Economic Update with Richard D. Wolff

Episode: How the U.S. Tax System Worsens Inequality
Date: February 10, 2026
Host: Richard D. Wolff
Guest: Prof. Ray Madoff (Boston College law professor, author of The Second: How the Tax Code Made an American Aristocracy)

Episode Overview

This episode of Economic Update centers on the role of the U.S. tax system in deepening economic inequality. Richard D. Wolff opens with current economic news, then brings on Professor Ray Madoff for an in-depth interview. They uncover how the tax code—originally intended to mitigate the harshest inequalities of capitalism—has been undermined, allowing the wealthiest Americans to minimize or even entirely avoid taxes, thus fueling the rise of an American aristocracy.

Key Discussion Points & Insights

1. Global Economic Realignments and U.S. Instability

• [01:40-07:30]
  Wolff reviews international responses to U.S. trade policy, focusing on British leader Keir Starmer's visit to China and major British investments abroad. He argues that U.S. protectionist and unpredictable trade policies are pushing global partners to diversify away, to the detriment of the U.S. economy.
  • “The United States is finding its trading partners looking elsewhere for their future. And you know what that is? It's not good for the U.S. economy. Not at all.” (Wolff, 06:55)
  • Cites corporate reticence to relocate to the U.S. amid domestic instability, general strikes, and federal interventions: “Every corporate executive sees the chaos in the streets, the bitterness in the population, the instability of the economy… They're not moving their factories back to the United States. They'd be nuts to.” (Wolff, 13:24)

2. Federal Reserve Politics and Economic Management

• [07:31-15:00]
  Wolff discusses the expected appointment of Kevin Warsh to replace Jerome Powell as Fed Chair, highlighting how presidents have historically used monetary policy for electoral advantage.
  • Explains tension between prioritizing inflation control (Powell) vs. avoiding recession for electoral reasons (Trump).
  • “The Federal Reserve is an attempt to try to keep some balance in a system that goes off the rails. Inflation, recession, all the time. It hasn't worked real well.” (Wolff, 12:30)

3. The Origins and Intent of the Progressive Tax System

• [17:43-21:30]
  In conversation with Prof. Madoff, Wolff describes the early U.S. tax system as a countermeasure to capitalism’s excesses: progressive income taxes and estate taxes designed for redistribution and fairness.
  • “The tax system… was always understood to be able to do some redistribution to offset what the system on its own did.” (Wolff, 18:38)

4. How the Current Tax Code Enables Massive Wealth for the Top 1%

• [20:33-31:30]
  Prof. Madoff systematically breaks down the mechanisms by which the ultra-wealthy avoid taxation, despite the veneer of a progressive tax code.

4.1. Legal Routes for Wealthy Americans to Dodge Taxes

• Most Americans:
  • Wage and salary earners pay up to 37% income tax + 15.3% payroll tax.
  • “Even somebody with very moderate income of $60,000 still has to pay $13,000 in taxes. That's a heavy burden…” (Madoff, 24:30)
• Wealthiest Americans:
  • Avoid salaries entirely:
    • Buffett, Bezos, Zuckerberg, Musk reported “shockingly modest” salaries; Musk's was so low it triggered labor standard concerns.
      • “Zuckerberg and all these other fellows, they're dollar a year guys, right? They don't take any salaries at all.” (Madoff, 25:27)
  • Live off asset appreciation:
    • Instead of selling stock and realizing taxable gains, billionaires borrow against assets to fund their lifestyles, incurring virtually no tax liability.
      • “They can simply borrow against their growing assets to support their lifestyles. And this is what they do.” (Madoff, 26:27)
  • No taxes on gifts and inheritances:
    • Inheritances, gifts, and insurance distributions: “entirely tax free… if somebody is handed a million or $10 million or even $100 million or billion dollars, that's their own business…” (Madoff, 28:25)
• Estate Tax Hollowed Out:
  • Due to a decades-long campaign funded by the richest families, estate taxes have become politically untouchable and full of loopholes.
    • “The estate tax is doing nothing except for providing cover for the richest Americans.” (Madoff, 31:26)
  • Estate tax revenue is a drop in the bucket compared to top 1%’s wealth.
    • “Total revenue raised by the government in 2024… was $5 trillion. The wealthiest Americans own $50 trillion.” (Madoff, 30:55)
    • Estate tax raises $30 billion, “an amount that Elon Musk has earned and lost in a single day.” (Madoff, 31:22)

4.2. Structural Divide: Earners vs. Owners

• Effective tax burden falls on high-income earners, not on those living off investments or inherited wealth.
• “For the richest Americans, taxes have become optional. But for high income earners… taxes are indeed quite burdensome and progressive. The problem is the big divide… between earners… and … who have sufficient wealth that they can live off of the growth of their assets and their inheritances.” (Madoff, 22:40)

Notable Quotes and Memorable Moments

• “Virtually every president we've had has had to preside over a recession, which is dangerous for their popularity because Americans will blame the recession on whoever's sitting in office and vote in the other one, as if that were a solution, which it never is.”
  — Wolff, [10:22]

• “For regular Americans… even somebody with very moderate income of $60,000 still has to pay $13,000 in taxes. That's a heavy burden…”
  — Prof. Madoff, [24:30]

• “For the richest Americans, taxes have become optional.”
  — Prof. Madoff, [22:33]

• “[Zuckerberg, Musk, etc.] don't take any salaries at all… their wealth has grown enormously… So the first two ways that the wealthy avoid taxes is they avoid salaries and then they avoid sales.”
  — Prof. Madoff, [25:27, 27:08]

• “If somebody goes out in the street and they find a hundred dollar bill, they are expected to [report] that to the IRS and pay taxes… But if somebody is handed a million or $10 million… that's their own business, they don't have to pay any taxes on it, and they don't have to tell anyone about it.”
  — Prof. Madoff, [28:25]

• “The estate tax is doing nothing except for providing cover for the richest Americans.”
  — Prof. Madoff, [31:26]

Important Timestamps & Segments

| Timestamp | Segment Description | |------------|--------------------------------------------------------------------------------| | 01:40-07:30| Wolff on international economic shifts, US tariffs, and global realignment | | 07:31-15:00| Analysis of the Fed, Trump’s monetary ambitions, and domestic instability | | 17:43-20:33| History and ideals of the U.S. progressive tax system | | 20:33-22:40| Prof. Madoff sets up the mechanics of tax avoidance for the wealthy | | 22:40-31:26| Detailed playbook on how top 1% minimize/avoid taxes (salary, capital gains, inheritance) | | 31:26-31:59| Final points, Wolff’s invitation for a follow-up conversation |

Tone and Style

The conversation is lively, direct, and incisive, especially in Prof. Madoff’s plain explanations of complex tax issues. Wolff’s tone remains sharply critical of current policy, punctuated by humor and obvious concern for economic justice.

Conclusion

This episode lays bare the structural ways the U.S. tax code reinforces and expands inequality, effectively making taxes “optional” for those at the top while placing the burden on wage earners. Prof. Madoff and Wolff agree the system, though designed as a check on inequality, has been subverted, leaving American democracy vulnerable to the entrenchment of a wealthy aristocracy. More insights from Prof. Madoff are promised for a future episode.