At the second presidential debate in October 2016, Hillary Clinton accused Donald Trump of using a $916 million loss to avoid paying federal income taxes. He replied without hesitation: “Of course I do.” Then he called himself “smart” for doing it. Half the country reacted with outrage. I nodded—not because I was pulling for Trump, but because after three decades advising family offices, managing private equity and credit strategies, and sitting in investment committee rooms across the full spectrum of institutional capital, I had spent a substantial portion of my career doing precisely what he described. What struck me wasn’t the admission. It was the conclusion the public drew from it. They assumed the tax code had been rigged against them. The more accurate reading is that it had been engineered—deliberately, and on defensible grounds—to favor capital over consumption. That distinction matters and getting it wrong has real policy consequences.
Capital Treatment Is a Feature, Not a Bug
The most consequential distinction in the tax code separates ordinary income from capital gains. Wages, consulting fees, and interest payments are taxed at ordinary rates currently reaching 37% at the top federal bracket. Long-term capital gains top out at a 23.8% federal rate, the 20% statutory rate plus the 3.8% net investment income tax. The gap isn’t favoritism toward wealthy people. It is a deliberate signal that invested capital—capital left to work, compound, and create productive enterprise—is worth treating differently than current consumption. Tax capital at ordinary income rates, and you get less of it deployed. That is not a conservative talking point. It’s basic arithmetic.
Compare what peer economies have built. Switzerland does not tax private capital gains on personal investments at all. The UAE operates with no personal income tax. These are not offshore rogue states; they are sophisticated economies making explicit policy choices about what behavior to encourage. You reward what you do not penalize.
Deferral Is Discipline, Not Evasion
Warren Buffett’s preferred holding period for excellent businesses is, famously, forever. This is not a meditation on patient temperament. It is a tax-optimized operating strategy that also happens to maximize the productive deployment of capital. Not taxing unrealized gains keeps capital working. Forcing premature recognition—through mark-to-market regimes or mandatory gain realization schemes that surface perennially in progressive budget proposals—creates massive liquidity problems for asset-heavy investors and generates forced selling that destabilizes markets for everyone, including the people those proposals claim to help.
The ProPublica investigation of 2021 found that between 2014 and 2018, the 25 wealthiest Americans paid roughly $13.6 billion in federal income taxes while their collective net worth grew by approximately $401 billion—an effective rate against wealth growth of about 3.4%. ProPublica called this a scandal. A supply-sider calls it rational. That 3.4% figure sounds alarming only if you treat unrealized appreciation as equivalent to taxable income. It is not. Taxing it like income would create exactly the kind of capital distortion that reduces investment, suppresses productivity growth, and ultimately costs wage-earners more than it costs billionaires.
Buy, Borrow, Die: Capital Stewardship, Not Conspiracy
The buy-borrow-die strategy has become shorthand for the ultra-wealthy avoiding taxes by borrowing against appreciated assets rather than selling them. What gets lost in the outrage is the logic: borrowing keeps the underlying asset working. It stays invested. It continues compounding. The step-up in cost basis at death, which effectively forgives unrealized lifetime appreciation for capital gains purposes, is not a loophole Congress forgot to close. It has survived repeated legislative challenges because the arguments for keeping it are stronger than the arguments for eliminating it. Abolishing it would not create wealth. It would transfer wealth to the Treasury at the cost of investment returns that would have been generated in the interim, while encouraging artificial asset dispositions timed to front-run death. That is not a better outcome for anyone in the economy.
Carried Interest Is Not a Salary. Stop Treating It Like One.
No tax debate generates more rhetorical heat with less analytical rigor than carried interest. Fund managers who hold qualifying interests for at least three years pay the 23.8% long-term capital gains rate rather than the 40.8% top ordinary income rate. The Joint Committee on Taxation estimates that reclassifying this as ordinary income would generate approximately $14 billion over a decade. Trump promised to eliminate it in 2016, called fund managers “paper pushers getting away with murder,” and the Tax Cuts and Jobs Act extended the holding period from one year to three. The provision survived anyway.
That is because the argument against carried interest conflates two economically different things. A private equity manager does not receive a salary that happens to be labeled differently. She receives a share of returns on capital she identified, structured, and deployed over multi-year holding periods, with real economic and reputational consequences if the thesis fails. That is equity economics, return on risk, not wage economics. Taxing it at ordinary rates does not level a playing field. It penalizes the value-creating work of capital allocation, removes the incentive differential between excellent and average fund management, and raises $14 billion while producing distortive restructuring that erodes even that modest yield. The math has never been compelling, which is why the provision has outlasted every political cycle since 1954.
The Real Villain: Complexity Built to Last
After thirty years inside these structures, I keep arriving at the same conclusion. The tax code’s greatest failure is not that it treats capital favorably. It is that it is deliberately, expensively, and corrosively complex—and that complexity serves a constituency that has no interest in simplifying it. Intuit spent a record $3.8 million on federal lobbying in 2023, fighting to prevent the IRS from offering free filing to Americans. H&R Block has spent approximately $38 million on federal lobbying since 1998 for comparable reasons. The Tax Foundation estimates compliance costs at roughly $190 billion annually across businesses and individuals—money extracted from the productive economy before a single dollar of tax is actually paid.
The tax code’s complexity converts the act of complying into an industry, and that industry’s business model depends on keeping things complicated. A family office can absorb $500,000 in annual tax counsel. A middle-class household cannot. The difference in after-tax outcomes that follows has far more to do with access to integrated professional advice than with any provision in the code itself.
The answer is not to tax capital more aggressively. France’s Impôt de Solidarité sur la Fortune—its wealth tax, imposed in 1982 and abolished by Macron in 2017, produced an estimated €200 billion in capital flight over its lifetime while generating annual fiscal shortfalls roughly twice what the tax itself collected. Sweden abolished its wealth tax in 2007. Germany’s constitutional court struck its version in 1997. The empirical record of taxing accumulated capital at punitive rates is consistent enough to constitute evidence, not merely ideology.
The answer is lower rates, broader bases, full expensing for business investment, and a code simple enough that compliance does not require a professional army. Every dollar currently funding the compliance industry is a dollar not funding productive enterprise. Every additional page of the code is a tax on initiative and a subsidy to the entrenched.
I have spent thirty years helping wealthy families optimize within the rules of a system I did not design. The public frustration triggered by those optimizations is, in nearly every case, aimed at the wrong target. The strategies are rational responses to deliberate incentives. The right argument is not to close those incentives—it is to extend them downward: lower the cost of investment, reduce friction on capital formation, and let the compounding work for everyone rather than reserving it for those with sufficient resources to stay patient. The code does not need to be made more fair. It needs to be made less expensive.
