I'm going to give you a number which is

truly shocking. Um, when the top 1% of

Americans had $55

trillion,

which is how much they had in 2025, the

total amount raised by the estate and

gift tax, which is supposed to be a 40%

tax on all transfers during life or at

death. The total amount raised was $28

billion. Wow. That's 06%. It's nothing.

And it's not because of the exemption

amount. It's not because of the lower

rate. It's because people are able to

avoid the tax altogether. And that's

what the problem is. So when people say

it doesn't matter if we tax the rich,

that is just simply not true.

Today's number five. That's a number of

days left until Prop Markets kicks off

its live tour in a soldout show in San

Francisco. Tickets are still available

in Chicago, Los Angeles, and Miami.

Ed, no joke today.

>> No joke. Why is that?

>> Claire was giving me [ __ ] about our

guests showing up in 20 minutes, and I

just didn't have time to find a

offensive yet not too offensive joke.

So, I'm going with our constant

self-promotion of the tour.

>> Well, the promotion is very important,

especially for all of our Chicago

listeners and our Miami listeners. I

think we need to pump crypto a little

bit if we're going to get all the Miami

people to show up uh to the Fillmore. I

think that I think that's that's

something that we should maybe get into.

We've got 5 days left to pump some

altcoins.

Um maybe we could get into some rocket,

maybe some Faultcoin. Maybe just keep it

simple and stick with Bitcoin.

>> This is just making a whole lot of sense

to me.

>> It's all resonating.

>> Yeah. No, this is uh so I told you who I

I came up actually this wasn't my idea.

This is who we're going to invite.

Although we're trying to track him down,

but I think it'd be great if he said

yes. So, if he's listening, uh I think

we should have Adam Newman.

>> That's not a bad idea. I I agree. You

know, he's actually an incredible

speaker and communicator. Everything he

says, he just

>> Did I tell you my story about Adam

Newman?

>> I I don't think so. Not coming to mind.

>> So, I was invited to the JP Morgan

Alternative Investments Conference,

which is literally one of the I'd kind

of second only to Davos in terms of what

would happen to the GDP if all of a

sudden the earth opened up and swallowed

all the people there.

And they have me do my predictions

thing. I've done it twice, I think. And

then they have me interview somebody.

And the first year I'm up there, I did

my predictions thing. And I said, "And

now I want to welcome to the stage Adam

Newman." And I interviewed him and he

went into his whole rap about community

and elevating the world's consciousness

and everything else he figured out on a

wild mushroom trip that thought he could

turn into a public company. Uh, so we

did this thing and he's he was like

wearing no socks. He looks like Jesus.

He's very handsome. He's very

compelling. He has a whole rap. And then

there was a movie called We Crashed

where I played me. No, I didn't play me.

Kelly Alcoin from Billions played me

interviewing him. Somebody got a hold of

the transcript. And the next year I was

invited back and they had me interview

some influencer who's come and gone. I

don't even remember her name. And at the

end of the thing I said I said, "And by

the way, you know who the last person I

interviewed on the stage was?" And she

said, "What?" And the audience went

stone cold silent. I said, "Adam

Newman." And I guess that was not the

right thing to say according to JP

Morgan executives.

And I have not been invited back. I have

not been invited back. Yeah. I've also

been disinvited from another

unbelievable gathering that I went to

for the first time last year because

I've been saying that Elon Musk would

lose his case. And I guess the guy who

hosts the events, the event is butt

buddies with Elon.

>> That's a shame. But you were right. I

mean, that's what we learned this week.

You were right.

>> I have that, Ed. So that's that's all

that really matters. Yeah. Yeah. I

actually I I don't remember the the

story itself, but I remember watching it

wasn't a movie. It was a show. It was a

series.

>> It was Apple. We crashed.

>> Yeah. Exactly. On Apple with Jared.

>> And I remember seeing that scene.

>> Um Yeah. With Kelly O'Ne who played you

very very well. That was I believe he

was on Billions I want to say.

>> Yeah. Dollar Bill on Billions.

>> I mean he crushed that role. He nailed

you.

>> Yeah. He's been he's been on a lot of

stuff. I thought he was he played a

better me than me. We should have him

stand in for you on on this show at some

point.

>> You know, I'm all for it cuz I'd like to

go buy I'd like to go get tapas right

now. Um,

>> you got about 15 minutes. Why don't you

order some room service? Get yourself a

snack.

>> I did. It's sitting here. I'm in this

beautiful hotel that feels like some, I

don't know, prince or someone lived here

and then got beheaded. Um, but yeah,

it's beautiful. I haven't been to Lisbon

in a while.

>> Very exciting. Well, we're going to

learn all about princes in a second with

our guest. Uh, but before we do that,

I'm just going to reiterate we are

heading to LA on the 28th where we will

have Ted Sarando, co-CEO of Netflix. He

will be our special guest. We'll be in

Miami on May 30th. Then in Chicago on

June 1st, Governor JB Pritska is joining

us on stage. Tickets are still available

to that show. Also still available for

the Miami show. And then on June 2nd,

we're finishing things off in New York

City with the one and only Anthony

Scaramucci. Uh, I think there might be a

couple tickets left in New York City. It

might actually be sold out. Either way,

go check it out. Go see if they're

available. profarketsour.com

to secure your tickets. It's going to be

a lot of fun. We're going to have a Q&A

section at the end. You'll ask some

questions. We'll do our song and our

dance and we'll have some interesting

voices on stage to discuss things with

us as well. Very excited.

profarketsour.com.

>> Ed, should we get on with the show?

>> Let's do it. Hey guys, if you haven't

already, please subscribe to our ProfG

Markets YouTube channel. And if you want

to get notifications of our latest

episodes, click the bell icon as well.

Thank you. Wealth inequality is reaching

a breaking point in this country. The

top 1% now command roughly a third of

the nation's wealth. Meanwhile, the

bottom half of Americans control only 3%

and 1 in 10 Americans still live below

the federal poverty line. One instrument

that might have created this divide is

the tax code. There are a number of

loopholes in the tax code that have

enabled America's wealthiest to increase

their wealth. And today, the average

American is paying a higher tax rate

than the wealthiest 400 people in the

country. Meanwhile, audit rates,

particularly of the ultra wealthy, have

collapsed to a historic low. We've spent

some time discussing these issues on the

show, but we wanted to bring in someone

who has dedicated their career to

studying how the tax code shapes

inequality and how the wealthiest

Americans use it to preserve and to grow

their wealth across generations. So,

this is our conversation with Ry Matto,

professor at Boston College Law School

and author of The Second Estate: How the

Tax Code Made an American Aristocracy.

Rey, thank you so much for joining us on

the show. I'd like to start with

a potential rebuttal to your thesis,

which in so many words is that the

wealthy are not paying enough in taxes

compared to the rest of us. Uh, and then

we'll get into the conversation. But the

rebuttal, the statistic that a lot of

people use uh is the fact that the top

1% of Americans pay 40% of the federal

tax revenue in America. So if that is

true, if the wealthiest are paying most

of the taxes, then the first question is

what's the problem?

>> First of all, thank you so much for

having me. I know that the two of you

talk a lot about taxes and it's

wonderful to have the chance to join you

in conversation on this important topic.

Uh and I am particularly grateful that

you have started with that question

because I call that the statistic that

saves the rich from taxes and we see it

being published in lots of publications.

Wall Street Journal, The Economist, the

Washington Post has now joined in and

the uh and this is a statistic that is

both true and highly misleading. And so

the way it's described as the top 1%

pay 40% of all income taxes. But what

they're not saying there is what do they

mean by top 1%. What they're actually

talking about is the top 1% of income

earners. Those with high taxable income,

high paid lawyers, bankers, surgeons,

anybody with a very high salary. And

those people are indeed paying heavy

taxes. And however, the problem is that

this says nothing about our wealthiest

Americans. And that is because our

wealthiest Americans avoid income taxes

by avoiding taxable income. And as a

result, they are just as likely to be in

the 40% of Americans who pay no income

taxes as they are in the top 1% that pay

40% of income taxes. So the the

statistic that that we find quite

fascinating here is that Americans pay

an average effective tax rate of 30% and

then among the 400 wealthiest Americans

the average effective tax rate is 24%.

And that goes back to what you have just

laid out which is the difference between

making your money via income and then

making your money via wealth via the

appreciation of your assets. Just so

that we're all on the same page about

what this difference is, could you lay

out exactly what that difference is? How

do the wealthiest, the very very

wealthiest make their money compared to,

let's say, just average wealthy

>> or even average American

>> or average American.

>> Yeah. So, let's start with the tax and

the tax lives of most Americans. The tax

lives of most Americans is that they

earn their money through work. as I

imagine the two of you do and I do and

most of our listeners do, right? And

whether they work as independent

contractors, whether they work for

somebody else, they are subject to the

heaviest taxes. They're subject to

income taxes at rates up to 37%

and payroll taxes at rates at 15.3%

rates. and payroll taxes are paid.

They're we call them the hidden taxes

because most Americans don't even

realize that they're taxes. They show up

as things like FICA and FUDA. Very hard

to understand what they are. They're

called contributions, not taxes. But

they actually impose quite heavy taxes

so that somebody who a self-employed

person who earns $60,000

will pay more than $13,000

in federal income and payroll taxes.

That is a significant burden for

somebody trying to get by on a $60,000

salary. As people go up the income tax

uh brackets, uh the taxes get even more

burdensome. So a very highinccome person

will pay typically 50% in taxes. Uh

maybe a little bit more if they're in a

high tax state. And so they are paying

significant amount of taxes. Now let's

move over to our wealthiest Americans.

uh all the names that we have all come

to know so well Buffett Bezos Musk all

of those fellows uh and uh and for that

group they live a very different tax

lifestyle and that's because they

acquire their wealth uh they do not

acquire their wealth from salaries when

we the one thing all of them have in

common is that they take very low

salaries the most highest paid salary of

all in that group is Warren Buffett And

he has never made more than $100,000 in

both salary and bonus combined.

>> Humble of him. Yeah.

>> Yes. And he even cuts it back a little

bit to pay for the fact that he

sometimes uses his office space for his

personal investments. So he charges

himself for that and further reduces his

salary. Jeff Bezos has always kept his

salary at 82,000 which has enabled him

to claim the child tax credit which he

has done in the past. and all the others

are just dollar a year guys. And so uh

so they take no salary so they don't pay

payroll taxes, they don't pay income

taxes, pay very minimum taxes on that

side. And so then well why were they not

taking taxes? As you said, are they just

being humble? No. The the what they are

doing is they are counting on the

growing value of their stocks. All of

these people own significant amounts of

their companies and their stocks have

appreciated extraordinarily in value. So

if you look just since 2023 there many

of their have have seen stock growth

between like 50 and 150 billion dollars

just in the past 3 years. It's been

extraordinary that amount of growth. So

then the question becomes, I mean, if

they're if they're making their money

because their stocks are going up, well

then how are they paying for their

lifestyle? Like you can't buy a a Louis

Vuitton handbag with Amazon shares. You

need to pay with dollars. So if they're

not getting salary, then how are they

paying for themselves?

>> Exactly. And the key here is that they

are using their stock and other assets

to uh as collateral for loans and they

are able to get very favorable rates on

their loans because they have so much

wealth. Right? So this is an extremely

wellsecured loan and uh and they borrow

lots and lots of money to support their

lifestyles and they borrow enough money

to cover the interest payments which are

usually pretty modest because of the

fact that their loans are so well

secured. So they're able to support

their lifestyles and their borrowing by

borrowing. Um, now some Americans might

think, "Yeah, but surely they've got to

pay that money back." Because the rest

of us are used to loans where we're

given maybe even 20 years for a house

loan or 30 years, but our other loans,

you know, they they want them back in a

set period of time. The difference is

for the very wealthy, um, there are all

sorts of people in the business of

lending money. And when you have these

very wellsecured loans, there's always

people ready to just lend you money and

to keep lending you money on that loan

because they get paid for that service

of lending money. And so, uh, so there's

never a problem rolling over the loans

or getting somebody else to give you a

loan. These loans don't really have to

be paid back because of the big market

of people that are in the business of

lending money. I'm glad that you laid it

all out for us there because I just want

to make sure that all of us are on the

same page here. We're not saying or

you're not saying that the lawyer or the

doctor who's making

300 $400,000 a year isn't paying enough

in taxes. Those guys are paying, as you

say, 50%

uh in taxes in many cases. What we're

saying here is that there are a handful

of billionaires who make their wealth

via the appreciation of their assets.

And because of the way that the system

is set up where you can essentially just

borrow against those assets and

especially at a at a very low interest

rate, the more money you have, what it

basically means is that you can get by

as a billionaire paying almost nothing

in taxes. And that's the point. The only

tweak I'd like to make to that otherwise

perfect description is that we're not

just talking about a handful of

billionaires. Somebody who has $100

million could still do this, right? And

so it's a much larger group. I think it

makes it we make a mistake when we

describe this as a billionaire problem

because the problem really is for

anybody who has enough assets that they

don't need to work they can depend on

the growing value of their assets they

too can avoid taxes and that's where why

our problem that's why our system is so

problematic is because it loses so many

people and that's the real problem

>> so professor and that'll bridge us

nicely into I possible solves. I want to

propose two possible solves and get your

response.

Um, I think what we want are taxes that

are the least taxing. And one of my

intellectual role models is a guy named

Daniel Conorman and the Israeli American

psychologist who writes a lot about

money and basically came to the

conclusion that money does buy

happiness, but it flattens out at a

certain point. which says to me if we're

in fact going to need uh to fund our

navy and our parks that the least taxing

tax would be an alternative minimum tax.

I think trying to redo the tax code

which has been weaponized by wealthy

people and corporations would be a full

xarant. But an alternative minimum tax

of say 40 or 50% on any income

investment gain or if you borrow against

that that's a trigger for capital um as

an event and alternative minimum tax of

say 40% on corporations. And then the

second thing would be to lower the

estate exemption from 30 million to 1

million. And I believe no one gets hurt,

no decline in the quality of life, and

you can fund the programs that

substantially increase the quality of

life and general well-being and

happiness, universal child care, food

stamps, tax credits for young people

trying to buy homes. I would put forward

to you and I want you to nullify or

validate my thesis that the illusion of

complexity has been weaponized by the

incumbents.

Get rid of the estate tax exemption,

alternative minimum tax on any income

above a million dollars or corporations

making above a certain amount.

>> I agree uh conceptually that we need to

bring in investments and inheritances. I

think that description is a little bit I

I want to push back a little bit on the

on the because

>> the alternative minimum tax is a what

that is is it's something that disallows

deductions.

>> Okay? So you can't take a charitable

deduction. You can't take a home

interest deduction. It doesn't do

anything about the problem that we have

in our system of the failure to tax

appreciation

which is a problem of realization.

that's separate from alternate from

deductions and about the failure to tax

inheritances which again are subject to

broad exclusion. So the problem that we

have as I see it as a tax person it's I

I share the I share the uh desire for

the solution which is we need to bring

investments and inheritances into the

tax system but I disagree with the

alternative minimum tax and estate tax

framing the alternative minimum tax for

that reason that I say the alternative

minimum tax is really about deductions

and so it's not really about all these

things that are written out of the

system. You say well then we should

write them into the system. So that's

how I would focus on it. I agree we

should bring in appreciation. The

problem is if you tax appreciation as it

occurs currently each year, right?

That's which is I I don't know if you're

proposing that that was one of the

right. So how are we going to handle

this appreciation? Right? We have all

these guys they're walking around with

hundreds of billions of dollars. When

are we going to tax those gains? And

different proposals have been made.

Right? Some say we should tax them each

year as they occur. I think that's going

to be too burdensome and too complex for

people to understand. So what I think we

should do is say that whenever the

person transfers the property, whether

they transfer it by gift, whether they

transfer it at death, whatever they do

with it, once they no longer own it,

then they should tally the gains and pay

taxes on it then so that the person who

earns that income earns those profits

pays taxes on them. Our failure is to

not tax the appreciation to the person

who earns it by letting them pass it

taxfree. In Canada, they have this rule

which says that whenever you transfer

the property, we're going to tally the

gains. And I think we should have that

rule here for purposes of investment

gains.

>> I 100% agree with that. What you're

basically saying is what is the trigger

for when something becomes a capital

event where it's subject to taxation.

>> Yes.

>> And the basic strategy now is buy by by

investing in your own company or buy a

stock, borrow against it, and then die

and get a step up in basis. So, I think

we're brothers from another mother here.

I think the wealth tax is class welfare.

I think it makes for a speech. All

you're going to do is fill the pockets

of every accounting firm and trying to

assess value. I can't imagine what a

boon it would be for uh appraisers

trying to convince you that one property

is worth negative value and then try try

and figure and we've talked about this.

16 countries have proposed a wealth tax.

13 have repealed it. They don't they

typically just don't work very well. But

the the only thing I would add to you in

terms of it triggering a capital event

that's taxable is when they borrow

against it. And that's fine. I'd be

perfectly happy to do it. I think there

are some problems because uh first of

all, you can borrow against any number

of assets, right? You might have loss

assets that you can borrow against. So

it's not really clear. And also people's

borrowing is very small in relation to

their total wealth. So the only thing

I'd be concerned about when we talk

about taxing borrowing is I wouldn't

want that to be seen as the solution to

the problem because when somebody has

$200 billion, you know, you can live a

pretty good lifestyle with just a

billion dollars. Hard to believe. And uh

and so then we we don't want people to

think they're solving the problem by

taxing borrowing. So, that would be my

only hesitation as you and I are

fine-tuning our tax systems.

>> We'll be right back after the break. And

by the way, we're heading out on tour

next week. So, for more info and to get

tickets to a show near you, head to

profgmarketour.com.

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We're back with Profy Markets. So, Ry,

one of the things you propose here is

that we don't see enough realization

events for the appreciation of assets.

uh and you know you keep on borrowing

you borrowing you borrow you borrow

against your assets continually

continually you never have that moment

where you sell those assets and then

realize uh the tax. Um and so you're

saying anytime there's any transfer of

any kind if you donate it if you

transfer it into a new account that is a

moment to say okay let's figure out how

much the the assets have appreciated and

let's tax them. One thing that I that is

confusing to me though is we do have a

moment where rich people do transfer

assets and that is when they die and

they hand it over to usually their

children. Um and so the question for me

is and that that is this is the estate

tax that's we tax those assets. Why

isn't that working? Why is that a

problem still? And that's a really

important part of this conversation of

understanding this issue because we have

all these seeming failures in our income

tax system, right? We don't tax

appreciation. We also don't tax money

received by inheritance. So if if you

find $100 on the street, you leave your

office, you found a hundred bucks, you

are supposed to report that to the IRS

and pay taxes on it. However, if

somebody hands you a million dollar or

$10 million or even $10 billion, you

don't even have to report it. You don't

have to tell anybody. You don't have to

pay any taxes on it. And that also

applies to money you receive by life

insurance and money you receive by

gifts. All of that is entirely tax-free.

Well, why do we have this enormous

giveaway in the income tax system? The

answer is because we count on a robust

estate tax system sweeping up and making

sure that these untaxed forms of income

are eventually subject to tax with what

had previously been a pretty ownorous

tax. The estate tax was enacted just a

couple of years after the income tax

1916. We've had it a long time and for a

long time it did its work. uh basically

we had a tax and we had a Congress that

kept up with reforming the tax. So in

1976 and 1986 we had a problem of these

long-term trusts and Congress enacted

this whole additional tax as a backup

called the generation skipping transfer

tax. Then we had a problem with

valuation gaming techniques. So four

years later, Congress enacted special

valuation rules and a whole other, you

know, group of a whole other section to

the code and these were both enacted

under Republican president. So this was

broad bipartisan supported

keeping this tax up to date. However,

what you know, you and your listeners

might might remember or uh well, I guess

maybe uh Ed, you might not remember it,

but maybe you've heard about it. Pretend

I did.

>> Pretend you did. Uh, before you were

born, there was in the early 1990s a

campaign funded by 18 of the country's

richest families. And that campaign was

designed to turn the public against the

estate tax. They they sought estate tax

repeal. And George W. Bush was a big

carrier of the banner. And they their

most effective thing that they did was

they hired this guy by the name of Frank

Luntz who was a communications expert.

and he said, "Never call it the estate

tax because that sounds like something

that's for rich people. Instead, call it

the death tax and we'll bring this

campaign and we'll say it's unfair and

it's a double tax and it hurts family

farms and businesses and and we're going

to run this campaign." And this campaign

was extraordinarily effective, not for

their goal that they sought to achieve,

which was actual get rid of the estate

tax from the from the books, but it was

successful in a way that was ultimately

even, I'll argue, more successful, which

is what they did is they were so

successful in their campaign to make

people feel uncomfortable with this idea

of the estate tax

that Congress stopped doing its job in

terms of closing loopholes. Indeed, the

last time that Congress has closed a

single loophole was in 1990, 36 years

ago. And so, as a result, over the past

36 years, there has been a proliferation

of tax avoidance techniques that have

been allowed to occur. They all have

this sort of Dr. Seuss sounding names,

Kratz and cruts, clats and cluts, grats

and gruts, qerts, Q-tips, Q dots, the

whole paniply of them. And and as uh all

of these exclusions have developed, the

estate tax has been completely corroded.

So it no longer does anything. Not

because the exemption is too big, which

it is big. it's 15 million and it used

to be 1 million. But because of all of

these things that take these transfers

out altogether and so to raise or lower

the exemption or raise or lower the tax

rate will not be effective because this

tax has been effectively killed. And so

we're not going to start seeing all

types of robust action with respect to

this estate tax. And I think it's

because the estate tax, it wasn't just

well, we're always vulnerable to rich

people. I think the problem was that the

estate tax had an Achilles heel and that

is that it was theoretically designed to

be imposed on the donor. And so what

that on the dead person and so what it

meant was for those individuals who

indeed paid high income taxes their

whole lives, right? They paid lots of

income taxes. Now we're imposing a

second tax on them. And it seemed kind

of just punitive in some weird way to

the public. This was made easier because

the public doesn't know very much about

what happens on the income tax side.

Most people don't know that money

receives by gifts and inheritances and

all of those things are tax-free. And I

know this is true because in this area a

lot of people ask me, well, if I give

more than $19,000 to my kids, don't they

have to pay income taxes on it? This is

because of some gift tax exclusion

amount. But people are confused about

this. And so the estate tax is a kind of

an awkward tax and it made it it made it

easy for Congress to stop acting.

What's particularly interesting is that

the estate tax has become so ineffective

that and I'm going to give you a number

which is truly shocking. um when the top

1% of Americans had $55

trillion,

which is how much they had in 2025,

the total amount raised by the estate

and gift tax, which is supposed to be a

40% tax on all transfers during life or

at death. The total amount raised was 28

billion. Wow. That's 06%. It's nothing.

And it's not because of the exemption

amount. It's not because of the lower

rate. It's because people are able to

avoid the tax altogether. And that's

what the problem is.

>> I was just about to ask you if there is

a rough number that we can estimate on

how much we are losing uh to this issue

to this estate tax loophole and you've

given us our answer there north of 20

trillion close to $30 trillion it sounds

like.

>> Right. If you think about that, we're

designed, we're supposed to have a tax

on the top 1% and that that percent has

$55 trillion. By the way, this is a time

where the total revenue raised by the

federal government is like $5 trillion.

So, they have massive amounts of wealth.

So, when people say it doesn't matter if

we tax the rich, that is just simply not

true.

>> It almost sounds as if this fixing this

problem would do a lot would do would

solve a lot of our problems. And this

gets to something else that I'd like to

get your views on.

>> Yeah. Can I add one more piece here

before we go? Yeah. I think the thing

that makes it most telling that the

estate tax is actually something that

now works as a cover for the rich rather

than as a burden is the fact that in

2025, a time when the Republicans fully

controlled that new tax bill and they

easily could have repealed the estate

tax, they chose not to do it. No mention

of it. It had been their number one

issue, but now all of a sudden they

didn't care. And that's because they

wanted to preserve all of the income tax

benefits they got when there was an

estate tax that provided cover. So Ry,

this gets to one of my concerns uh about

our future in America. I am becoming

increasingly concerned about the

possibility of what we're calling an

inheritocracy

where we have been in so many ways ruled

by the Elon Musks and the Bezos's of the

world. And that was especially true

after Citizens United and the

billionaire spending on political

campaigns exploded and they started to

buy our elections. And that's not

hyperbole. That is literally what

happened. And we're seeing a lot of

blowback and push back to that. But I

think that we're about to see something

even worse if we start to see that the

world isn't run by the guys who created

these incredible tech companies, but by

the children of the guys who created

these incredible tech companies, which

by the way, we're already starting to

see in the media world where Paramount

is and Warner Brothers Discovery soon

enough is about to be owned not by Larry

Ellison, but by the guy who inherited

the Larry Ellison fortune, by David

Ellison. And we see this in the world of

the Murdoch. We see this with Cander

Fitzgerald where the commerce secretar's

sons are now running one of the most

important banks on Wall Street, etc. To

the point where it seems that we're

going to see a real loss of faith in the

system itself. If we wake up one day and

suddenly we're ruled by all of these

rich kids. I had always thought that

maybe the estate tax exemption is the

way to fix that. and the fact that we

increased it with the big beautiful bill

to me was like well that's obviously not

the right direction. You're saying that

no that's not the problem it's these

loopholes. My question is what do we do

about this then? So I think the first

thing that we need to do is we need to

recognize that the estate tax has been

really effectively killed. And as I

mentioned, I think it is because uh it

was easier to kill because of this

vulnerability that it was imposed as a

sort of a second tax on the person who

dies. And and so for a lot of reasons, I

think that we have to understand that

this is not a tax that's going to be

resurrected, but it will actually help

us more to get rid of the tax than to

keep it. Because when we get rid of the

estate tax, we see about how our income

tax system preferences inherited wealth.

And we have a tax system as I mentioned

that has the income tax system is

designed to be very very broad. It

starts this idea that gross income

includes all income from whatever source

derived and so many so much so that even

if uh two people do a barter exchange

right somebody says I paint your house

in exchange for you filing my taxes.

Each of those people are supposed to pay

taxes on the value of what they received

for that exchange. really broad

comprehensive tax. And then you look at

this tax and you look at gifts,

inheritances, life insurance, and

they're all excluded. Well, there's no

justification for having a broad

exclusion of all of those sources of

income when lottery winnings and every

other type of acquisitions of money is

subject to tax. So, by getting rid of

the estate tax, it frees us up to bring

inheritances, gifts, and life insurance

back into the income tax system where

they belong. And there's a number of

advantages to that. First of all, the

tax will be imposed on each person who

receives the money based on their

appropriate income tax bracket. Um, and

so, and it will also give us a chance to

get rid of all of those problematic

aspects of the estate tax that allowed

for so much tax evasion, right? we could

do a uh tax on inheritances 2.0 that is

more appropriately levied on the

recipients of inherited wealth. When we

do so, we're going to need to think

directly about how much, if at all, do

we want to subsidize inheritances. I do

think inheritances have become

increasingly important for a lot of

Americans, particularly as uh as our

young Americans are having a hard time

uh getting jobs that are sufficient to

support the lifestyle, what we used to

consider a basic middle class lifestyle.

Things like owning a home, being able to

send your kids to school. A lot of

people are depending on inheritances to

help them acquire those basics in life.

And so I think that we need to

understand that we need to provide some

exemption for for inheritances. But when

we recognize that it is an actual

exemption for inheritances, then we can

come up with a reasonable amount. Maybe

each person should inherit be able to

inherit 1 to2 million tax-free and after

that they'll pay ordinary income rates.

Right? We can have a more coherent

system by bringing it into the income

tax system. Beyond loopholes, one thing

that's also interesting, we were

discussing the difference between

capital and labor. And outside of these

loopholes and outside of borrowing

against the assets, the reality is the

tax rate on capital gains is just

significantly lower than the tax rate on

income. Um, and I'm I we have this chart

here from this this 2022 study which

shows that the percent that the tax rate

on capital actually used to be higher in

America compared to the tax rate on

labor and then recently it flipped. But

also I would point out that this has

been the subject of debate on like how

exactly are you calculating what that

tax rate is on labor versus capital.

also uh Gabriel Zuckman who's written a

lot about this. He did a study and he

said that it flipped as recently as

2018. So there's all this debate on like

what actually is the true tax rate on

capital versus labor. But the larger

point being, should we really be taxing

people's work, people's income uh at a

higher rate than the income that they

receive or the appreciation that that is

realized on the appreciation of assets?

And I just like to get your views on

that. Should we essentially be just

increasing the capital gains tax?

>> We absolutely should be increasing the

capital gains tax and equalizing it with

the ordinary income rate. there's a lot

of uh you know you you'll get 50 reasons

about why people who want to keep that

reduced rate uh you know all sorts of

reasons that they have but none of those

50 reasons actually stand up on their

own and so uh I believe absolutely we

should be equalizing the rate the one

thing that I think that we could do is

we could provide inflation adjustment

for uh for recognizing gain so let's say

that uh somebody buys a house a long

time ago they buy it for $100,000 and

now it's worth a million dollars. But

inflation has gone up so much that their

actual gain, they're not really better

off by $900,000 because

that money isn't going to buy as much

anymore, right? They can only just buy

that same house or buy a less good

house. I'm not explaining this well. Um,

but a lot of that gain will be due to

inflation. And so I think that we could

equalize rates but allow for adjustment

for inflation of basis so that people

are paying are not paying taxes on the

inflation gains and that would be a way

of softening uh uh of softening that as

it applies to uh long-held assets.

>> That seems like a great solution to me.

Just make them equal capital gains and

make and and income tax. Just make them

the same. The thing that has confused me

though is that I'm not aware of any

societies or maybe western societies,

maybe I'm just not looking hard enough

where that is the case. And I guess my

question is why? Why is it standard that

capital gains are taxed at a

significantly lower rate than standard

income?

>> Well, first of all, right here in the

United States, they were taxed at the

same rate in 1986. This was a tax bill.

The 1986 tax act was put forth by

President Ronald Reagan. And I think

that what he did was he brought down top

rates but equalized capital gains and

ordinary income. So it's definitely

something that can be done. And one of

the things I talk about in my book is

how Andrew Melon, who was one of the

early Treasury Secretaries and was very

conservative, a staunch anti- tax the

rich kind of guy, wrote himself that he

saw no reason for taxing capital less

than labor. And indeed, he thought

capital should be taxed much higher than

labor because capital is something that

grows without anyone's effort, whereas

labor is something that requires a lot

of work. And so uh and so I think that

this is uh it's definitely doable and

we've had it in our notsodistant past.

>> Is there an argument that maybe it

reduces investment or that it could you

know just have an overall downward

effect on I guess the stock market. One

argument that you'll often hear,

somebody will get very wonky and they'll

say, "The statistics show that if you

raise capital gains rates above a

certain amount, then you stop raising

money because people stop selling their

property." Something like that, right?

But the reason that that is the case is

because we allow people to avoid capital

gains by avoiding sales. The problem was

that loophole. If you close that

loophole, then people will not be able

to avoid capital gains. And that is one

of these arguments that looks and sounds

really persuasive, but really isn't when

you look at it. We'll be right back. And

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>> We're back with Profy Markets.

>> So, professor, let's assume the

administration comes to you and says,

"Okay, we we're going to cut some

expenses. We need fiscal sanity here and

we're going to cut some spending, but we

need to raise revenues." What would be

your two or three ideas for what I would

refer to as the least taxing or most

equitable tax increases?

>> So the first thing as we talked about is

to make sure that unrealized gains are

have a time of realization. So that

should be whenever the property is

transferred. That's that's the first

step. Brings coherence to the system.

>> So just let me press pause there. So

what about 1031 exchanges or putting

things into an LLC? Doesn't matter. As

soon as it changes title, it's taxed.

Absolutely. When you change title,

you're subject to tax.

>> And within hedge funds, when you buy and

sell stocks, they're also sometimes able

to defer taxes in any transaction. Would

that go for equities and other property

as well?

>> Whenever somebody no longer owns that

property, that's when the gains should

be tallied for that person. The second

thing that I would do is repeal the

estate tax because it is providing cover

for the rich and not imposing any taxes

or raising any revenue. and uh and we

should decide how much we want to

subsidize inheritances. Let's look

that's the question that we're asking,

right? To what extent should somebody

who would otherwise be subject to tax on

all income that they acquire be able to

inquire an inheritance tax-free? Maybe

it's a million dollars. Who knows what

that amount would be? But bring that

into the income tax system. Bring

inheritances into the income tax system.

And when we do so, we'll have the chance

to fix those uh all of those various

avoidance techniques that we have that

have become so entrenched in the estate

tax world because it'll be a clean slate

and we'll be able to uh have a smarter a

smarter tax that avoids those problems.

Uh and then the third uh would be to

equalize the tax rates between capital

gains and ordinary income.

>> Love that. And then my fear, the only

thing, and again, it's the only thing

you've said that I'm I'm not 100% in

line with, but I find that the tax

code's gone from something like 400

pages to 4,000. And those 3,600, I

think, are mostly there to screw the

middle class by creating all sorts of

loopholes. When I sold my company, the

first 10 million was exempt. And I just

don't see any reason for that. I I still

think alternative minimum tax is the way

to go because there's too many lobbyists

who will figure out a way to keep

inserting different loopholes.

>> But we we have an alternative minimum

tax right now and it's not doing its

job.

>> So it doesn't have any teeth.

>> Exactly. The AMT doesn't have teeth.

>> Well, isn't that because the AMT quite

frankly isn't an AMT? It's an AMT that

you can still stop. The exemptions can

still get around.

>> Right. But if we can I mean I think that

what you're saying is we need to clean

up the system and make it better. I

totally agree. But I just think the use

of the word AMT makes it sound like that

is a single response to the problem

rather than the problem is to actually

do a more granular approach to things

like for example like that exemption

those exemptions for startup businesses

that you got you know I think those all

need to be cleaned up but I think a lot

of work can be done by invest by making

sure that we're taxing investment gains

and making sure that we're taxing

inheritances. I was going to say not on

that list is a wealth tax which is the

most popular proposal uh in in the

political sphere right now making ground

in California. AOC has been talking

about it. Why no wealth tax?

>> I think that we all understand now that

the problem is that wealth owners have

enormous acquisitions of wealth and

they're not paying tax. And so the

answer, the obvious answer seems to be

let's tax their wealth. and uh

particularly for people who have

publicly traded stock where we can so

easily see how much wealth they have.

The problem is that uh these sometimes

these easy answers don't actually work

and I feel that's the case with the

wealth tax on a federal level. There's a

very serious problem about whether the

Supreme Court would find it

unconstitutional. We have every reason

to think that the Supreme Court would

based on a recent case. uh and uh and

you know they didn't have to go that way

but there was a recent case more where

they basically said oh yeah we might

very quite well find this

unconstitutional. So uh so on a federal

level there's a real problem and then on

state level there's a problem because

states people can easily move from one

state to another and we see this

happening.

>> They can move countries.

>> Well I disagree about that. You cannot

in Europe you can move countries very

easily because in Europe you have the EU

you have free transport and you don't

have a unified tax system. I do not

think we're going to have a serious

problem in the United States of people

leaving the United States and becoming

citizens of Qatar or other countries.

>> Well, you have to turn in your passport

and there's an exit tax. What I'm

talking more about is corporations.

>> Well, that's a separate corporations is

a whole separate issue, but I think that

right now we're talking about individual

taxes.

>> To your point, a wealth tax is what I

think my party does a lot, and that is

they want to be right as opposed to

effective. I think a wealth tax makes a

lot of sense, but they don't work

because wealthy people are incredibly

mobile, capital's incredibly mobile. And

also, I think on the corporate side, and

I'm curious, even going broader, don't

you think we're going to need some sort

of, and to her credit, uh, uh, Secretary

Yellen was able to get this through,

which I think that's right. Unless we

get other nations to cooperate and

unilaterally enforce some sort of

corporate minimum tax, you're you're

going to continue to see uh taxation not

realized where it's or revenues not

recognized where they're realized.

There's still going to be all sorts of

arbitrage internationally taking place.

No,

>> I want to add one thing about the estate

tax that makes the I mean about the

wealth tax that makes the wealth tax

particularly problematic, which is the

problem of valuation. As you mentioned

earlier, we tend to think of it as like

publicly traded companies, but lots of

people own these highly complex

partnership interests that are like 50

levels deep of partners. And people

might own levels at all different at all

different places. And the idea that

we're going to have a strong enough IRS

to be able to do annual taxation on

these very complex interests, I think,

is really problematic. And there's going

to be a great incentive for people to

move their assets out of the easy to

value stock market to the difficult to

value partnership interest. And that

could impose a cost on all of us who

have retirement and other savings that

really depends on a robust stock market

uh for our own savings. And so I think

there's a lot of problems with the

wealth tax. If we could get it done,

let's say that our IRS was highly

effective and our appraisal systems

worked, do you think that it would be

the right move if it were possible? I

think if it were possible that it was

constitutional, that people weren't

going to move, that it could be

effective, and that we could get the

value, and we could get the public to

not recoil at the idea that you have to

report every single thing you own to the

government, which I think is another

potential problem with the with the

wealth tax. Sure, I think it would be

great. I think it does the most direct

addressing of the problem, but those are

a lot of ifs. And so I think we have to

live in the world that we live in and

not in a fantasy world where we're able

to in one step curb the enormous power

of the wealthiest Americans. I think

it's a real problem that we have which

is we have people who have astronomical

amounts of wealth and we want to get it

and we want to get it today and we want

to address it but we don't live in a

political system where that is going to

happen. And I think that we and and my

concern is when we focus on that type of

thing, we create a false narrative about

what's going on and it makes it seem

like, well, we have to punish the rich

when really the problem is that we have

to bring the wealthy, their investments,

and their inheritances into our income

tax system. They should join us as

fiscal citizens like everybody who earns

money is already doing. So we we

mentioned the deficit earlier and this

unbelievable

national debt that is piling up and up

>> huge problem

>> and it seems as though there's sort of

this divide between the left and the

right where the right says that the

problem is how much money we spend. I

would also add that the right is

actually the one that is more

responsible for the irresponsible fiscal

spending, but that's maybe another

conversation. But that's the argument on

the right, the government, that's their

area of focus. The government's spending

too much. Let's get Doge and let's make

sure that there's we see less wasteful

spending. And then on the left, it's

that we're not bringing in, we're not

taxing rich people enough. We're not

generating enough tax revenue. And so

that's the thing that we got to focus

on. My question for you is what is a

bigger problem? Is it the spending or is

it the tax revenue?

>> It's the tax revenue. Without a doubt,

it's the t it is. And I think that if

you look at the numbers as I say from

let's say 2024 those are the numbers I

have in my book right uh the country

took in $5 trillion from all sources

just under $5 trillion that's income tax

payroll tax

uh corporate tax estate and gift taxes

tariffs everything right fees at the uh

fees at the national park total revenue

just under 5 trillion we spent 6.8 8

trillion. So, we had a shortfall. We had

to add to our national debt. We had to

borrow to make that $1.8 trillion

deficit to cover it, causing huge

problems uh to have this growing debt.

Meanwhile, at the same time, the richest

1% of Americans owned $55 trillion.

I say that and we know that there are

all sorts of ways that that wealthiest

1% not just the billionaires are able to

avoid taxes because they don't pay taxes

on their most common sources of income

which is their investment gains and

their inheritances. So the failure to

bring them into the tax system I find it

hard to believe that we wouldn't have

been able to easily cover that $1.8 8

trillion shortfall by taxing people that

owned $55 trillion.

>> I've looked at some of the numbers on in

terms of tax revenue as a percentage of

GDP

and what I found in the US over the last

I don't know a few decades is that it's

actually relatively stable. Like we

we've had some dips for sure. Um but

sort of at a very very broad level it

hasn't really gone down or up in a

significant way. Um, and so I guess what

you would be asking of our nation is to

make a significant change if if the

problem is the tax revenue would be to

be making a significant change in terms

of how much we are taxed overall.

>> I don't think that's the case at all. I

mean, if we're talking about you can't

when you start using a number like the

GDP, the GDP is enormous. So you can't

really see the differences, right? I

don't think the differences of raising

4.9 trillion and 7 trillion when you're

talking about in relation to GDP is

going to be a significant difference. So

I don't think that that's uh what we're

doing.

>> I think one thing we haven't talked

about is what I would describe as the

biggest tax cut in history in the US and

also the most elegant and that is

neutering the IRS.

>> It's a travesty and it's a giveaway and

it is I I couldn't agree with you more.

>> What is it? $750 billion a year that

goes the tax gap that goes uncollected.

>> I'm sure it's greater than that. So, I

mean, we need to fix the tax code and we

need to fix the IRS.

>> The next big change in our economy is

supposed to be likely to be AI. We're

seeing these data centers go up all over

the place. Um, we've discussed sort of

in general terms about figuring out a

way to tax this. Maybe you tax the data

centers. What do you think is the right

taxation approach to the next uh big

technology?

>> AI is really going to cause a problem

for our tax system if you think about

it. And it's interesting. I was on a I I

was at a program uh the other day,

actually one where Scott got an award uh

and uh leadership now. Somebody was

speaking an AI expert was speaking about

well how how AI might very well be

disruptive, right? we're going to we're

going to replace a lot of uh a lot of

workers with AI agents. And he said,

well, the answer is going to have to be

UBI, universal basic income. And I'm

thinking, and who's paying for this

universal basic income? Because in fact,

when you look at our income tax system,

right, 85% of the revenue comes from

individuals and labor and payroll taxes.

And so if we remove workers ne and we

we're gonna have massive capital growth,

we're going to have a lot fewer workers.

We're gonna really suffer in the amount

of revenue that we're raising under our

existing system. So I think it's a

serious problem. Uh so one thing is that

we need to address is by making sure

that we are in fact taxing capital

because uh under our current system we

don't tax capital and that's of course

where all the gains are occurring as

opposed to taxing companies. I think

that we're going to have to figure out

how to do it. I don't I'm I don't have

the the particular answer to it, but it

you know, we're going to we're going to

have to find a way of bringing um this

massive uh growing concentrations of

wealth into our tax system as well,

either under corporate taxes, business

taxes, or special AI taxes.

>> The big problem in the political world

is getting everyone to agree on this

stuff. we can have the right answer but

if we can't get people to agree and get

behind it then doesn't matter doesn't

work. So uh I'd love to get your

thoughts on how we do that. What is the

message? What is the argument that we

can get everyone behind such that we do

come up with the right solution and fix

the problem?

>> I love your question. Thank you for

that. Uh the answer starts with

educating the public as you started your

very first question right people are

being told that the rich people are

already paying taxes and because our tax

system is complicated they think all

right I guess I guess we're wrong right

and because individuals are paying such

burdensome taxes it never occurs to them

that the rich aren't paying taxes so the

first step has to be educating the

public which is one of the reasons I'm

so happy that you guys had me on your

show right you're you're already doing

that work. You're already spreading the

good word, but I'm it's a pleasure for

me to be able to join in that. The

problem with our system is that we are

heavily burdening work income and people

who have investments and inheritances.

We are giving them a free pass. And the

public can understand that. The public

is clamoring to understand that. And

once they understand that, then they

understand that the solution involves

making sure that we're taxing

investments and inheritances. just as we

tax labor income.

>> Ray Matto is a professor at Boston

College Law School where she teaches tax

law and policy, wills and trusts law,

and estate planning. She is co-founder

and director of the Boston College Law

School Forum on Philanthropy and the

public good, a nonpartisan think tank

that explores how the rules governing

the charitable sector could best serve

the public good. She was named one of

Time's 100 most influential people in

philanthropy in 2026 for her work

critiquing the tax code. And her most

recent book, The Second Estate: How the

Tax Code Made an American Aristocracy,

is available now. Professor Matto, thank

you so much for your time.

>> Thank you so much for having me. I

really enjoyed our conversation.

>> We love your work, Professor. Keep it

up.

>> Oh, thank you. Have me back on another

show, Scott. I've been clamoring.

>> Love that. I love that.

>> Okay. Thanks. Bye-bye.

>> Thank you for listening to Profy Markets

from Profy Media. If you liked what you

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