Why A Wealth Tax NEVER Works (The Mechanism Nobody Explains)

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This was recorded before it was revealed what was going to happen on the wealth tax measure. But I want people to understand the logic of all of this. So strip out the emotion. The logic of all of this is so bad that they don't understand how much worse they're gonna make it for themselves. But let's take a listen. So you might've noticed it's election season and California has a new wealth tax on the ballot that is getting a ton of attention across the country. And a lot of people have been asking me what I think about it, but I have seen kind of a lack of detailed commentary about the wealth tax on YouTube. So in this video, I'm gonna tell you why I am voting yes on Proposition 40 because I don't understand the economy. Why it would be such a big fucking deal nationwide if it passes because it would take bad ideas, nationalize them and make the economy worse for everybody. But also what the fundamental problem with the proposition still is and why all of us in America should be talking about wealth taxes a hell of a lot more often. Because we're completely ignorant to how the economy works. And the only thing that people should be talking about with a wealth tax is why you would never, ever, ever want to do them, especially if your goal is to generate more tax revenue. If your goal is to punish wealthy people to make them leave, yes, then it's a very good idea. Other than that, it is not going to work. Like mechanistically, it won't work for reasons we're going to go into. So here's why this wealth tax is being proposed in the first place. Back in 2025. Because people are bitter. This is not about money. Not anybody that understands this is doing this for money. Trump passed his one big beautiful bill, and this bill fucking sucks. It should have been called the one big bowl of bullshit bill. Now he's right about the fact that the big beautiful bill is trash. And that was the very thing that broke my heart about where, that there was going to be no fiscal responsibility from the right either, which is populism in a nutshell. But he's going to go on to tell us all the things that he wants to spend money on. So it isn't that he had beef with money being spent. I'm guessing what he had beef with is that some of that, those lost dollars come in the form of tax breaks, which this is not gonna be somebody that wants anybody to get a tax break because they have a fundamental assumption that the government is going to do something useful with the money, they are not. But anyway. Most of all, because the effects of the bill are mostly set to kick in after this midterm election, which Republicans knew they might get creamed in, so they made sure all the worst shit in the bill wouldn't take effect until after election day. The worst shit is anything that causes there to be inflation, which is anything that is deficit spending, which requires you to make that money come into existence. This is the part that is just maddening beyond all measure, is a lack of understanding. It doesn't matter what that money gets spent on. It is going to cause you problems if it is creating a hollowing out of the middle class because people that don't understand assets just get absolutely obliterated. These guys are actually begging for the thing that is going to hurt them the most. Are the horrible effects of this bill? Well, it is going to decimate Medicaid and Medicare for Americans in every single state. That affects the healthcare of over 70 million Americans. And in California alone, it's estimated that Trump's bill is going to pull $30 billion in federal healthcare funding. That could cut about 2.2 million people's healthcare and double the rate of people in California who don't have health insurance at all by 2030. Okay, so again, if we want to get people to have better healthcare, we've got a whole separate set of issues that we have to approach. The reality is the structure of America's healthcare system guarantees high prices. Keep that in mind. The structure of the American health system guarantees high prices. It is designed to create high prices. He would like to give more money to that system that is designed, and we'll walk through it, but he wants to give more money to the system that is designed to raise prices. Not once, but forever. And that is just a devastating level of cuts to the healthcare system that keeps people alive. Healthcare system is not what keeps people alive. Here's where we, the biggest thing that you can do for your health is to live a healthy lifestyle. The fact that we allow people to get in on the cheap into healthcare without having any requirements for how they treat their body is fucking crazy. Now, there is a lot of rolls of the dice in terms of, bro, who knows what happened that gave you cancer, whether it's genetic, you grew up near a power plant, your water was contaminated, whatever. So for sure, there are things that we should just assume are outside of people's control, or maybe you could have controlled it, but goddamn, some things just get too complicated. But there are a lot of things that people could be doing to make their health a lot better. And for God knows how many millennia, we just had to stay alive without having universal healthcare, and we managed to get here. Now, major breakthroughs in health, read innovation, please. Those things have extended human life radically. But despite all of the incredible breakthroughs that we've had, life expectancy in the US is going down. Okay, let that one sink in. So the question becomes, why the fuck is it going down? Because people are making life choices that are full retard. We're not even going to address those. I know he's not even going to talk about it, whatever, but that is gonna need to be a huge part of this conversation if we wanna get serious about making sure that what we really do is the spirit of what we want, which is we want people to live long, healthy lives, and we want them to be able to do it without going bankrupt, okay? I assume that's what any rational person actually wants. So throwing more money at Medicaid has not solved the problem. Throwing more money at healthcare has not solved the problem. Obamacare has not solved the problem. The things that we're doing now are not solving the problem. They're not solving the problem because people are living extraordinarily unhealthy lives, and we have a system that is designed to raise prices, not designed to make you healthy. It's literally just gonna kill a lot of people, and under a functioning political system, you know, the state legislature would just figure out how to plug that hole, or, you know, under a really functioning political system, none of this shit would get passed in the first place because we would try to focus on keeping people alive in America. Once again, if you're talking about keeping people alive in America and you're not telling people to live a healthier lifestyle, you can fuck off because I know you're not at all talking about what actually keeps people alive. This shit is wild. These guys, there's an amount of bitterness and resentfulness, and it's just more money, more money, pour money into a system that isn't working. That's what we wanna do. Don't, okay, Tom, but the US, it's flawed. Let's do it like Europe. Cool, go audit Europe and tell me what's actually happening there. Their economies are falling off of a cliff and their healthcare sucks to the point where if people can afford it, guess what they do? They go into private healthcare. This stuff is like, nobody's actually looking at the mechanisms. Killing them in order to give tax cuts to the wealthy, but, you know, we don't live in that America. However, California has a ballot proposition system that lets anybody put a proposition on the ballot to vote if they can get enough support. And a group of unions, including SEIU, which is a union that represents healthcare workers, decide. The second you hear union, get very paranoid. It is a political body that is designed to keep itself alive, not designed to make sure that the company's doing well or thriving or that people have jobs long into the future. It is designed to keep the people that are already in as fat and happy as possible to get as many resources pulled in as they can. If you actually want to empower the worker, which is the point of a union, you should be focused on making sure that jobs just aren't going overseas, that we're not flooding the world with cheap labor, that you're educating people to be ready for the actual workforce, that you're not burying them in debt so that they have options. Yeah. I did a fight back, not only because, you know, unions fight for working people, but because they know more than anyone how much this is going to devastate the working class. Now, is it a good thing? Bro, if you talk about devastating the working class and you don't talk about inflation, you are my enemy. Saying that in order to solve a major policy problem, a bunch of unions basically had to write their own law and get it on the ballot all by themselves. No, that is evidence that the country and the state isn't working very well, but currently it is the only option in front of us to stop these devastating cuts. It just isn't true. So, yeah. So, let's investigate what it would actually do. Here's what's actually in Prop 40. It proposes a one-time tax on people who have more than $1 billion in net wealth. One-time tax. Black Friday is just a few weeks away, but if you've got a business idea, it's not too late to set up your store. Now, I know it sounds crazy, a few weeks to stand up a whole business that used to be impossible, but now with all of the tools at your fingertips, designing the site, setting up payments, sorting out shipping, all of it, that used to be months of work, but now you don't even need a developer to pull this off. Now with Shopify, you guys have an advantage that every entrepreneur before you did not have. They've got pre-built themes and an AI site builder that gives you a storefront that looks like a real brand instead of a side project. If you're ready to launch your business before Black Friday, go to Shopify.com slash impact to start your free trial. That's Shopify.com slash impact. 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And when Quince asks where you heard about them, make sure you tell them that it was on Impact Theory. That's the best way to support the show. I'll call you back. That's the most expensive sentence in business. You mean it when you say it, but by the time you remember, they've already found somebody else. That's why today's episode is brought to you by Quo, spelled Q-U-O. The business phone that's built so you never miss a call or a customer. Quo writes up your calls for you and one click turns any of them into a task with a name and a due date. The follow-up actually happens instead of living in your head. When you can't pick up at all, Quo's agent does. It answers questions, gets the details, and texts them a link to book an appointment. By morning, you've got the summary and you can jump right in. It's also an official connector in Clawd and ChadCPT. Ask who called while you were out and it's handled. Quo is the number one rated business phone on G2. It's trusted by over 90,000 businesses. When money is on the line, always say hello with Quo. Try Quo for free plus get 20% off your first six months at Quo.com slash impact. That's Q-U-O.com slash impact. One-time tax. So let's talk about how it would be a one-time tax if it solved the problem forever. But would this one-time tax solve the problem forever? No, it would not. The best estimates are that it would solve the problem for 10 years, but the problem is that, one, we're trying to expand what is covered, so expect that 10 years to go down dramatically. Also, California is hemorrhaging money, so this is not going to be a one-time tax. Also, guess what happened? The second that this went on the ballot, high net worth people that would have been taxed, because this only taxed like 200 to 250 people qualified for this tax, and many of them left. There are estimates already that a trillion dollars of tax just left, or a trillion dollars of net worth just left, and so that will be billions of dollars in actual tax revenue, because people are like, yeah, I'm not gonna stay to find out if this passes, especially because it has a retroactive activation date, so I'm just gonna peace out now on the. Chance that it passes so just putting it on the ballot has already cost california God knows how many billions of dollars in the near term when you stretch it out over decades because these guys not only move themselves But in many cases have moved their companies now you put all the tax revenue that they would have gained from the company the employees and the people themselves and now it's An unimaginable hundreds of billions of dollars if not north of a trillion this stuff is crazy We did a whole breakdown on this before I don't remember the exact numbers off the top of my head, but it is Massive now, that's only about 250 californians. That's zero point zero zero zero zero zero Six percent of californians and I don't know. Hey because it only impacts a few people. Let's do it not What is the actual impact in terms of the amount of tax dollars that we're able to bring in? We're not looking at that. We're just saying hey guys, it's a tiny number of people. Fuck these kids Retarded it's not that many people. So those 250 billionaires are going to have to pay a five percent tax on their wealth And that means can you explain what wealth is adam? They're not just going to be taxed on what's in their bank account They're also going to be taxed on the value of their assets like real estate and stock portfolio What happens if they don't have that money adam, you know all of their money So this oh wait, so it's money all of those things are money for a second there I thought you actually understood that this is wealth which isn't money tax will generate about a hundred billion dollars in state revenue one time This is a temporary fix that would plug the How's it going to plug a permanent problem with the temporary fix adam do tell budget hole and make sure all those people don't lose their health care and you know die as a result and I really can't deal with this No one might argue it's unfair to have 250 people Shoulder the burden for millions of other people in the state But how about we forget fairness and we look at does it work? Will this work or will it actually lower the amount of money that we make? I need you to understand just how much billionaires in california are doing better than you right now And that means you watching this video unless you're a billionaire. Oh, are you a billionaire? Give me a billion dollars. Everybody else keep watching the video these 250 richest californians are worth about 2.3 Trillion dollars in comparison. That's as much money as the total income of all californian families combined 250 people have as much wealth as the total income of literally everybody fucking else in california. Do you know why? because they have ownership in some of the biggest employers Uh, the company is generating the most tax revenue Now our economy is a mess so I certainly understand anybody having frustration at the wealth inequality But once people actually wrap their head around how most of these guys generate their wealth by building companies by investing in companies Then it becomes a very different story because you do not want those companies to go away What you should be saying is how do I get on that ladder? California and that wealth has grown a hundred and seventy percent since 2023 just from sitting in the guess why? Inflation motherfucker the vast majority of the gains are inflation bank and sitting in the stock market Which means that this one-time five percent tax is a small fraction of how much these guys have earned in just the past three years From doing nothing now. All right, if you're going to say that they earned that Uh growth by doing nothing you're going to have to strip out How many of those people are actually running some of these companies? So the guy that everybody's mad at elon musk, I know he's not in california anymore But he is one of the people that when you think about This whole system and who we're mad at he is like the person that people point at this guy created that value Okay, that value just wouldn't exist were it not for his ability to get incredible employees to gather around an idea to point the right direction Uh to get the companies off the ground. He's also an extraordinarily, um I don't know if he would call himself an engineer, but he understands engineering so well at this point It's not like this guy isn't bringing any value. I know people like to say that he Um, isn't the one building the rockets? He didn't make tesla like that is so ignorant that that is so dumb I can't believe people even waste time with that um, he took these companies from being absolutely tiny with products that either were not working or Did not like in the case of spacex were nowhere near what they needed to be to start generating the revenue And he was the one that led the companies And the engineering departments to get them to the point where they were successful. So doing nothing like that is A ridiculous statement those 250 billionaires would argue that they are already being taxed a lot, right? California is a high income tax state and they are already in the highest tax bracket. It's not like it's just a vibe When you look at who pays taxes in this country the top 10 pay an ungodly amount of the tax, uh, what uh, 47 or 53 percent of people pay nothing or three percent. Excuse me. They pay three percent of the taxes Income taxes. Yes. Yes. There are other taxes for sure in the world, but we are talking about taxing wealth So I think at this point to draw a parallel there makes sense Here's the other thing you need to understand billionaires do not live in the same tax universe as normal people They do not pay taxes In the same way that the rest of us do see you and I pay income taxes on the amount of money We earn every year right and on a federal level that is side of the wealthy where most tax revenue comes from We also pay state and local taxes when we buy things and a lot of us get state taxes taken out of our paycheck Those are also income taxes and then we have a couple more taxes that kick in when you die Those are estate taxes, but the ultra wealthy are really good at just avoiding paying any of those taxes at all In fact, here's the big thing. You should know even though all of us pay income taxes Most of the billionaires barely make any income at all You know, sometimes you'll hear about a ceo who's taking a one dollar a year salary and they're held up as some kind of hero But that's not heroism It's tax evasion see Okay, uh, it's not tax evasion I'm sure there is some tax evasion that goes on and by all means absolutely prosecute any of that We do not want anybody doing something that is outside of the law all of my frustration with this with the things that he's talking about i'm going to document as we go through something like health care, so um, he is if I Give him good motives and I say all right Listen, this is just somebody that really wants to make sure that people don't lose their health care Okay, so this is somebody that cares about um people's health He wants to make sure that people aren't going bankrupt. Like what can we do to help that along? What are the structures that are actually causing that to be broken? and then on the tax side We want to make sure that we're getting enough tax revenue that everybody can thrive and we want a system where everybody is doing great I love that and I think the vast majority of humanity would love that and there have been plenty of billionaires that are Donating the vast vast vast vast majority of their wealth now you may have beef about how they're spending it, but They are donating the vast majority of their wealth, uh to If we can believe them try to make the world a better place. Okay, so these are people that um, When you look at the amount of money that they spend You start realizing as a percentage of their net worth that it's a very small amount So the trouble that you run into there also becomes structural i'm going to walk through that as well so the claims that he's putting on the table are That we're going to basically kill people by getting rid of health care But is not addressing any of the actual structural things making health care a problem And then on the wealthy side is these guys are hoarding all of their money Which he goes back and forth between wealth and money as if they don't have to pay tax on their money when they make it Which they do Now a lot of these guys do a bad thing that from the perspective of it's completely legal but there is a thing that we should be focusing on if we Actually want to tax the increase in their wealth which fine Let's do that. But let's do it in a way that doesn't end up being destructive. That is absolutely something that can go on forever and ever and ever and isn't going to Break the system in the way that trying to tax somebody's wealth which will force them to liquidate Their holdings which then causes a pricing crisis and whatever it is that they're trying to liquidate or they may have to do under distress Or they may get taxed on value that just ends up plummeting before they're able to sell And so now they're being taxed at a rate that they don't actually have access to it It is all of this is a level of absurdity that is based on emotion You have somebody who just feels a certain way and is running like you don't have to figure out how this stuff actually makes contact with reality Okay, so let's break down we're going to go through both of those things, but let's start with the there is a thing that I want to fix And that thing is health care and what's really wrong with health care Like I said health care in the u.s is designed to raise prices We spent 5.7 trillion dollars on health care in 2025 A family plan through an employer now costs over twenty eight thousand dollars a year and the worker's share of that Jumped nine percent in a single year. So what the fuck we're spending almost thirty thousand dollars a year And the worker's share of that is going up fast Now the standard explanation that you're going to hear is medicine is expensive. We just got to do it, bro We got to keep people alive. This stuff is just costly, but it's way more complicated than that Our whole system is an absolute mess So anybody that looks at it and says tom there are problems with u.s health care You're going to get my full-throated endorsement. There is a problem Remember my whole beef here is that even if we accept that these guys have the right problem Their solution is nonsensical The u.s has fewer doctors fewer nurses and fewer hospital beds per person than the typical rich country It just pays more for each unit of care. We have a cost problem. We are making this stuff Outrageously expensive. So the question is how are we doing it? Not why forget why for a second? What's the mechanism? What's the mechanism that drives these costs to go up hospital prices tripled between 2000 and 2023? employer health care health plans pay hospitals get ready 254 of what medicare pays for the same service in the same building Now I can hear some people are going to say well, then let's switch everything over to medicare But switching everything to medicare also does not solve the problem you have to get down to the incentive layer and right now the Incentives that exist in the entire system at every part of it is to raise prices Now let's break down structurally how this actually happens Everything starts with this old wartime tax policy that was useful at the time But had a really unexpected knock on effect because via incentives It soft forced people to get their health insurance through their employer And that is what completely fucks up the free market of it all What happened was there was a limitation put during the war back in the 40s That you you had to freeze Worker wages so you guys couldn't go in and ask for more money. The the country was just too strapped for that so The way that the incentive moved because remember when if you've got companies that are competing for employees You have not eliminated the need for a lever to attract talent Which is oftentimes what you pay And so that migrated somewhere else and it migrated into benefits and healthcare became one of the big benefits So people started paying a huge portion of people's salaries Actually as benefits. So if you build all of this up from your paycheck You're going to see what I mean how this creates like a crazy problem say your employer has thirty thousand dollars 28k is what it is now. We'll just round it. So say your employer has thirty thousand dollars to spend on you beyond your salary There's two options. They can pay it to you as cash And if they do that, then you pay income tax and payroll on it so At that 30k, let's say you're paying somewhere 30 to 40 percent combined taxes So now you're left with around nineteen thousand dollars And if you want health insurance, you now have to buy it with those post-tax dollars Okay, that's option one. You can see why people be like, uh, I don't love that idea Don't want to pay it with post-tax dollars. So the second option is that the company spends it on a health plan for you So now you don't pay tax at all. You get the full thirty thousand dollars that goes right to coverage So that same thirty thousand dollars But the insurance route is worth a third more maybe a little bit more because the government doesn't take a cut So every rational employer and employee quite frankly pushes that compensation into health benefits instead of wages so now your employer paid insurance is excluded from your taxable income and This is why I say that there was like a soft Um thing that happened when the government, uh had the wages were frozen The government used this as a workaround and they put everything into their benefits So companies were now competing for workers with health plans. All right, then congress in 1954 Made that ruling permanent. So we now have a system where everybody's incentive is to Have the company pay a very meaningful part of their salary in health insurance That one rule changes who the customer actually is for insurance companies And this is where you start breaking the free market in a normal market The person who uses the product is the person who pays for it. So they care about the price This tax ruling breaks that link in a few ways So you never see the money the money just comes out of your paycheck before it hits your bank account You experience insurance as something my job provides Instead of realizing this is 30 grand that you earned and then chose to spend on health care pre-tax So it stays in the company that makes your employer the actual buyer But the problem is it's buying on your behalf with money that it was going to have to pay you anyway So they don't feel it either that money was going to go out what it goes out to, whatever. So they're certainly not gonna feel it as much as you would if those were your real dollars. Like if you had 30 grand that you could spend without having to pay tax on it, would you be a lot more discerning in terms of what you get for your money? Absolutely yes. So HR becomes the one that's picking the plan once a year. Nobody in HR gets a bonus for finding the hospital that does like a knee replacement surgery or IVF or whatever for cheaper. They're not incentivized to do that. So the insurer competes for HR's business, not yours, and they're incentivized in a totally different way than you are. They're incentivized to keep their job, basically. Now, technically, there's no law forcing you into employer coverage, but there is that tax penalty for not using it, which effectively does the same thing. So it's a soft incentive, but it's a real incentive, which is how we end up here. Now, there's actually really bad news. The insurer makes more money when prices go up. Now, if that doesn't hit you counterintuitively, then you're not tracking, because certainly all of us would expect that an insurer wants hospital prices to remain low, right? Because they're the ones paying the bills. But that's not how our system in the US is structured. I wish it were, but it's not. First, since Obamacare, insurers are forced by law to spend at least 80 to 85 cents of every premium dollar on medical care itself. So their overhead and their profit are capped at the remaining 15 to 20 cents. Everyone wants this to function as consumer protection, but that is unfortunately very naive. That is not what happens. And this is exactly why you should not try to control the economy from the top down when you run the math, the consequences get really obvious really quickly. Okay, 15% of a $20,000 premium is $3,000, and 15% of a $28,000 premium is $4,200. So the insurer's take grows in lockstep with the premium going up. Now, ask yourself, what would make the premium go up? Higher hospital prices. The insurer themselves want the prices to go up because it's the only way for their profit to go up. When you tie people's payout to the price, the prices are going to go up because people want them to. You're probably paying two salespeople to do one salesperson's job. That's where today's sponsor, Pipedrive, comes in, an intelligent AI-powered sales CRM loved by growing sales teams. Pipedrive just launched meeting intelligence built right into the CRM. Before every call, it pulls deal history and past conversations into one brief. During the call, it records and takes notes. After it, it drafts your CRM updates to review and approve. So there's less admin and more selling. Switch to a CRM built by salespeople for salespeople and join the over 100,000 companies already using Pipedrive. My link gets you an exclusive 30 days free instead of the usual 14-day trial. There's no credit card payment needed. Just head to pipedrive.com slash impact to get started. Again, that's pipedrive.com slash impact and you can be up and running in minutes. Now, second, for the big self-insured employers where they basically act as like their own health insurance company, the insurer isn't even bearing the cost. So they have an outside administrator that's processing the claims for a fee and the employer just eats whatever the hospitals charge. The administrator's incentive to fight hard for lower hospital prices is there, but it's weak because it's not its own money, okay? It's fighting on behalf of a company just for a fee. Now, in all of that, no one is incentivized to make things cheaper like they would be in an actual free market where they have to compete on price, quality, and brand to convince you to choose them because right now, the way it's set up, the patient never sees the price. They're not shopping around. The employer, they pay, but with pre-tax money, it was going to have to pay his wages anyway so there's no savings for them whatsoever and it passes increases back to workers as just like slower raises. The insurer earns a bigger percentage of a bigger number so they actually want to see it go up and then the hospital obviously prefers high prices because they make more money. So healthcare is only going to get cheaper when we change the structure of the system, the moralizing, the endless like trying to tie this to the wealthy are not paying their fair share despite paying the vast majority of taxes. More regulations and more forced buying, trying to control this from the top down is not going to fix the problem, nor is a single payer. Just look at Europe. Someone in the chain of all of this somewhere has to actually make more money by innovating and making things cheaper and right now, nobody does. Right now, the system does not force innovation as a way to raise profit margins and this is why the free market works and why we should want people out of it as much as possible, not to zero because monopolies create their own distortions and problems but the government should be doing absolute light touch because every time they think they're doing something good for the consumer or whatever, like Obamacare, you think you're doing something great for people and it ends up being the thing that makes the insurer's stock values absolutely skyrocket because people read through it and they realize that they're going to be making way more money. If we take him sincerely and we say, hey, we want to fix this thing, it is not going to be that way. We've got to create a system that allows for the free market to innovate, to have to compete for people's money, so you're going to have to change that tax incentive that's basically forced this into being something that companies do. Having companies use it as another way to compete for talent, great. They can aggregate, maybe they can get better insurance but now all of a sudden, they actually care deeply about the quality of the healthcare that they're able to get you because that's one of the ways that they're trying to attract you is you wouldn't be able to get access to this level of quality but if you don't have any other option, then all of that fight for quality just evaporates and becomes nothing. All right, so that is problem number one. Now we've got problem number two which is we've all heard the argument that basically billionaires are doing something illegal or untoward, that they're, as he called it, that this is all tax evasion. It's not tax evasion and when you start looking at what's really going on, then you can figure out what do we actually need to change here to stop people from trapping their wealth and then doing the whole thing where they borrow against their money and then they just keep stacking debt and then they die and they never pay it off and you get the step up in basis and it just all goes away and so they never pay tax. It's a myth, I've talked about this before. We're gonna go into detail on it right now but that's not how things actually work but we've all heard the argument that billionaires never sell the things that they own. Drew and I have actually discussed this before. The argument goes that they just borrow against their stock, then they live on that loan which they just roll forward as the shares climb in value and then they die and the bill only comes due then and it's a process called buy, borrow, die. Now the question is, is that what people actually do? And the answer is no. The data says that's mostly not what's happening. Two law professors, Edward Fox at Michigan and Zachary Liskow at Yale, ran two decades of Federal Reserve household data on the top 1% households worth 14 million and up. New borrowing each year came to 1% to 2% of their economic income. So it's absolutely small. Remember their income they're going to be paying tax on. So they borrow but they don't borrow a lot. Their unrealized gains over the same stretch were 20 to 40 times larger. So compared to the two, it is massive. So that is where the potential money, remember wealth is not money but it is potential money, is where the potential money is crewing. Now if buy, borrow, die were the playbook, leverage would be climbing with the portfolios but it doesn't. Why? Because debt is dangerous. I've tried to get this across before. Debt is very dangerous and if the thing that you're using as collateral is wealth, wealth fluctuates wildly. When you hear about, hey a trillion dollars just evaporated off the stock market in a day of trading, that now, that collateral going down in value has a massive impact on whether the bank is going to continue to offer you that loan which they often don't and they call these. And so what you see happen is something that's simpler quite frankly. The wealthy earn large amounts of taxable income from salaries, stock dividends, interest and realized gains which they get taxed on. They spend a fraction of that and then they save the rest. The stock sits there compounding, yes. It's untaxed, yes. Until death, yes. And death does reset the cost basis and their gain disappears but they never touched it anyway and the gain ends up getting passed to their kids. Now there's a way to solve that which is simply tax the kids at the parent or whoever's giving it to them at their tax basis so that you get the gain. Very simple, very straightforward, works as a wealth tax but only at the time that it's actually realized. So if the kids wanna hold, they can but at some point they will run into the same scenario where the only way to access the money is to actually sell that because wealth is not money and they need money to live. And then anytime that they do realize a gain they're taxed at that original amount instead of the step-up basis of death. Boom, nice and simple. Now what Fox and Liskow call what actually happens is buy, save, die. That's the reality. That's what you're up against. These guys are living off of money that they already pay tax on. I can vouch for this in terms of my own life. All the money that I actually spend and have realized gains on, I paid massive, massive amounts of tax on. So it's not like I'm living a lifestyle that is predicated on loans or anything like that. I don't have a single dollar in loans. So anyway, anecdotal but nonetheless, certainly in keeping with the data, the borrowing at the top is obviously real. 32 members of the Forbes 400 have pledged public stock as loan collateral. Elon Musk, the guy that everybody talks about, he accounts for 47% of the pledged value. So he's saying, cool, I'm going to take big loans and use my stock as collateral. But those loans are disclosed in proxy statements. They get margin called when the stock drops. And so it's a very risky endeavor. And the Fed data show quarterly turnover of the loans to the wealthy running as high as 30%. So people are not just buying forever. They're buying and paying things back. Now, they'll then take out new loans, but again, they are buying and paying things back. And they know that they're forever at risk of a margin call if they're doing everything just based on the value. Think about the fact that Elon was briefly a trillionaire, but then lost a huge amount of that. So all of that stuff fluctuates so rapidly. Now, the thing that people in California really need to pay attention to and everybody across the nation, this whole idea of the 5% billionaire's tax, okay? It is a tax on net worth. Net worth is an asset minus debt. So not only do they not have access to it and they can't spend it, and that there are all kinds of problems trying to liquidate it, but a billionaire who has borrowed heavily against his shares already has a smaller tax base. So the whole thing of like thinking that you're gonna get something because these guys are borrowing a ton of money, even if they were, it's already accounted for. It's not wealth. So it's already been reduced by the amount that they're borrowing. So Elon Musk, 47%, poof, gone, because he has a liability against that. So the strategy used to sell the tax ends up shrinking the base the tax is measured on. So even if that were the thing that's rampant, which it's not, but even if it were, it would already be reducing the tax basis that people are taxing on. The fix is pretty straightforward. Now, whether or not there's political will is a totally different question. Just don't let the kids have the step up in basis. One problem solves a massive amount of this. Drew. There was somebody on Twitter, I was trying to look for it, I can't find the tweet, that compared the wealth tax to property tax, how we get charged every year for the value of our homes, whether they fluctuate up and they fluctuate down. We don't sell our homes, we just have to eat the cost and pay a little bit more. Can you tease out the difference between a property tax assessment versus like a wealth tax assessment? Well, I love what you're saying. Let's immediately stop paying property tax. Oh, cool. Literally. So you put it in the same bucket as wealth tax. And it's one of the most offensive taxes on planet Earth. Either it's my property and I own it or it's not. So yeah, if you want to do things like we all pay a road fee or something like that, sure. If you want everybody to contribute to education, great. But putting people in a position, and this happens all the time, where somebody paid for the house. They own it outright, but they can't make the property tax and then the government seizes it. That's fucking crazy. So if you want to say, hey, you're not paying for the roads, you can't use it. You're not paying for the schools, you can't use it. Great, but seizing somebody's house is pretty outrageous. So yeah, either it's our property or it's not. And that kind of infringement. Now listen, am I as up in arms about property tax? No, I am not. You're not gonna hear me campaigning anytime soon to abolish it. I think people have to really look at how are things paid for in your area. And if you've got a stable system where people are paying property tax, fine. That isn't because of the amount, because the house is oftentimes, while it's the largest thing that people own, when you're at like a 1% rate. Oftentimes, there are places that cap how much you can raise the amount that the property value is. It's not like if it rips that they just charge you now 20% more, 30% more. There's typically things that constrain that. So things around that that they do to sort of minimize some of the effect. But when I saw Florida saying hey, we're trying to do away with property tax, I was all for it. They just need to make sure that they're not putting themselves in a situation where they're not going to be able to meet their requirements to keep the government going. All right guys, love you bunches. Till next time my friends, be legendary, take care, peace. If you like this conversation, check out this episode to learn more. You've got a world where the economy is absolutely stacked against Gen Z. 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