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The basic inequity in the tax system is hard to swallow

June 14, 2021, 9:48 AM UTC

Good morning.

Companies don’t pay taxes; people do. So it was helpful this week that the folks at ProPublica turned attention to the biggest problem with the American tax system. Capital gains are not treated as income until they are realized. Even when realized, they are taxed at just over half the top tax rate. They go away when you die (or when you give your assets to charity.) And you can borrow against them largely tax free. “Buy, borrow, die” is the essence of the strategy that allows people like Jeff Bezos and Warren Buffett to accumulate massive fortunes while paying only a tiny percentage in income tax.

Defenders of this system say it helps create the incentives to invest and build great companies, like Amazon and Berkshire Hathaway, which create jobs, improve lives and advance prosperity. Others note that many of the super-rich have signed the giving pledge and are giving their tax-free fortunes to good causes—Buffett and Bill Gates (but not Bezos) are leading examples. 

But the basic inequity in the system is still hard to swallow—even for the likes of a Buffett, who backs reform. The challenge is whether, in today’s polarized political environment, the U.S. government can come up with reasonable fixes to address this—or any other obvious policy problem—without oscillating between politically motivated, lobbyist-lubricated, and economically destructive extremes. The circumstances of our times increasingly demand it, but the odds still seem stacked against it. 

No doubt there will be much debate in the months ahead over who gave ProPublica the private tax data it used for this analysis. One way or another, that’s a criminal act. But the criminal may share the view Pentagon Papers leaker Daniel Ellsberg recently expressed to The Guardian: “I never regretted for a moment doing it.”

More news below. And by the way, for a take on how the structural flaws in the U.S. tax system cited above have been manipulated to benefit one particular class of businesspeople—those in the private equity—it’s worth reading this piece in the Sunday New York Times.

Alan Murray
@alansmurray

alan.murray@fortune.com

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This edition of CEO Daily was edited by David Meyer.

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