When Amazon founder Jeff Bezos claimed a child tax credit, he wasn’t cheating. He was following the rules. So was Warren Buffett when he limited his salary to $100,000, and Mark Zuckerberg when he took home just a dollar a year. These ultra-wealthy Americans legally minimize their taxable income while their fortunes multiply in untaxed stocks, trusts, and inheritances.
For most workers, taxes are automatic and unavoidable. Every paycheck is carved up by federal income and payroll taxes before it even hits the bank. But Boston College law professor Ray Madoff argues in her new book "The Second Estate: How the Tax Code Made an American Aristocracy," the system is designed to make taxes optional for the wealthy.
Madoff describes two parallel systems: one for earners and another for owners. The first is for Americans who make a living through work. They pay taxes twice—once through income taxes and again through payroll taxes that fund Social Security and Medicare. For the self-employed, those payroll taxes can eat up more than 15% of every dollar earned.
The second system is for those who already have wealth. They avoid taxation through what Madoff calls the “Tax Avoidance Playbook.” Instead of salaries, they live off appreciating assets like stocks and real estate, which aren’t taxed until sold—if ever. They borrow against their holdings for spending money, avoiding “realized” income altogether. When they die, their heirs inherit those assets tax-free through a loophole known as the “step-up in basis,” wiping away decades of untaxed gains.
The result, Madoff says, is an American version of France’s pre-revolutionary aristocracy—the “Second Estate”—that has been effectively written out of the tax system.
In 2024, the top 1% of Americans controlled roughly $50 trillion in wealth. Yet the estate and gift tax, designed to check dynastic fortunes, raised only $30 billion that year, less than half a percent of total federal revenue.
This growing divide in how Americans are taxed has ripple effects far beyond the IRS. The underfunding of schools, infrastructure, and healthcare, along with soaring deficits and housing instability. These are symptoms of a system where the middle class shoulders the burden while the wealthy live tax-free.
Guest:
Ray D. Madoff is the author of "The Second Estate: How the Tax Code Made an American Aristocracy." She is a Boston College Law School professor and academic who focuses on modern philanthropy. She is best known for her criticisms of the donor-advised fund (DAF), a popular charitable investment tool which Madoff has claimed is used by wealthy Americans to avoid paying taxes. Madoff has published two other books: "Immortality and the Law: The Rising Power of the American Dead" and "Practical Guide to Estate Planning."
