but what happened in the other years?

Did they pay federal income taxes in the other years? Jeff Bezos didn't pay income tax in 2007, 2011, but what did happen in 2008, 2009, 2010, 2012?" Or a better question is, "How much total tax have they paid? How much total tax has Jeff Bezos paid? Or how much total tax has George Soros paid?" Because if I came to you and I said, "Hey, look, last year, two years ago, I was the CEO of a big company, and I made a million dollars of income, and I paid $400,000 of tax.

But then last year, I paid nothing, and then this year, I'm going to pay another $400,000 in tax," what should you immediately guess? "Maybe I was jobless for the year. Maybe I got laid off. Maybe I didn't have any profits." There are lots of questions. So I think what's concerning is I expect this particular article to be extremely effective because this question, by the way, is not answered on page one, page two, or page three.

All the way on page four, we read this, talking about Bezos. In 2011 – actually, let me pull one back for a moment. In that year, Bezos is talking about – sorry, got to go back one more paragraph. "Consider Bezos' 2007, one of the years he paid zero in federal income taxes.

Amazon's stock more than doubled. Bezos' fortune leapt $3.8 billion, according to Forbes, whose wealth estimates are widely cited. How did a person enjoying that sort of wealth explosion end up paying no income tax? In that year, Bezos, who filed his taxes jointly with his then-wife, Mackenzie Scott, reported a paltry – for him – $46 million in income, largely from interest and dividend payments on outside investments.

He was able to offset every penny he earned with losses from side investments and various deductions, like interest expenses on debts and the vague catch-all category of other expenses." I'm going to pause here for a moment. What does a loss mean? Quite literally, what does it mean if you have a loss?

It means you lose money. It means you lost money. And, subject to the appropriate IRS tax rules on losses, be they losses in an active business, losses in a passive business, or investment, you can deduct those losses against your other income. Similarly, what about other expenses? What is the tab on "other expenses" on your tax return?

Well, it's there because tax returns are reliably muddy in terms of the categories. If you've ever filled out a simple Schedule C on your business, I would expect that you've had lots of expenses under "other expenses" that simply don't fit into all those categories. So, there's nothing abnormal about this when you understand that somebody has losses.

They've invested money. They tried to do something. Who knows? I'd be interested to know what he lost money on, like what he was trying to build. But they invested money and they lost it. Next, in 2011, a year in which his wealth held roughly steady at $18 billion, Bezos filed a tax return reporting he lost money.

His income that year was more than offset by investment losses. What's more, because, according to the tax law he made so little, he even claimed and received a $4,000 tax credit for his children. His tax avoidance is even more striking if you examine 2006-2018, a period for which ProPublica has complete data.

Bezos' wealth increased by $127 billion, according to Forbes, but he reported a total of $6.5 billion in income. The $1.4 billion he paid in federal taxes is a massive number, yet it amounts to a 1.1% true tax rate on the rise of his fortune. This is a concept that we haven't discussed yet that was the first thing we discussed in the article.

We'll talk about it in a moment. But the key question is, Bezos paid taxes totaling $1.4 billion. And if we analyze the tax rate that he paid on his $1.4 billion off of $6.5 billion in income, my calculator tells me that's 21.5% of his income paid in federal income taxes.

Which I would say, for most people who are accustomed to working with business owners, who are largely receiving their income in the form of capital gains and/or dividends, that's probably expected. 21%? Great. Nothing like the 1.1%. Now we'll go back to that concept because this is the basic argument.

As I see it, this article is written to encourage people to talk about the importance of establishing some form of wealth tax. That's the basic idea. And at its core, the way that this article advances this idea is by trying to get people to use what they're calling a "true tax rate." Here's how they put it.

"To capture the financial reality of the richest Americans, ProPublica undertook an analysis that has never been done before. We compared how much in taxes the 25 richest Americans paid each year to how much Forbes estimated their wealth grew in that same time period. We're going to call this their 'true tax rate.' The results are stark.

According to Forbes, those 25 people saw their worth rise a collective $401 billion from 2014 to 2018. They paid a total of $13.6 billion in federal income taxes in those five years, the IRS data shows. That's a staggering sum, but it amounts to a true tax rate of only 3.4%.

It's a completely different picture for middle-class Americans, for example wage earners in their early 40s who have amassed a typical amount of wealth for people their age. From 2014 to 2018, such households saw their net worth expand by about $65,000 after taxes on average, mostly due to the rise in value of their homes.

But because the vast bulk of their earnings were salaries, their tax bills were almost as much, nearly $62,000 over that five-year period." Now let's pause for a moment. Did you think and question the way that the data is being presented from you? I have some tips for you to develop this analytical habit.

First thing you always need to look at is the years. When I'm reading an article like this, I circle every single calendar year and ask myself, "What's happening during that year?" In paragraph one, I circled 2007 and 2011 and I wrote a question. What happened to Amazon's stock price during that year?

What was Bezos doing? 2007 was right before the crash of 2008. Did that have any effect on it? 2011 was right after. What was the effect? Think about that. In this case, the first thing is 2014 to 2018. What happened between those years? Well, you had an unprecedented – I shouldn't say unprecedented.

You had a significant bull market from 2014 to 2018. You had massive growth in the stock market. You had massive growth in real estate values. You've had a massive, massive growth. And so the fact that billionaires have had their incomes increase makes sense. Sorry, their assets increase. Now, the other thing I question is, "All right, are we doing an accurate analysis here?" And we know that the profile of any wealthy person as compared to a median wage earner is going to be very different because median wage earners don't generally build much wealth.

But when they do build wealth, let me ask you, where is it located? In the United States of America, if a median wage earner is building wealth, where is that wealth located? It's almost always located in their primary house, their residence where they live, and/or in their retirement accounts.

Now, at first when I read this, I thought that the ProPublica journalists were making an entirely unacceptable argument. By comparing the tax rate of billionaires with their business asset growth as compared to wage earners with just their wages. But then I went back and read it more carefully, and I see that they did evidently include a rise in value of their homes.

But they didn't say that they included a rise in value of their 401(k) accounts or other retirement accounts, which is surprising to me. Because most median wage earners, the bottom quartile of wage earners, no, they won't participate much in 401(k)s. But median wage earners, middle 50%, there should be a significant growth in 401(k)s.

And so while I'm not sure that they didn't include it, I'm suspicious in their analysis that perhaps they didn't include it. And so I think suspicion is warranted. And I couldn't find anything in the links that indicated how exactly they arrived at this concept of how much a median wage earner's net worth increased with actual good data that I could put my hands on.

And so I am overall suspicious of this. But here's a bigger question, okay? A little bit earlier in the article, they say this about they've obtained the trove of tax records, and here's their summary statement. "Taken together, this 'it'," meaning this collection of documents, "it demolishes the cornerstone myth of the American tax system, that everyone pays their fair share and the richest Americans pay the most." That's a pretty strong statement.

A very strong statement. And I do not believe that this article has advanced enough evidence to be able to say this statement with confidence and without modification. Now, it is simply going to spark a conversation. We'll talk about wealth taxes in a moment. And I'm not trying to be Mr.

Pro-Billionaire. I'll share some of my thoughts in a moment. I don't think many U.S. Americans are going to be crying if these billionaires are taxed more heavily. That's kind of a separate question. But I don't think this argument is actually achieved. Here again is their statement. "Taken together, it demolishes the cornerstone myth of the American tax system, that everyone pays their fair share and the richest Americans pay the most." So let's dissect some of these words a little bit.

First, does everyone pay their fair share? Well, we would then have to define what is fair. What is fair? If we come together and we're going to do something, what is fair? I want to spend a moment to try to think this through with you and just use schoolyard logic to try to figure out what is fair.

Let's pretend that you are in high school. And you and your buddies are getting together. Maybe it's after football practice and you and your buddies are going to go out and order pizza together. So you go to the pizza restaurant and you're with 10 of your buddies and you order 5 pizzas or 4 pizzas between you.

So with 4 pizzas, it's a little bit difficult to divide the math evenly. What is a fair way at the end of that to settle the bill? Well, one fair way to do it, among others, but one fair way would be to divide the bill equally. Let's say that you have 10 people.

You have 4 people that have consumed pizzas. The total bill is $40 and so you divide $40 divided by 10 and now you're left with $4 each. So each of you kick in $4 for pizza and now everyone walks away. Now is that fair? Well, maybe, maybe not, right?

Maybe you ate 2 pizzas, 2 pieces, but your buddy ate 6. Is it still fair that each of you paid $4? Maybe, maybe not, but that would be one way to approach fair. Now the next question would be is there a more fair way to do it? Let's say that each piece of pizza had 10 slices.

And, which by the way, let me back up. First example, each one paying $4. This would be an example of something like a head tax, right, or a poll tax, right? Each person is going to pay the same amount. Each person is going to pay $2,000 for the use of, for the functioning of our government.

It's going to be $2,000 per year per person. Well, we know that. We know that not everyone is going to use the same government services. So some people are going to be paying a little bit more than is fair, a little bit less than is fair. $2,000 per person, that's the cost.

Now let's say that each piece of pizza had 10 slices on it. And so we can easily do the math. And you know that you ate 6 pieces. And you know that your friend ate 4. If you could keep track of how many pieces each person had eaten, then it would be fair for you to divide the tab based upon the number of pieces of pizza eaten.

So you could say, okay, each piece of pizza costs 40 cents. You ate 6, so your bill is $2.40. Joe over there ate 10. He's going to chip in 4 bucks. I ate 2. I'm going to pay 80 cents. And we've divided now the pizza slices fairly. If I got my math right.

I hope I did. So this would be an example of paying for usage fees. One idea would be here's a government service. This government service costs $1,000 per usage. Every time you use that government service, you pay $1,000. Perhaps something like a road tax. You drive 5,000 miles. You drive 50,000 miles.

So therefore, your 50,000 miles, you're going to pay more because you're making more use of the roads than the guy who's making $5,000 is. That would be another good example of something I think that could be fair. Now, would it be fair if each person contributed according to their ability?

For example, let's say the 10 of us get together for pizza. But Joe over there, his dad is mega rich. But Tommy on the other end, his dad is mega poor. Tommy has no money. Joe's got a lot of money. Now, here's where we start to get into some interesting territory.

Because some people would say, "Yeah, after all, this guy over here, he's got a lot of money. He's got a pocket full of money. It doesn't hurt him all that much as much as dad gives him lots of money so he could pay it." The question is how much?

We'll come back to that kind of at the end. But the question is how much? Now, the first few of these, it's hard to see how anybody would say they're fundamentally unfair. But when you get to this final concept, the concept of saying, "Because Joe has lots of money and Tommy doesn't, Joe's going to pay for the bulk of the pizza that Tommy is eating." That's harder to argue that it's fair.

I think 10 out of 10 Republicans and Democrats would come together in the first two scenarios and say that we have fairly divided the pizza costs. Each one chips in a couple bucks. Each one chips in according to what they've eaten. Republicans and Democrats, liberals and conservatives, big tax, big government people, and small tax, small government people, they can all go out, all 10 of them, to lunch or to dinner and divide their bills in that appropriate way.

And they'll all come away feeling like it was fair. I don't think anybody in those first two methods comes away feeling like they were shorted or taken unfair advantage of. But on that last one where we start to say, "You know what? Joe should chip in 20 bucks of the $40 bill.

The next two guys should chip in five bucks each. Then the next two guys should chip in four bucks each. And then the last four should pay nothing." That'll go for a while, but it won't go forever as far as I can tell. So you want to be careful with that.

Be careful with that. Because while 10 of us would agree that the first two methods are fair, I think at the very least five of five of us would disagree that the last method is fair. You'll have maybe five people, maybe three people, I don't know, will agree that it's fair.

But at least half of us or the majority will say, "That doesn't seem a little so fair to me." Now, we go back to our particular article. That's what's missing. So that's the first thing. Number one is how much have they actually paid and what is their fair share?

So "Taken Together" demolishes the cornerstone myth of the American tax system that everyone pays their fair share. Well, you first have to acknowledge and answer what is a fair share. And then the richest Americans pay the most. Here, is it pay the most per year? Or is it pay the most in total?

That's a very important modifier. Because the richest Americans certainly do not pay the most per year. But I'm sure, I'm absolutely sure, I will stake my fortune on this, that the richest Americans pay the most total. Jeff Bezos has allegedly at this point in his lifetime, he has paid, what was it, $1.7 billion?

I haven't paid $1.7 billion. So with my sample set of two, Jeff Bezos has paid way more than I have and he has certainly paid the most. He's paid the most. Whether he pays or doesn't pay in one particular year is relatively immaterial. What's important is what is the total figure.

Now the last modifier that we need to look at in this particular statement is pay the most per year or pay the most over their lifetime. Because this is certainly not supported when you say the richest Americans pay the most over, don't pay the most over their lifetime. Without question, they do.

If you put in the total taxation on an American citizen who's born in the United States, dies in the United States, lives and works and invests in the United States, the richest Americans will pay the most over their lifetime. And I say that to you as an excellent, world-class, accredited, credentialed financial planner and estate planner.

Even with all of the stuff that you can do, with good estate planning, trusts, discounts, etc. The richest Americans will still pay the most if by the most we mean total dollars. Which now brings us to this question. Is it true if you define it and you say, "Taken together, it demolishes the cornerstone myth of the American tax system that everyone pays their fair share and the richest Americans pay the highest percentage of their income every single year." Well here, it's still going to be exactly the same if we say their income.

Because the richest Americans who have the highest income pay the most. Which is why you'll have some baseball player make $30 million a year and he will get destroyed in taxes. Whereas the owner of the team who makes a dollar a year but builds their wealth based upon the growth of the value of the asset will pay very little unless he actually realizes income from his payment or from his investment.

So the only possible way that this statement is true is if you say, "Taken together, it demolishes the cornerstone myth of the American tax system that everyone pays their fair share and the richest Americans pay the highest percentage of the wealth gain every single year of their total wealth growth in income taxes." That's a very different statement.

And as far as I'm concerned, that's not a myth. Nobody thinks that. Nobody who's filed a tax return thinks that. Nobody who's ever put money in a retirement account thinks that. Nobody who's ever put money into, has ever had their house value grow over time and has enjoyed the fact that the equity in their house is not taxed year by year thinks that.

Nobody thinks that. That's not the cornerstone myth of the American tax system. That's a made-up myth for the purpose of advancing the concept of a wealth tax in society. That's how I see it. So let's continue. Very next paragraph. "Many Americans live paycheck to paycheck, amassing little wealth and paying the federal government a percentage of their income that rises if they earn more." Is that true?

Yes. "In recent years, the median American household earned about $70,000 annually and paid 14% in federal taxes." Is that true? I don't believe it. I don't believe it. Unless they do no tax planning whatsoever, or unless we are including employment taxes in that calculation. Now, they're not talking about employment taxes.

So they're saying federal income taxes, 14% on $70,000 annually. That would only be possible, as far as I can tell, if you're assuming, number one, that you're dealing with single taxpayers, not married taxpayers. Number two, you're dealing with no retirement contributions. You're dealing with no deductions. You're dealing with no children.

And you're dealing entirely with wages. I cannot buy it. In 2021, single individuals up to $10,000, you got a 10% tax rate, 12% on $10,000 to $40,000, and then a 22% from $40,526 to $86,375. So in theory, you can get to a 22% rate, only if you ignore the standard deduction and you do no retirement contributions, which in my experience is just nonsense.

I've prepared enough tax returns for people in this income tax bracket with a total rate far below 10% to say, to believe that 14% is the actual number. Now, could they produce the data? I think perhaps if they did, again, what I said, single individual, no deductions, but even today with standard deduction, I'd have to run the math.

So if I'm wrong, accountants, run it in the thing and send it to me, and I'll happily own my mistake. But I don't believe it. Next paragraph. The confidential tax records obtained by ProPublica show that the ultra-rich effectively sidestepped this system. Now, here's the question. Did the ultra-rich sidestep that system, or did the ultra-rich become ultra-rich because they sidestepped that system?

Joshua's Tax Planning 101. Profits are better than wages. Unless you need them, don't ever generate wages. When you need them, generate the minimum and work on profits. Wages don't scale. Wages don't multiply. They don't compound very well. They're highly taxed. Profits are always better than wages. So if you want to become ultra-rich, you have to sidestep that system.

You can't become rich making $70,000 a year, even if you're paying 14% of taxes. You can't do it. So the better question would be why did the legislatures-- sorry, legislators--why did the legislators design the system this way? Why did they design a system of taxation on profits and a system of taxation on wages?

Well, later in the article, the authors talk about this. It's kind of an interesting argument. But whenever a legislator sits down and plays with the tax code, they're trying to incentivize certain things and disincentivize other things. Now, one of my favorite quotes, aphorisms about tax planning is this. When Congress passes a tax law or a tax benefit, they call it an incentive.

And then when you use that tax benefit, they call it a loophole. So remember that today's incentives are going to be tomorrow's loopholes. This is one of the sobering realities, which, again, we'll talk about at the end of this show. Today's incentives to you are going to be tomorrow's loopholes.

Whatever you do today that's considered to be an incentive because Congress is trying to incentivize you to do something, tomorrow there's going to be an article published about how you're taking advantage of a tax loophole. So you want to be very careful about this. Next, America's billionaires avail themselves of tax avoidance strategies beyond the reach of ordinary people.

Their wealth derives from the skyrocketing value of their assets like stock and property. Those gains are not defined by U.S. laws as taxable income unless and until the billionaires sell. Here's the question. Do America's billionaires avail themselves of tax avoidance strategies beyond the reach of ordinary people? I think honestly you'd have to say, of course, to some degree, but on the whole I would rate that statement as completely false because there is no extra special tax code for billionaires and a different tax code for you and me.

There's one tax code. There's one tax code. And all of us live under the exact same tax code. Anyone can start a business or invest in capital assets. When I've taught you in the past about tax planning, I've always said, there's two tax codes. There's one for personal taxes and there's one for business taxes.

Make sure that you're using the one on the business tax side because Congress wants you to start a business because businesses create economic growth. Economic growth creates wages that Congress can tax because you go and start a business. Anyone can start a business. Anyone can invest in capital assets.

You don't have to be a billionaire to do that. On top of that, I'm not saying anyone can borrow money on their assets without tax. People have done this all over the place. One of the most common questions a financial advisor gets, "Well, should I take out a second mortgage on my house or refinance my house so that I can pay off my credit card debt?" Do it all the time.

You're doing exactly what billionaires do. You have an asset. You refinance the asset. You take loan money and use that loan money and spend it. So it's absolutely false. Now here's what I found so interesting. Here's where I wish--I'm not doing a video at the moment on this, but in some cases I wish I were.

The ultra-wealthy by the numbers, they go and they give a calculation. They're showing that according to their true tax rate, meaning the increase in wealth that an individual has-- so let's go through the numbers. Warren Buffett. The graphic here says he had $24.3 billion of wealth growth between 2014 and 2018.

He reported a total income of $125 million, and he paid a total of $23.7 million of tax. By the way, do you think Warren Buffett got $23.7 million of tax worth in benefits for his tax payment? Maybe. Maybe. So they calculate the true tax rate, $23.7 million, versus wealth growth of $24.3 billion.

They calculate it as 0.1%. But what's interesting is that Warren Buffett's actual tax rate-- total taxes paid, $23.7 million, total income reported, $125 million-- is 18.9%. More or less what any tax planner would expect, right? 20% on dividends. Warren's not going to make much salary. He's going to pay 18.9%.

Interesting. Jeff Bezos. $99 billion of wealth growth, $4.22 billion of income reported. $973 million of taxes paid from 2014 to 2018. True tax rate, they would say, 0.98%. My calculator tells me it's 23.1%. Kind of about what you'd expect, right? That quarter number. This one I don't understand. Michael Bloomberg evidently had $22.5 billion of wealth growth from 2014 to 2018, $10 billion of total income reported, but $292 million of taxes paid, which they calculate as true tax rate, as 1.3%.

I calculate it as 2.9%. But I would be fascinated to see how he lost so much money. What on earth happened during that third year? We can see on the graph that he had a major decrease in taxes paid, but what happened? He had some major losses somewhere. I would have loved to know what he invested in.

Then Elon Musk, over that period of time, $13.9 billion of wealth growth, total income reported, $1.52 billion, $455 million of taxes. They say 3.27%. I say 29.9%. So this should show you the same thing I led off the article with, that these guys are actually paying a lot more than a lot of people think in terms of taxes.

There's this common idea out there that, well, rich people don't pay any money on their-- don't pay any tax, right? And the Trump story didn't help. Oh, Trump paid $0 of tax. But here you see that three out of four of these guys are paying for these four years 18.9%, 23.1%, 29.9% of their income in federal income taxes.

The only exception was Michael Bloomberg, who had some crazy loss somewhere, kind of like Trump did. And it just happens to be for these four years. So be careful with the numbers. Be careful with the analysis. Now, if we were going to argue this straightforwardly, we would simply say, "Should rich people exist?" Right?

"Should rich people exist?" Some people would clearly say, "No, rich people should not exist." Right? "It's immoral to be a billionaire." Some people would say, "It's immoral to be a millionaire." At least they're honest with their arguments, and they say, "Rich people should not exist." If you believe that rich people should exist, if you believe that people have a right to their money, then you're going to need to make some argument about how rich they're allowed to be.

Right? If somebody has a net worth of $100 million, do we stop them and take all their money away? If someone has a net worth of $100 billion, do we stop them and take all their money away? How rich is the number? And then make a system for it.

How do we know if it's fair? How do we know it's actually going to be the... How do we know it's actually going to be fair? How do we actually know that it's happening this year? That it's fair? If you take part in conversations related to this article, as far as I'm concerned, this is where you should start.

What is fair? Go back to that example of the pizza. Right? What is fair for those people? How do we know what they did was fair? What does fair mean and how do you know that it's fair? Is there an objective standard for what fair is? Is there a number?

Every time someone says, "We're going to tax the rich," or, "We should raise taxes," my answer is, "How much and why?" You should be able to sit down and say how much we're going to raise taxes and why, and then have an answer. By the way, this doesn't necessarily mean that you would choose a flat tax or that you would choose no tax.

Maybe one fair answer might be this. The U.S. government has national debt, 20-something trillion dollars of national debt. We're going to take our national debt. We're going to divide the national debt by the number of inhabitants of the country that we have, and we're going to take that number from each citizen.

I would call that totally fair. A one-time excise tax per head, I would say that's fair. We have a number that we can get to. We're going to take the national debt divided by that, or maybe the deficit. We say, "Okay, we're borrowing $2 trillion this year, $3 trillion.

That's too much, so we're going to divide $3 trillion by 350 million people. There's our number. This year, every person is going to pay an extra amount of tax," or make it progressive. "Each person this year who has--we're going to have every person submit an account statement, a balance sheet of how much money they actually have in the bank and in total value of their investments, and then we're going to divide everyone's assets by the amount of the deficit, and we're going to then have a pro rata share of each person's wealth taken based upon the amount owed.

So maybe you pay $1,000 and Elon Musk pays a billion." Who knows? That would be fair. But you never hear those arguments made, even in this particular journalist article, which is probably pretty well done. Of course, they're just starting a conversation. I'm not trying to be too harsh on them.

Nobody says what's fair, right? Nobody actually tries to deal with this. And so the question is, how would you know what is fair? How would you actually figure it out? You have to start with that. And if you don't know the answer to that, then you can't go to the other stuff first.

And here's what's so interesting. Paragraph of the article. "The consequences of allowing the most prosperous to game the tax system have been profound." Listen carefully and ask yourself if this is true. "The consequences of allowing the most prosperous to game the tax system have been profound. Federal budgets, apart from military spending, have been constrained for decades.

Roads and bridges have crumbled. Social services have withered, and the solvency of Social Security and Medicare is perpetually in question." Do you think that the tax code is a consequence of that? Do you believe that those systems would be better if there were just wealth taxes every year imposed on anybody who's a millionaire?

If that's the case, I urge you to get on an airplane and go to some other places. Go to Singapore. Do they have infrastructure that works? Do they have social services that work? They get away with it with a very different tax system. Go to Hong Kong. Go to the Cayman Islands if you want, right?

Zero tax jurisdiction. Do they have a system that works? Do they have crumbling everything? Now, could it be a contributor? Of course it could be. But it's a far stretch to say it's the root cause. I would say the root causes are very different. Now, we'll close my analysis and get to some points with a couple final comments here.

Talking about salaries, the article makes this comment. It says, when talking about how CEOs often pay themselves a $1 salary, and it says, "Yet this is not the self-effacing gesture it appears to be. Wages are taxed at a high rate." The top 25 wealthiest Americans reported $158 million in wages in 2018 according to the IRS data.

That's a mere 1.1% of what they listed on their tax forms as their total reported income. The rest mostly came from dividends and the sale of stock, bonds, or other investments, which are taxed at lower rates than wages. So here's the question you always have to say. In almost every tax article you will ever read, you will see people acknowledge the fact that increasing taxes disincentivize participation.

If you're saying that they're paying themselves $1 salaries, and that's because wages are taxed at a high rate, are you saying that when you tax something and tax something heavily, you disincentivize it, and you incentivize something else? Well, yeah. Everyone agrees on that. So what would happen if you then started to disincentivize wealth accumulation through increasing taxation?

Well, you set up a whole different set of incentives. And here's what's so interesting with regard to entrepreneurs. Here's the question. Do you think, personally, do you believe that Amazon is a net benefit for the United States of America as a country, or is a net liability? Do you think that the fact that Amazon was founded in and run in the United States of America benefits the country, or do you think that it's a liability?

A very few people will argue that it's a liability. A very few. Some will. They'll say, "Oh, Amazon workers aren't paid enough, and they're subsidized by Social Security and Medicaid, and after all, Amazon doesn't pay any money because they have all these tax things, and they put their profits overseas, blah, blah, blah." Those are fair arguments.

No reason why you can't make them. But it's really hard for me to see, if you look at the impact of a corporation like Amazon and not see it as a net benefit, just the service alone, the vast majority of us deeply appreciate the convenience that we have with Amazon has fundamentally transformed the marketplace.

Then when you think about the wages paid to hundreds of thousands of workers in the United States and around the world, you think about the total wealth generated, you think about the taxes paid by so many people, so many physical locations, everything, road taxes paid, just across the board, it's stunning to see the actual amount.

So would you prefer that some of that is in the United States of America or out? Now, here's the next question. A little more difficult, but think about it. Who holds the cards? Does an entrepreneur hold the cards? Or does a country hold the cards? Who has the benefit?

Who has the negotiating position? The company, the entrepreneur, or a country? Well, to refresh you, let's go back to a couple years ago, Amazon searched for a new office. All across the country, they put out a bid for proposal. Where would you like us to set up a new headquarters?

And all across the country, governments lobbied for Amazon to choose them. Eventually, Amazon chose two locations, one in Northern Virginia and I can't remember the location of the second one. New York City, that's what it was, New York City. Okay, the point should be obvious. Even in a place like the United States of America, the entrepreneur holds the cards.

Because government officials know that if entrepreneurs do not build businesses, if entrepreneurs do not actually invest into building something, their local community suffers. And so they offer massive tax breaks to incentivize Amazon to choose their city for their new location. Because they know that even if we give them a massive tax break on their corporate location or on their real estate taxes, the overflow effect of the thousands of jobs and all of the wages paid and the economic activity and the people putting their kids in Little League and going out to eat and buying houses that this will make for a more thriving community.

Now, go back to the list. Do you think that the top 25 richest people in the United States of America don't have a choice about where they go? Now, some of them are extremely entrenched. Warren Buffett's not going to move outside the United States of America full time. Probably neither is Michael Bloomberg.

Probably neither is Jeff Bezos or Elon Musk. But what about the next ones? And this article finally admits at the very end of it, they finally admit that... Where is it? When they are talking, excuse me, about wealth taxes and they say this. They say, "It is all..." Here we go.

"Some Democrats have gone further, floating ideas that challenge the tax structure as it's existed for the last century. Oregon Senator Ron Wyden, the chairman of the Senate Finance Committee, has proposed taxing unrealized capital gains, a shot through the heart of Macomber. Senators Elizabeth Warren and Bernie Sanders have proposed wealth taxes.

Aggressive new laws would likely inspire new sophisticated avoidance techniques. A few countries, including Switzerland and Spain, have wealth taxes on a small scale. Several, most recently France, have abandoned them as unworkable. Opponents contend that they are complicated to administer as it is hard to value assets, particularly of private companies and property." At the end of the day, wealth goes where it's treated best.

If you treat your money well, it'll stay with you and more of it will come. If you don't treat your money well, it will all disappear and it'll go somewhere else. If your city or your state treats money well, more of it will come. If it doesn't treat money well, more of it will leave.

If your country treats money well, more of it will come. If your country doesn't treat money well, more of it will leave. And this is what's remarkable at the world we live in. Now the impact of this is pretty slow. Why? Because human creatures are social creatures. The biggest cost to the person who's thinking about leaving one city where they're highly taxed and going to another city or leaving one state, going to another state, is the social cost.

My family is here, my friends are here, my co-workers are here, the people I love are here. It's a massive cost. And so it's very small, very small changes. But in the fullness of time, the evidence is abundantly clear. And so if you're going to argue what this article is arguing with wealth taxes, I think you've got to begin with what is fair, how do we get to that number, and also are we better off with these people than without?

Because the pathway to wealth taxes is this. You have to implement a little bit more tax. If you want to gain tax revenue, you have to implement a little bit more tax, but not so much that someone can go where they're treated better. If you're a real estate investor and you have five houses in one area, it's unlikely that you're going to pick up your business and move to the other side of the country just because you can save 10% on your tax.

You're kind of stuck to the area. But if you're a digital services company, it's a lot easier to move across country, a lot easier to move across the world. And so the country that sets out the best system for people to come is going to gain. It's one of the reasons why I'm personally excited in the coming decades, I'm excited about what's happening in some other parts of the world, because behemoths, empires like the United States, don't think they have to compete anymore.

But small, scrappy little nations, small, scrappy little islands, interesting, innovative countries who want to actually build something and go to the future, they do. Hopefully later this year I'll be in both the United Arab Emirates in Dubai, Abu Dhabi, Qatar, and also back in Asia, Singapore, Hong Kong, etc.

And one of the things that I love about those places is the respect for wealth. And honestly, we'll see. But when I think about what the United States has been in its past, I feel like some of these countries have that same sense of optimism and gain and excitement that I don't sense a lot in the United States of America at this point.

I think these things are going to contribute to it. Last point I want to make on this article is this. Warren Buffett in his response, he said this, okay. Let's read the two paragraphs. In 2018, Bloomberg reported an income of $1.9 billion. When it came to his taxes, Bloomberg managed to slash his bill by using deductions made possible by tax cuts passed during the Trump administration, charitable donations of $968.3 million, and credits for having paid foreign taxes.

The end result was that he paid $70.7 million in income tax on that almost $2 billion in income. That amounts to just a 3.7% conventional income tax rate. Between 2014 and 2018, Bloomberg had a true tax rate of 1.3%. In a statement, a spokesman for Bloomberg noted that as a candidate, Bloomberg had advocated for a variety of tax hikes on the wealthy.

"Mike Bloomberg pays the maximum tax rate on all federal, state, local, and international taxable income as prescribed by law," the spokesman wrote. And he cited Bloomberg's philanthropic giving, offering the calculation that, "Taken together, what Mike gives to charity and pays in taxes amounts to approximately 75% of his annual income." So he's making massive charitable donations that are offsetting his income tax.

75% of his annual income going to charity and taxes. Earlier in the article, Buffett, when questioned, indicates that 99.5% of his fortune is being given to charity. 99.5% of his fortune is being given to charity. But this is still not enough. It's never enough. As I have said in the past, if you're a wealthy person, it is in your own best interest to do what Mike Bloomberg does, and that's advocate for higher taxes.

It's in your own best interest to do what Warren Buffett does, and that's to advocate for higher taxes. Whether you believe it or not, you don't really want to lie, but it's going to be a good PR move because people will see you, as even Buffett is repeatedly described in here, as the likable old grandfather who's always saying we should pay more.

Even closing the article, "Buffett and his fellow billionaires have known this secret for a long time. As Buffett put it in 2011, there's been class warfare going on for the last 20 years and my class has won." So it's in your best interest to talk about raising taxes because it'll be good for your image.

People will hate you a little less if you're successful. But it's still never enough. Buffett is saying 99.5% of my income is going to charity, and yet we should tax him more. So you'll always see these things. The most ardent tax proponents, Buffett and Bloomberg, refuse to send extra money to the U.S.

government. They choose instead to give their money to charities. Why? Well, presumably because they would say that the charities are a better investment than the money sent to the U.S. government. They don't get more benefit. They always get to offset the money given to charities. And so back to that problem.

Is it really the reason why we have crumbling infrastructure and broken, bankrupt social services, etc.? Is it really because we don't tax billionaires enough? Or is there something else at the core of it? Is there a reason why Warren Buffett is going to give 99.5% of his fortune to charity and not to government?

And, final question, have you ever seen indications that a government that's given more money does better with more money than with less? I'm sure there are a few examples you could say is yes, but in general, my observation is no. Governments exist to take money and then squander it.

So as we go today, I think you should pay attention to this. I can't imagine that more than, say, 20% of the people who started listening to this show are still with me an hour and five minutes later. This has been long and detailed. And I can't imagine that this particular show would appeal to more than one-tenth of 1% of the general public.

But yet the ProPublica article is going to go very, very wide. So we're living in a time in which people don't know how to do analysis. They don't know how to ask these questions that we're asking. And public opinion is going to be very swayed by this. When you look at a nation like Singapore that started with a total backwater, you look at a nation like Dubai that 40 years ago was a tiny little fishing town and today is one of the most stunning cities in the world, you would think that it's pretty obvious that money and people will flow to you if you treat them well.

And then you look at the direction that most people are going and you say, "Do we not know how to think? Do we not know how to listen?" There are still some people who come to the United States. Usually it's if they need a talent market that's not available in other countries, but that is changing very quickly and/or if they need access to VC money.

You will still find a foreign investor who will come to the United States and start a business because there's deeper VC pockets in the US than anywhere else. But beyond that, a lot of this stuff is going to start going elsewhere. So I think you should be ready. You should be prepared.

I'm not here to beat up on the United States. Most people aren't going to leave. Most people aren't going to renounce their citizenship. Some people are. But your company should be very proactive about having options. There's a reason why Halliburton moved a number of years ago to Dubai instead of Houston, Dallas.

I guess they moved from Houston to Dallas, I think. And it takes time. You got to do it very slowly, maneuver things little by little. But in time, you can move your companies, you can move your wealth, you can move yourself. I don't have much confidence at this point in time that the fiscal conservatives and the people arguing for principle are going to win this particular culture war.

I don't see it. I don't see anybody out publicly advocating for this. And I think that there's even just a strong sense of disgust by many people to the billionaires that even somebody who's principally against it will still say, "Well, I'm not too sad. Mark Zuckerberg has higher taxes.

After all, Mark Zuckerberg deplatformed President Trump." Or, "Jeff Bezos killed all the local stores," blah, blah, blah. And so I don't think these guys are going to get much sympathy. Now, I hope I'm wrong, but I just think you should be careful and be aware. So in closing, all I want you to take is simply this.

If you're going to talk about this stuff, ask someone, "What is fair? What would fair taxation be? And how would we know it?" Wealth taxes are a nightmare. They're a nightmare to figure out. They're a nightmare to calculate. They're a nightmare to pay. If it imposes, is even constitutional, I doubt it, but who knows?

But time will tell. Time will tell. Hope you've enjoyed this analysis. Thank you so much. If my delivery was a little off, thank you for your patience with that. I've been fighting flu the last couple of days, and I'm going to get a COVID test tomorrow and see if I got COVID.

Got the Rona. But anyway, I wasn't feeling 100%, but wanted to get this out to you before the weekend. Thank you so much.