Tax Reform: Why Billionaires Pay Nothing and You Pay Everything And the Boring Fix That Changes Both

Roll Out a Phased Value Added Tax System (VAT) to Fund Services and Shrink Wealth Divide | Make America Grow Again Series | Episode 3

Rxan Smith

Dec 28, 2025

MAKE AMERICA GROW AGAIN · Episode 3 of 25 · Full Series Index →

By Rxan Smith · Uncomfortable · DIFFICULTY: 4/5 TIMELINE: 18–36 MONTHS

← Ep. 2: Healthcare Cost Control | Series Index | Ep. 4: Income Inequality →

📋 What We’re Covering in This Episode

The American Dream Club — And Who Gets In
How the Scam Actually Works
Buy, Borrow, Die — The Parallel Tax System You’re Not In
What a VAT Actually Is — And Why Boring Is Good
The Net Worth Tax: Closing the Last Escape Hatch
The Math — What $1.9 Trillion a Year Actually Buys
The Objections — I Had Them Too
And Finally...

The American Dream Club — And Who Gets In

America isn’t a high-tax country. It isn’t a low-tax country either. It isn’t particularly business-friendly or citizen-friendly. What it is, stripped of all the marketing, is a country where the bill gets sent to whoever can’t afford accountants.

If you pay taxes — automatically, without a team of attorneys negotiating your effective rate down to a number that would embarrass a math teacher — congratulations. You are not in the American Dream Club. The club doesn’t discriminate based on race or religion. It has one criterion: how expensive is your tax strategy?

What follows isn’t about envy. It isn’t about communism, socialism, ideology, or punishing success. It’s about restoring opportunity to the Americans willing to work for theirs. It’s about why the rules feel obvious when you’re broke, optional when you’re rich, and invisible once you’re powerful enough to help write them.

If that sentence made you uncomfortable, good. Keep reading.

In 2020, 55 major U.S. corporations paid $0 in federal income tax.
FedEx. Nike. Salesforce.
They used the same public roads, courts, and educated workforce as every company that paid its bill.

This is Episode 3 of Make America Grow Again. In Episode 1, we forced every dollar into daylight. In Episode 2, we fixed what the healthcare billing machine does to working people. This episode is the trunk holding the whole tree up. Get the tax structure wrong and nothing else in this series is affordable. Get it right and a disturbing number of “impossible” things become boringly achievable.

How the Scam Actually Works

America loves rules. We just enforce them differently depending on how expensive your lawyer is.

If you work for a paycheck, your taxes are automatic. Immediate. Non-negotiable. The IRS already knows what you made before you file. Miss a form and they’re calling you. There is no ambiguity, no negotiation, no army of specialists finding you a more favorable interpretation of the code. The code was written to be unambiguous for people like you.

If you own assets, suddenly everything is “complex.” Corporations don’t pay taxes — they optimize. Billionaires don’t pay taxes — they strategize. Accountants don’t do math — they arbitrate reality. The same government that gives you zero flexibility on your W-2 income gives trillion-dollar corporations a code so full of carve-outs that navigating it is itself a multi-billion dollar industry.

Here’s the actual record:

Before the 2017 tax cuts, the nominal corporate tax rate was 35%. Fortune 500 companies actually paid about 22% on average — because nominal rates are for amateurs. After the Trump tax cuts dropped the rate to 21%, the effective rate for large corporations fell to 12.8%. And in 2020, when the economy needed every functioning institution pulling its weight, 55 major corporations paid zero. Not a low effective rate. Zero. FedEx. Nike. Salesforce. Companies that depend on federal courts to enforce their contracts, federal highways to move their products, and a publicly educated workforce to run their operations — and contributed nothing to the public infrastructure that made all of it possible.

That’s not capitalism. That’s a cost-shifting scheme where the public subsidizes private upside and the bill goes to whoever can’t afford to route it elsewhere.

🔎 Pro-Tip: The Effective Rate Is the Only Rate That MattersWhen politicians argue about “raising the corporate tax rate,” they are largely arguing about the nominal rate — the rate on paper before the optimization begins. The effective rate is what corporations actually pay after depreciation schedules, offshore profit shifting, accelerated expensing, and the dozens of other mechanisms that make the nominal rate mostly decorative. A 35% nominal rate with a 12% effective rate is a worse deal for the public than a 25% nominal rate with a 22% effective rate. The VAT eliminates this gap entirely — because it taxes transactions, not reported profits. You can’t optimize a sale that happened.

Buy, Borrow, Die — The Parallel Tax System You’re Not In

To understand why the wealthiest Americans pay the lowest effective rates, you need to understand the three-step strategy that functions as a parallel tax system for anyone with enough assets to access it.

Step One: Buy. Accumulate appreciating assets — stocks, real estate, private equity stakes. These assets grow in value. That growth is called unrealized capital gains, and it is not taxable as income until you sell. So the assets grow. And grow. And the tax bill stays hypothetical.

Step Two: Borrow. Take out loans against those appreciating assets. Loans are not income. Loans are not taxable. You live on the loan proceeds — the yacht, the second home, the private jet, the lifestyle — while your assets continue appreciating in the background, untouched by the IRS.

Step Three: Die. When you die, your heirs receive your assets with a “stepped-up basis” — meaning the cost basis for tax purposes resets to the current market value. The decades of unrealized capital gains that accumulated during your lifetime are wiped clean. Your heirs inherit the assets. They sell them. They pay capital gains only on appreciation after your death. The lifetime of gains — the actual wealth — never gets taxed at all.

“Buy. Borrow. Die. It is completely legal. It is widely practiced. And it means that for the people who have accumulated the most in America, the tax system functions as entirely optional.”

ProPublica’s investigation using leaked IRS data found that the 25 wealthiest Americans paid an effective federal income tax rate of 3.4% on their total wealth growth between 2014 and 2018. Not 3.4% of income. 3.4% of the actual growth in what they owned. Meanwhile, the median American household paid an effective federal tax rate of roughly 13-14% on wages. The people with the least paid proportionally more than the people with the most. That’s not a progressive tax system. That’s a regressive one wearing a progressive costume.

This Is Also the Generational Wealth Machine The Buy-Borrow-Die strategy doesn’t just minimize taxes for the person using it. It is the primary mechanism by which extreme wealth compounds across generations — the same mechanism we broke down in Episode 19 on Generational Wealth Inequality. When the stepped-up basis wipes out lifetime capital gains at death, it doesn’t just protect one estate. It permanently removes that wealth from the tax base and passes it forward, untaxed, to the next generation, who can repeat the entire cycle. This is how dynasties form in a country that claims to not have them.

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What is Value Added Tax: Why Boring Is Good

Here’s the thing about the Value-Added Tax that makes ideologues on both sides uncomfortable: it isn’t interesting. It isn’t dramatic. It isn’t a revolutionary concept that requires rethinking capitalism. It’s just a transaction tax that’s collected in stages and is functionally impossible to hide from.

More than 175 countries use a VAT. The United States does not. Every other developed economy on earth — every European country, Canada, Australia, Japan, South Korea, Mexico — has figured this out. We haven’t. Not because the idea is radical, but because the industries that benefit from the current system have successfully kept it off the table in the American political conversation for decades.

Here’s how it works. A VAT taxes the value added at each stage of the production and distribution chain — manufacturing, wholesale, retail. Each business collects the tax on what it sells and deducts the tax it paid on what it bought. The result: every transaction in the economic chain contributes something. Nobody can declare a net operating loss from a subsidiary in the Cayman Islands and make the obligation disappear. There’s no “complex” treatment to negotiate. A sale happened. Tax is owed. That’s it.

A 10% VAT in the United States, applied to goods and services with exemptions for food staples, healthcare, and housing — the categories that would otherwise make it regressive — would generate approximately $1.5 trillion per year in new federal revenue. Consistently. Without requiring the IRS to win a legal battle over accounting methodology with a company that has more lawyers than the IRS has employees.

The Regressivity Concern Has a Built-In FixThe standard objection to a VAT is that it’s regressive — it takes a larger percentage of income from lower-income households, who spend most of what they earn, than from wealthy households, who spend a small fraction of theirs. This is a real concern and it has a real solution: a universal rebate, sometimes called a “prebate,” that refunds the estimated VAT burden on essential spending to every household below a set income threshold. This is the same structure that Alaska uses with its Permanent Fund dividend — every resident gets a check, the wealthy pay net and keep the rest, the less wealthy break even or come out ahead. The VAT generates the revenue. The prebate makes it progressive. Both are boring policy tools. Both work.

Pair the VAT with a reduction in payroll taxes — the taxes that fund Social Security and hit working people hardest as a percentage of income — and you’ve done something interesting: you’ve shifted a portion of the tax burden from labor to transactions. From the person doing the work to the economic activity itself. That shift favors workers. It does not favor companies that prefer to expense everything, show no profit, and contribute nothing.

The Net Worth Tax: Closing the Last Escape Hatch

The VAT handles corporations and transactions. It doesn’t fully address the $120 billion someone accumulates by having $100 billion in appreciating stock and never selling it. The Buy-Borrow-Die strategy doesn’t involve transactions in the taxable sense. The wealth just sits there, growing, untouched, while the tax obligation stays permanently deferred and eventually eliminated at death.

The solution to this is a modest annual tax on extreme net worth — applied only above a threshold high enough that it affects no one who isn’t already fabulously wealthy. Think $50 million or above. A 2% annual tax on net worth above that threshold doesn’t punish success. It doesn’t confiscate wealth. It doesn’t drive anyone into poverty or meaningfully change anyone’s lifestyle. It applies to the growth of accumulated advantage at a rate that is still lower, in most cases, than the return that wealth is generating.

If your net worth grew from $100 billion to $120 billion in a year — as several American billionaires’ did in recent years — and you reported $2 billion in taxable income while the other $18 billion sat in appreciating stock, the argument that the $18 billion is off-limits until you sell it is an argument that the rules don’t apply to you the same way they apply to someone whose house went up in value and who pays property tax on that appreciation every year regardless of whether they sold.

We already tax property this way. Your home is assessed annually. You pay property tax on its current value. You don’t have to sell it first. The principle that unrealized asset appreciation can be taxed is not a radical concept in American law. It’s the foundational logic of every property tax system in the country. We just haven’t applied it to stock portfolios. Not because it’s illegal. Because the people who own the stock portfolios own the political process that would legalize it.

A 2% annual tax on net worth above $50 million — with reasonable exemptions for illiquid business assets and a structured payment mechanism for privately held company stakes — generates approximately $400 billion per year in additional federal revenue.

The Revenue Stack10% VAT (with rebate for essentials): ~$1.5 trillion/year
2% net worth tax (above $50M threshold): ~$400 billion/year
Combined new annual revenue: ~$1.9 trillion

This connects directly to everything downstream in this series. The healthcare reform from Episode 2 needs a stable, substantial revenue base to function. The education investment from Episode 5 needs funding that doesn’t evaporate in the next recession. The debt relief from Episode 24 needs a revenue mechanism that isn’t borrowed against future deficits. $1.9 trillion a year, consistently collected, is that mechanism. Without this episode, almost nothing else in this series has a funding source.

The Math — What $1.9 Trillion a Year Actually Buys

This is where it gets interesting. Not “interesting” in the cable news outrage sense. Interesting in the “this actually pencils out” sense.

Let’s say you phase in the VAT and the net worth tax over three years — giving the economy time to adjust, giving businesses time to reconfigure pricing, and giving the Treasury time to build the administrative infrastructure to collect it cleanly. During those three years, you don’t spend the new revenue immediately. You invest it.

The Three-Year Build

Year 1–3: Collect ~$1.5T/year (phasing in), invest at ~11% annual compound return (historical market average)
After 3 years invested: ~$5.7 trillion in reserve
Year 4: $5.7T reserve + $1.9T new revenue = $7.6T available

Now you launch Medicare for All in Year 4. The CBO’s most credible estimates put the federal cost of a universal single-payer system at approximately $2.5 trillion per year — but that number includes replacing what employers and individuals currently pay in premiums, copays, and deductibles. The net cost to the federal government, relative to what it already spends on Medicare, Medicaid, and the employer healthcare tax exclusion, is considerably less. But let’s use the full $2.5 trillion to be conservative.

Year 4 Forward: Annual CycleBegin with prior year balance
Grow at 11% compounded
Add $1.9T new reform revenue
Pay $2.5T Medicare for All cost
Roll surplus into next year

By Year 10, running this model conservatively, you’re still approximately $1.6 trillion ahead of where you started. Which means the math works. Not in the “trust us” political speech sense. In the actual arithmetic sense. The reform pays for itself and then some — and the “some” is roughly equivalent to the current annual defense budget plus interest on the national debt combined. Meaning every fix that gets implemented makes the next fix more affordable. That’s why the series is structured as a tree. The roots fund the trunk. The trunk funds the branches.

The Healthcare Cost Displacement Is the Hidden Dividend The U.S. currently spends roughly $4.5 trillion per year on healthcare, more per capita than any country on earth, for outcomes that rank below all other nations. A significant portion of that spending is administrative overhead: the billing departments, the prior authorization teams, the denial management infrastructure, the collections apparatus. Episode 2 on Healthcare Cost Control documented how much of that cost is pure friction, money spent fighting about payment rather than delivering care. A universal system eliminates most of that friction. The VAT revenue doesn’t just fund healthcare. It replaces a more expensive, less effective system with a cheaper one. The net savings compound over years.

The Objections — I Had Them Too

I want to address the standard counterarguments directly, because I held most of them before I did the homework and got genuinely annoyed at myself for not doing it sooner.

“This is socialism.” It isn’t. Socialism doesn’t tax billionaires — it abolishes them. This plan keeps them rich, keeps them in the game, keeps them competing and building and doing whatever billionaires do. It just makes them pay the cover charge for the economy they’re operating in. Every other capitalist country on earth has figured out how to have both wealthy people and a functional tax base. The idea that America uniquely cannot is not an argument. It’s a fundraising strategy.

“They’ll just leave the country.” Let them. Their assets are here. Their customers are here. Their infrastructure is here. The idea that Jeff Bezos is going to renounce his citizenship and relocate Amazon to avoid a 2% net worth tax is the economic equivalent of threatening to hold your breath. The most successful billionaires in the world live in countries with VATs and higher effective tax rates than a reformed U.S. system would impose. They stayed.

“It’ll hurt small businesses.” A properly structured VAT doesn’t. Small businesses pay VAT on their sales and reclaim VAT on their inputs — so their tax burden is only on the net value they add. Exempt food staples, healthcare, and housing, and the essential goods that small businesses and their customers depend on are untouched. Meanwhile, when healthcare costs drop because the universal system has eliminated the administrative overhead, small businesses — which currently pay eye-watering rates for employee health insurance — get a cost reduction that more than offsets the VAT compliance burden. That’s not a projection. That’s the experience of every country that made this transition.

“Taxing unrealized gains is unconstitutional.” Property taxes already tax value that hasn’t been realized through a sale. Every homeowner in America pays annual taxes on the assessed value of their home, whether they’ve sold it or not. The constitutional argument against a net worth tax has been litigated extensively and remains unresolved — but the underlying principle, that the government can tax the value of what you hold rather than only what you transact, is embedded in American tax law at the local level in every single state. We just haven’t extended it to stock portfolios. Not because it’s illegal. Because the people it would affect have made sure the conversation doesn’t happen.

“What if the government wastes the money?” That’s a governance question, not a revenue question, and it’s exactly why Episode 1 on Government Transparency came first. You don’t solve waste by starving the system. You solve waste by forcing every dollar into daylight and holding the people spending it accountable. Corruption and opacity are the root problem. Revenue is the trunk. You fix the root, then you fund the trunk. That’s the sequence this series is built on.

The knockout combo, plainly stated: If your wealth grows faster than the economy while contributing nothing back, that’s not success. That’s extraction. This isn’t about left or right. It’s about whether the rules apply equally to everyone, or only to the people who can’t afford lawyers to make them optional. Capitalism isn’t dying from too much taxation. It’s dying from too little accountability. The VAT plus the net worth tax doesn’t punish wealth. It puts wealth on the same footing as work. That’s not radical. That’s just finishing the sentence the Founders started.

And Finally...

This Isn’t About Making Rich People Poorer. It’s About Making Sure They’re Not the Only Ones Who Have a Chance to Get Richer.

I want to close with the thing that took me a while to see clearly, because I think it’s the thing most people miss when this conversation goes sideways.

The people arguing against a VAT and a net worth tax aren’t all arguing in bad faith. Some of them genuinely believe that a lower tax burden on wealth generates more investment, more growth, and a larger pie for everyone. The trickle-down theory. The rising tide. The bet that if you let capital accumulate at the top, it eventually moves through the economy and lifts the floor.

We have now run that experiment for forty-plus years. The results are in. The pie got bigger. The distribution got more concentrated. The trickle didn’t trickle. The wealth that was supposed to move through the economy largely stayed where it accumulated, in appreciating assets, growing tax-deferred, passing to heirs at stepped-up basis, and then doing the whole thing over again in the next generation.

The floor didn’t rise. The ceiling did. And the distance between the two is the subject of the next episode.

A tax system that captures value from transactions and accumulated advantage — and uses it to fund healthcare that doesn’t bankrupt people, education that doesn’t mortgage futures, and infrastructure that doesn’t crumble — isn’t punishing success. It’s funding the conditions that make success possible in the first place.

Roads. Courts. Educated workers. Clean water. Medical research. National defense. These are not entitlements. They are the operating system that every business in this country runs on. The question is just who pays for the operating system.

Right now, the answer is: whoever can’t afford to route the bill somewhere else.

That’s not freedom. That’s a rigged system with better branding.

We can do better. The math says we can. The only thing saying we can’t is the money spent making sure we don’t try.

— Rxan Smith
Uncomfortable

Discussion Prompt: When did your faith in the system crack? Drop it in the comments. No sugarcoating.

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← Ep. 2: Healthcare Cost Control | Full Series Index | Ep. 4: Income Inequality →