Ray Madoff Says U.S. Tax Code Favors Wealth Over Wages

The core divide

Ray Madoff’s central argument is that the U.S. tax code no longer operates as one system. It has split into two: one built for people who earn salaries and pay income and payroll taxes, and another built for people whose money grows inside assets, through borrowed funds and tax-preferred gains.

That divide matters because most workers live in the first system. Federal revenues still come largely from individual income taxes and payroll taxes, while capital gains are taxed more lightly. For taxable years beginning in 2025, the IRS says most net capital gains are taxed at no higher than 15% for most individuals. In practice, that means a person can be wealthy on paper and face a far lower tax burden than someone living on wages.

Madoff, a Boston College Law School professor and the author of *The Second Estate: How the Tax Code Made an American Aristocracy*, argues that this structure has helped create a modern American aristocracy. She has compared the U.S. to prerevolutionary France in the way privilege concentrates at the top, and she has described the system as a “bait-and-switch” that makes the very wealthy appear to pay taxes while often avoiding meaningful liability in practice.

Why wages and wealth are treated differently

The tax code’s bias is easiest to see in what it taxes most heavily. Wages are taxed as ordinary income, and workers also owe payroll taxes, which fund Social Security and Medicare. Wealth tied up in stocks, businesses, and other assets can grow for years with little or no tax if the owner does not sell.

That distinction matters because gains inside assets are often unrealized. A stock portfolio can rise by billions of dollars without creating a tax bill unless the owner sells shares or triggers another taxable event. As a result, the system tends to tax the flow of earned income more aggressively than the buildup of asset value.

This is not a new argument, but the policy stakes have sharpened as wealth concentration has grown. Historical tax data show that capital gains taxes have long been lower than top ordinary-income rates, reinforcing Madoff’s view that the code favors owners over workers. The debate is really about whether the tax system should keep rewarding ownership so much more than labor.

Jeff Bezos as the clearest case

Jeff Bezos has become the most visible example because ProPublica’s analysis of IRS records showed how wide the gap can be between wealth and taxable income. ProPublica reported that Bezos paid no federal income tax in 2007 and 2011. In 2011, when his net worth was about $18 billion, he also claimed a $4,000 child tax credit.

The broader pattern is even more striking. From 2006 to 2018, ProPublica reported that Bezos’s wealth increased by $127 billion while he reported $6.5 billion in income and paid $1.4 billion in personal federal taxes. That produced a “true tax rate” of about 1.1%.

ProPublica said its method combined private IRS records with public sources including Forbes, the Federal Reserve, and IRS data. The result was not a morality tale about one billionaire. It was a demonstration of how the tax system can let wealth compound far faster than wages are taxed. Bezos is simply the cleanest example of a broader structural rule.

What the broader data show

The Bezos case would matter less if it were an anomaly. But the wider evidence points in the same direction. Researchers at the University of California, Berkeley reported in 2025 that the effective tax rate for the 400 wealthiest Americans fell from 30% in 2010-2017 to 23.8% in 2018-2020.

They also found that the top 100 wealthiest Americans paid an average effective rate of 22% in 2018-2020, compared with 26.6% for the next 300. That difference suggests that the largest fortunes can be taxed less heavily than the rest of the ultra-rich, even before comparing them with ordinary wage earners.

The Berkeley researchers also reported that the business-related corporate tax paid by the top 400 fell by one-third between 2014-2017 and 2018-2020. They linked part of that shift to the 2018 cut in the federal corporate tax rate from 35% to 21%. In other words, the tax system did not just lighten the load on owners at the individual level; it also reduced the tax cost of running wealth through businesses.

What reform would try to change

The policy fight is not really about punishing success. It is about whether the United States should continue taxing work more heavily than wealth accumulation. Reformers want to tax unrealized gains, inheritances, and other owner advantages more aggressively so that tax liability follows economic power more closely.

The appeal is straightforward. If wealth has grown largely untaxed, then taxing it could raise revenue without leaning so heavily on wages and payrolls. That would make the system more progressive and could narrow the gap between people whose income comes from paychecks and people whose fortunes grow through capital.

Critics warn that the fix could bring complexity and capital flight. Those concerns are real, especially in a system where asset values can be hard to measure and rich taxpayers can move money across borders. But those objections do not erase the basic imbalance Madoff describes. They only show how difficult it is to redesign a tax code built around ownership.

The deeper question is not whether Bezos paid too little in a single year. It is whether the tax code is designed to privilege wealth itself. The evidence from the IRS, ProPublica, the Congressional Budget Office, and Berkeley points in the same direction: in the United States, wages still carry more of the tax burden, while assets are allowed to do much of the growing first.