Perception of Taxes

Since I started practicing almost forty years ago, there have always been a relatively few well-to-do individuals for whom the payment of any taxes – whether personal or business – under any circumstances, seemed to be the most odious and excruciating task they were ever required to perform.

The fact they had an especially profitable year, or were found on audit to have underreported income or to have overstated deductions did little to assuage their feelings of having somehow been fleeced by the federal and state taxing authorities.  

Even when they paid tax pursuant to an amnesty (voluntary disclosure) program in settlement of their tax exposure with respect to concededly unreported assets or income, any effort to mollify such an individual was futile, notwithstanding the not insignificant benefits realized by virtue of their participation in such a program.  

Thankfully, interactions with such patently unreasonable persons was rare, at least in my practice.

Instead, most high-income individuals, both then and now, typically accepted their obligation to pay taxes as the proverbial “necessary evil” that supported “society,” writ large,[i] and that funded the cost of preventing a state of lawlessness.[ii]

A fair number of such taxpayers not only acknowledged that taxes, to quote Justice Holmes’s more positive perspective, were the price “we pay for civilized society,”[iii] but even welcomed the “opportunity” to contribute[iv] toward the realization and preservation of what they believe could be a more cultured, enlightened, or developed[v] community.

That is not to say that these individuals sought to maximize their tax obligations. Hardly. To quote Judge Learned Hand, “Anyone may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.”[vi]  

Thus, they sought out the guidance of tax advisers who understood the law as written, were aware of its intended purpose and familiar with how it was being interpreted by the courts and tax agencies and, within these parameters, could apply it to a client’s situation in an advantageous and supportable manner.

Changing Views?

It appears, however, at least to me and to several colleagues with whom I’ve shared these observations, that there has been a meaningful jump over the last few years in the number of high-earning or high-net-worth individuals who strongly resent their legal obligation[vii] to pay any taxes, let alone to contemplate what may be a significantly increased tax burden in the not-too-distant future.[viii]

Assuming the foregoing assessment is not off the mark, there are several discernable factors that have contributed to this development, some of which may be described as opposite sides of the same coin;[ix] depending upon one’s vantage point, one may blame or credit one factor without appreciating that it is, for all intents and purposes, inseparable from another.

That being said, let’s consider some of these factors.

The Internet

In no small part, the development described above may be ascribed to statements made and materials found on the internet – including so-called social media and other online resources – the veracity and authority of which continue to be taken for granted all too often.

For example, reports are always circulating about how such-and-such business and its owners have been able to dramatically reduce, or even eliminate, their tax liabilities thanks to so-called loopholes or to clever strategies that are peddled as responsible tax advice by self-proclaimed tax gurus.[x]

The advent of AI has already exacerbated this particular problem as many business owners have begun to conduct their own “in-depth” tax research, not necessarily for the constructive purpose of understanding the issues before them and communicating more clearly with their tax advisers, but in order to discover what they are not being told and then to pressure these advisers into pursuing what are often aggressive tax-saving strategies.[xi]

When principled advisers try to dissuade such a client from this kind of ultimately self-destructive behavior, the client will sometimes go in search of a more “agreeable” or amenable adviser, or they’ll just go ahead and taste the forbidden fruit anyway.[xii] An anxious taxpayer is a willing taxpayer, and there are plenty of promoters out there who claim to have cures for most tax-related ailments.[xiii]  

The Principal Cause

Another factor that has contributed mightily to the changing attitude toward taxes among the more affluent is the prevalence of claims made by politicians all over the country[xiv] that the tax laws are stacked in favor of wealthy individuals and their businesses.

According to what has now become a well-rehearsed narrative, these political figures explain that wealthy taxpayers can afford to hire expensive legal, accounting and financial advisers to assist them in reducing – politicians prefer to say “avoiding”[xv] – their tax liabilities by taking advantage of “loopholes” (whatever that means) in the tax laws.  

According to the politicians making such assertions, it’s time for the rich to start paying their “fair share” of taxes.

Toward What End?

I suppose one must first identify the object toward which the taxes are to be applied before determining what comprises an individual’s fair share of such taxes.

Is it to cover whatever programs the government adopts, even the most ill-conceived, half-baked, impractical, ill-advised, or wasteful programs, regardless of the cost?

Is it to eliminate the bane of “economic inequality”? Solzhenitsyn reminded us of what may be a difficult-to-swallow truth when he said that “Human beings are born with different capacities. If they are free, they are not equal. And if they are equal, they are not free.”[xvi]  

What about basic social services,[xvii] assuming these can be identified with clarity and are provided responsibly? Or funding infrastructure or job-training? Promoting science and technological innovation? Reducing the national debt?[xviii]

What about the unspoken, but certainly implicit, reason of maintaining public order by reducing the social tension that inevitably arises from extreme economic differences between “classes” – yes, we have them – and which may lead to civil unrest, even violence?[xix]

Considering these expenditures, is there any basis for the claims by many politicians that the affluent members of society don’t pay enough tax?

Disproportionate Tax Burden

It has long been the case that the upper echelons of individual taxpayers have borne a disproportionate (more than fair?) share of the taxes that fund the federal government:

• individual income taxes comprise about 51% of the government’s revenue;[xx]
• the top 1% of individual taxpayers (representing over 22% of total adjusted gross income) paid over 40% of such income taxes;
• the top 5% (representing just over 38% of total AGI) funded 61%;
• the top 10% (representing just over 49% of total AGI) paid around 72% of federal income taxes;
• the top 50% were responsible for 97% of such taxes.[xxi]

By comparison, the bottom 50% of individual taxpayers accounted for 11.5% of total adjusted gross income and 3.0% of total federal income taxes paid.

In New York State,  

• the top 200 taxpayers paid 7.7% of total personal income taxes;
• the top 200,000 (1.8% of all taxpayers) covered 51.9% of such taxes;
• the top 25% of individual taxpayers were responsible for 89.5%;
• the top 50% paid 99.8% of personal income taxes.

By contrast, the lower 50% of individual taxpayers paid 0.20% of total personal income taxes, while the lower 25% had no income tax liability but were net recipients of funds from Albany.[xxii]

What’s more, the top 1% of income earners account for between one third and one half of all charitable giving in the country.[xxiii] The top 1.4% account for over 85% of testamentary charitable gifts.[xxiv]

Although no one has yet adequately defined the term “fair share,” it appears the foregoing contributions – involuntary and voluntary – toward the public fisc do not suffice.

Proposed Tax Increases

In order to redress this “dereliction” of what is often portrayed as a “moral duty,” as distinguished from a civil obligation, many of our elected public “servants,”[xxv] at all levels of government, have been advocating for amending the tax laws to compel “the rich” (an undefined term is a dangerous thing, but so is the act of defining it, yet lines must be drawn) to pay more tax.

The proposed changes have run the gamut:

• increasing the tax rates at which the ordinary income and long-term capital gains of individuals are taxed;
• taxing carried interests as ordinary income;
• eliminating the private placement insurance wrapper;
• imposing a surtax on the income or assets of billionaires;
• imposing a minimum income tax on billionaires;
• eliminating the income tax deferral provided by a like kind exchange;
• expanding the reach of and increasing the rate for employment taxes on the rich (for example, by eliminating the Social Security tax salary cap, increasing the Medicare tax rate, and treating a limited partner’s share of partnership income as self-employment income when the limited partner is involved in the management and operation of the business);
• eliminating the deferral of income tax provided by certain mergers of corporations (including closely-held) whose incomes exceed a specific threshold;
• increasing the rate at which the income of C corporations is taxed;
• eliminating the income tax deduction for qualified business income;
• eliminating the deduction for certain “excessive” compensation paid by corporations to executives;
• eliminating income tax “loopholes”[xxvi] that benefit businesses, such as accelerated and bonus depreciation;
• taxing the unrealized gains of individuals (a so-called “wealth tax”), either annually or at death;
• eliminating the step-up in basis for assets passing from a decedent;
• increasing the estate and gift tax rates;
• reducing the unified estate and gift tax exemption;
• eliminating or restricting various gift tax loopholes,[xxvii] including short-term and zeroed out GRATs, and the inconsistency between the grantor trust and gift/estate tax rules;
• restricting the benefits of so-called dynasty trusts;
• and others.[xxviii]

And don’t forget the states.[xxix] Massachusetts, Rhode Island, Maine and Washington have introduced surtaxes or increased their tax rates on individuals with annual income exceeding $1 million, Minnesota is considering a wealth tax, California is holding a ballot for what purports to be a one-time billionaire’s tax.

In New York, the Legislature has long been clamoring for increased income tax rates on high-income individuals; at some point, New York will have a governor who will accede to the Legislature’s demands.[xxx]

Impactful?

How much would the federal fisc benefit from increasing the taxes to be collected from the well-heeled?

Probably not enough to make a material difference in the federal debt, at least so long as the existing non-discretionary programs continue to be expanded and new ones added.[xxxi] Today, expenditures for such programs account for about 55% of annual federal spending.[xxxii]

The additional taxes to be raised will likely be nowhere near enough to cover the government’s annual budget deficit, including the cost of servicing the public debt.[xxxiii]

What about the private economy? How would additional taxes affect business owners and investors?  

Will the proposed tax increases disincentive hard work? What about investments?

Will they prompt more affluent or more driven individuals to move elsewhere?[xxxiv]

Will they provide a reason for such individuals to cut their income tax liabilities by adopting aggressive strategies or by engaging in fraudulent behavior.

Perhaps worse still, will these individuals cut back their efforts, or just stop trying?[xxxv]

Finally, isn’t it likely that tax increases will be partially borne by workers[xxxvi] and consumers, generally?

Demagoguery?

It’s bad enough that so many publicly elected officials want to tax to the hilt those individuals whom they call “the rich.”[xxxvii] However, their frequent and repeated charges that economically successful business owners and investors have “unfairly” avoided their tax liabilities[xxxviii] has had the effect, whether intentional or not, of demonizing these individuals in the eyes of large segments of the general public.

Indeed, the continuous attacks by politicians on those whom they label “the rich” may reasonably be interpreted as an attempt to convince the electorate that its well-to-do fellow citizens are breaching some kind of “moral duty” to the rest of society.

When an elected official conflates, intentionally or not, what they believe is a moral duty with a civil obligation, they are not only substituting their own judgement for that of the individuals in question; they are also treating this “moral duty” as something that may be legally enforced by the government against a private individual.

Can we deduce from this a creeping assertion that an individual’s accumulation of wealth is immoral and, therefore, may be treated as illegal? Who will draw the line and where?

Would it be unwarranted for an individual who is part of the targeted group to display some indignation or resentment, even anger, in the face of these charges? Would they be more likely to view an ever increasing tax burden as confiscatory?

Identifying the Rich

Who belongs to this group of individuals that, according to many politicians and members of the general public, is acting “immorally”?

While politicians have been unable, or unwilling, to explain what they mean when they refer to “the wealthy” or “the rich,” let’s instead consider who comprises the so-called “1%.”  

A gross income of between $700,000 and $1 million – that’s before taxes (income, employment, investment surtax, real property, sales tax, etc.) – will put a family in the top 1% of earners nationally; about $1 million will slot them into the top 1% in New York State.[xxxix] Of course, a family may “fortuitously” join the 1% class for a particular tax year because of a one-off event such as a large year-end bonus or the sale of a closely held business.

Setting income aside for the moment, how much net wealth is needed to place a family in the top 1%, nationally? Somewhere between $11 million and $14 million. In New York State, it’s over $11.5 million.[xl] Query how much of this is illiquid, like a personal residence or a closely held business.

If we look at spending habits as indicative of wealth, the top 10% of earners – households that either earn at least $210,000 or have a net worth of around $1.8 million – account for about 50% of all consumer spending.[xli]

Self-Inflicted?

Over the last few years, the economy has been struggling with the after-effects of the pandemic, including the over-hiring that occurred during the post-pandemic recovery, which is now being felt keenly by younger people entering the labor force, many of whom are heavily burdened with student debt.

At the same time, companies have been actively laying off many employees, in no small part because of the cost-savings attributable to AI; more are expected.

Inflation, which preceded the tariffs and gas hikes, has been exacerbated by the latter and is being painfully felt by most Americans.

Against this backdrop, the overall stock market has generally been performing well, and has reached new highs. Larger corporations continue to announce impressive compensation packages for their executives.[xlii]

What’s more, there are segments of the wealthy who put their lives on public display, whether on reality television or on the various news outlets. Witness the “billionaire space race”; for example, Bezos spent over $5.5 billion on developing Blue Origin for a flight of just a few minutes in space.[xliii]

I guarantee you that most members of the public probably wondered whether those funds should have been spent, instead, on helping the hungry and homeless on the ground.

While the exploits of the rich have long drawn the attention of the rest of society in that they provide some measure of entertainment,[xliv] today they are eliciting a strong measure of resentment as many members of the upper class appear to be oblivious to the condition of so many.  

When the foregoing is combined with the demonization of business by public officials, is it any wonder that folks like “he who must not be named” are finding their way into positions of authority?[xlv]

What is to Be Done?[xlvi]

Against this backdrop, what should business do?

Following his election during the Great Depression, FDR decided to co-opt parts of the socialist agenda, which he then implemented on a less extreme scale than its originators intended, but enough to fend off the rise of a powerful far-left third party, or worse.[xlvii]

I daresay that the Patriotic Millionaires group is likely motivated, to some extent, by FDR’s example. They have a lot to lose.

Perhaps wealthy business owners – definitions, again – should take a page out of FDR’s book, not by paying over more money for the government to waste, but by engaging in direct “public assistance” of the kind that lessens the burden of government – as that term is used in the world of Section 501(c)(3) of the Code – perhaps in equal partnership with government.[xlviii]

It would also behoove the affluent to review a few pages of the Old Testament, which are full of practical advice regarding generosity and stewardship, as well as warnings regarding the pursuit of wealth for its own sake.[xlix] For example:

• “When you reap the harvest of your land, you shall not wholly reap the corners of your field, nor shall you gather the gleanings of your harvest.”[l]
• “If there is among you a poor man of your brethren, within any of the gates in your land which the LORD your God is giving you, you shall not harden your heart nor shut your hand from your poor brother.”[li]

The opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the firm.

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[i] “Taxes: An American Obsession? https://www.taxslaw.com/2025/07/taxes-an-american-obsession/#:~:text=In%20other%20words%2C%20we%20depend,galvanizing%20support%20for%20the%20Revolution.

[ii] Think of a return to a Hobbesian state of nature. Or better yet, recall the riots of the last few years, both in the U.S. and in Western Europe, during which government authorities seemed overwhelmed at times, or altogether absent, in which case the so-called “peaceful” protests devolved into mayhem.   

[iii] For an erudite discussion, see “Taxes: Price of Civilization or Tribute to Leviathan?” by Lant Pritchett and Yamini Aiyar, Harvard Kennedy School (August 2015). https://www.cgdev.org/sites/default/files/Aiyar-Pritchett-Taxes-Price-Tribute_WP412.pdf.

[iv] These folks are among the great benefactors of American society – you’d be hard-pressed to find their peers elsewhere in the world.

[v] Some might say, “progressive.”

[vi] Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934).

In a dissenting opinion, Judge Hand wrote, “Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.” Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947).

[vii] Founded on basic social contract theory.

[viii] https://www.taxslaw.com/2026/04/tax-planning-and-the-political-pendulum/

[ix] As many of you know, an idiom is a dangerous tool in my hands – one never knows how badly I’m going to mangle it. I hope I used this one correctly.

[x] This is the sort of nonsense out of which politicians try to make hay. (Yes, another idiom. I’m living dangerously.)

I should add that stories abound about conversations among business peers who claim to “have a guy” who has saved them millions. Nothing new there.  

[xi] Too many folks ignore the penalty exposure for not adequately disclosing certain positions taken on a tax return.

[xii] By the time the tax adviser finds out – in an audit or during due diligence on a transaction – it’s often too late to salvage the situation.

[xiii] Speaking of which, have you noticed an uptick in the activities of such sponsors following the Administration’s assault on the IRS?

[xiv] Indeed, all over the world; even China, which is tracking down where so many of its affluent citizens are hiding their wealth.

[xv] Many, if not most, folks don’t appreciate the difference between avoidance (legal) and evasion (illegal).

[xvi] I don’t mean to belittle the economic and other problems that so many confront every day. Unlike some, I do not believe that poverty is an inevitable or natural outcome. That’s a conversation for another day. Illness, on the other hand? 

[xvii] About 25% of the federal budget goes for healthcare insurance. Between 20% and 25% for Social Security. Between 5% and 10% toward economic security programs. These are non-discretionary expenditures. https://www.cbpp.org/research/federal-budget/where-do-our-federal-tax-dollars-go

[xviii] About 15% of the annual budget goes for interest on the national debt. Defense is about 13% – it’s the largest discretionary item in the budget, meaning it must be approved by Congress annually.

[xix] In that case, should “fair share” be equated with “having the most to lose”?

[xx] https://www.cbpp.org/research/federal-tax/where-does-federal-tax-revenue-come-from#:~:text=The%20three%20main%20sources%20of,April%2016%2C%202026.

Individual income taxes plus and employment taxes comprise about 85%. It is worth noting that “Payroll taxes are regressive: low- and moderate-income taxpayers pay a bigger share of their incomes in payroll tax than do high-income people, on average. The bottom fifth of taxpayers paid an average of 6.1 percent of their incomes in payroll tax in 2021, according to Tax Policy Center estimates, while the top fifth paid 5.7 percent and the top 1 percent of taxpayers paid just 2.1 percent. About two-thirds of taxpayers pay more in federal payroll taxes than personal income taxes. These figures include the employer and employee shares of the payroll tax.” https://www.cbpp.org/research/policy-basics-federal-payroll-taxes#:~:text=Employers%20pay%20an%20effective%20FUTA%20rate%20of%200.6%20percent%20FUTA%20tax&text=paid%205.7%20percent%20and%20the%20top%201%20percent%20of%20taxpayers%20paid%20just%202.1%20percent.

[xxi] https://taxfoundation.org/data/all/federal/latest-federal-income-tax-data-2025/ .

[xxii] https://www.tax.ny.gov/data/stats/taxfacts/personal-income-tax.htm .

[xxiii] https://ips-dc.org/top-heavy-philanthropy-explained-in-8-charts/

Again, it is worth pointing out that “Wealthy individuals certainly can and do give directly to working charities, as other donors do. But for the past several years, the favorite cause of wealthy donors has been their own private foundations. Slightly behind foundations, but rapidly growing in popularity, are the donors’ own donor-advised funds. And when wealthy donors do give directly to charity, their gifts tend to be directed toward causes that the wealthy disproportionately prefer—higher education and medical centers.”

See also https://www.taxslaw.com/2025/12/obbba-and-the-self-imposed-tax-known-as-charitable-giving/

[xxiv] https://www.washingtonexaminer.com/news/washington-secrets/1931600/americans-are-worlds-most-charitable-top-1-provide-1-3rd-of-all-donations/

[xxv] “Ye know that the princes of the Gentiles exercise dominion over them, and they that are great exercise authority upon them.But it shall not be so among you; but whosoever will be great among you, let him be your minister;and whosoever will be chief among you, let him be your servant.” Matthew 20:25-27 (KJV).

[xxvi] Detailed provisions that are far from being what we may characterize as loopholes.

[xxvii] The description may be appropriate in these cases.

[xxviii] I must concede that many of these changes are long overdue.

[xxix] The same is happening overseas.

[xxx] If even half of what the Legislature has been seeking becomes law, it will be a dark day in the State’s history.

[xxxi] The government would have to confiscate 75% of the total wealth of the top 1% to pay down the national debt.

[xxxii] https://www.cbpp.org/research/federal-budget/where-do-our-federal-tax-dollars-go

[xxxiii] Annual interest payments alone will exceed $1 trillion this fiscal year. https://www.pgpf.org/article/what-is-the-national-debt-costing-us/

[xxxiv] Within the U.S. we have seen plenty of such outmigration of individuals and businesses from high-tax states to low-tax states. Overseas, many wealthy families have similarly changed their country of residence and, in some cases, the location of their business in response to high taxes. Look at the U.K.’s recent experience.

[xxxv] “From each according to his ability, to each according to his needs.” This slogan, coined by Marx, is a recipe for disaster.  

[xxxvi] Including reductions in workforce.

[xxxvii] All the while still soliciting and accepting campaign contributions from them.

[xxxviii] Notwithstanding they have done so by complying with the legislation passed by Congress and signed into law by the President.

[xxxix] https://smartasset.com/data-studies/taxes-top-1-percent-2025. More is needed in the City.

[xl] https://www.windfall.com/blog/what-it-takes-to-be-in-the-top-1-of-every-state. Geography matters.

[xli] https://finance.yahoo.com/news/top-10-earners-drive-nearly-191500198.html I suppose that means that they also account for most of the sales taxes paid.

[xlii] https://hrexecutive.com/20x-and-climbing-the-ceo-vs-worker-pay-gap-is-accelerating/  In fact, “CEO pay jumped about 20 times faster than worker pay”; “it would take the average employee almost 500 years to make what one of the S&P CEOs made just last year.”

[xliii] Taylor Swift owns eight known homes.

[xliv] “Lifestyles of the Rich & Famous,” hosted by Robin Leach for over a decade, with its “champagne wishes and caviar dreams.”

[xlv] The mayor of a large American city.

[xlvi] No, I am not quoting Lenin. My mom and grandmother escaped from a communist country in a snowstorm. I’ve heard enough.

[xlvii] https://www.hoover.org/research/how-fdr-saved-capitalism

[xlviii] This may include the performance of certain governmental functions, such as education; for example, by providing and paying for training to develop the skilled employees required by business.

From a legislative perspective, it would also help their public image if private foundations and donor-advised funds were not “permanent” but were required to expend their assets within a relatively short period, during which they exercised the kind of expenditure responsibility we now see only in the context of certain expenditures by foundations. IRC Sec. 4945(h). 

More importantly, the federal transfer taxes (estate, gift and GST) is in need of an overhaul. For example, there are a number of planning or gifting techniques that are just too cute, but that the courts, and even the IRS, have addressed too literally, without regard to the purpose of the legislation. Some of the needed reforms were described earlier in this post.

[xlix] This is an old story.

[l] Leviticus 19:9.  

[li] Deuteronomy 15:7.

Reality Check?

A few days ago, Sen. Wyden, the Ranking Member on the Senate Finance Committee, introduced a bill to tax carried interests as ordinary income on a current basis.[i] A day earlier, Sen. Van Hollen introduced a bill to reduce the federal estate tax exemption to $3.5 million and the gift tax exemption to $1.0 million.[ii]

In fact, Democrats in Congress have been introducing a number of tax bills over the last few weeks that convey a consistent theme: it’s time to tax the wealthy.[iii]

Continue Reading Tax Planning and The Political Pendulum

Adequate Interest

The IRS uses the applicable federal rate, or AFR, to determine whether a private debt transaction provides for adequate stated interest for various income or transfer[i] tax purposes.

Typically, private debt includes a direct or indirect loan or other transaction that involves an extension of credit between related persons[ii] outside the public markets.

Continue Reading Bona Fide Debt Between Related Persons – Is it Enough to Charge Interest at the AFR? Maybe Not