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The other thing I I came to learn as I got money and I it was almost like someone pulled the curtain back for me is how wealthy individuals play the tax game. >> Oh my gosh. >> And it's a tax game that the average person has no idea is going on. Got to talk about money. Tax avoidance is a key skill to building wealth. And by the way, we don't talk about I I speak openly about my I won't call it tax avoidance, but my tax strategies. If you're, you know, it's like they said, if you're a prisoner of war, you have an obligation to escape. If you're trying to build wealth, you have an obligation to pay as little tax as possible. Do it legally, but Apple will issue their IP to Apple International in Ireland. And then they will use Apple Ireland. They will license their IP to America, charge them tens of billions of dollars, thereby increasing the income of Apple Ireland at a lower tax rate and decreasing the income in the US, thereby lowering their overall tax rate. That is pure tax avoidance. Every organization, every corporation does this to the hilt and so should you.
By the way, I will vote for people who have an alternative minimum tax. We have to raise taxes on corporations. The 25 wealthiest Americans pay between six and 8% tax rate. >> What are the tax games they're playing? >> Oh, this the rich people. >> There's a bunch of them. First and foremost, it's you buy stocks. You never sell them. You borrow against them. >> Okay. Explain that to me like I'm a 10-year-old. So, >> sure. You own $100 in Amazon stock. You need money to buy something instead of selling the stock and it say it's gone up 50%. I say it's doubled. you would have to realize a capital gain and pay long-term capital gains on that $50 gain. No, just borrow against it and let the stock continue to grow and you pay a little bit of interest hopefully from your current income, but basically it's invest, borrow against it and die, put it into a a trust and then pass it on to your kids.
There's a lot of um state arbitrage. Jeff Bezos just moved to Florida to spend more time with dad. Isn't that sweet, Stephen? Isn't that nice? No, it has nothing to do with his father. Give me a [ __ ] break. He aggregated $160 billion dollars in wealth. He would pay about another eight or 10 percent in state taxes in Washington because he's got to leverage the public school system, the University of Washington, the Seattle Tacoma airport, the hospital system. But in the US, you're allowed to peace out to Texas or Florida and pay no income tax. So all the people [ __ ] posting California or New York, show me someone who's all of a sudden can't handle San Francisco politics. I'm gonna show you someone who needs to recognize a capital gain and has all of a sudden decided they like Texas politics. It's really not very it's very disingenuous.
There's uh the tax loophole I've leveraged in the US. There's something called 122 or qualified small business. So when I started L2, >> what's L2? >> L2 is my analytics company. I started it. I invested a small amount of money. Um uh because it was a business worth less than 50 million. Your business would qualify in the US as QSB small business. If you hold on to that stock in that company for longer than five years, when you sell it, the first 10 million or 10 times the basis are taxfree. So the first 10 million out of L2 was tax-free. Zero. That makes no sense. If that sounds like we're screwing the middle class, trust your instincts. I invested in a company, brought a company out of bankruptcy. I invested two and a half million. The first 25 million got very lucky. The company got sold for a lot of money. The first 25 million were taxfree. These are the tax code has gone from 400 pages to 4,000. And that extra 3600 pages are to turn rich people into super rich people.
Now, the myth around taxes is the following. That rich people don't pay their taxes. Actually, the sort of rich pay a disproportionate amount of taxes. So if you make all of your money from current income, that is salary, and you make a lot, you're actually paying more taxes than anyone. So mom's a baller. She's a partner in a prestigious law firm making a million bucks a year. Dad's a chiropractor, has three people working for him. He makes 600 $1.6 million a year. Total ballers. In order to make that kind of money, they probably have to live in a urban center in a blue state where at that level they're paying 45 48 sometimes 52% tax rates. But if dad decides to raise capital and buy a bunch of chiropractic clinics and they become investments and he sells them for $50 million, his tax rate plummets. So you don't want to be a super earnner. You want to earn enough money to invest so you can become a super owner. The top 25 wealthiest Americans pay about 8% in tax, right? So, actually the bottom half pay almost no tax. They pay a lot of consumption taxes, but it's the super earners that get screwed, what I call the workh horses, but once you make the jump to lighteed and you own things and you make your money from buying and selling assets, your tax rate plummets.
The really sort of actionable thing there for the average person as well is probably the the first point where you said a lot of what rich people do is they'll buy a stock. So I'll I'll spend 10k on Amazon stock and then I go to a bank and the bank give me a $5,000 loan against my Amazon stock taxfree and I just hold the Amazon stock. Now I've got 5,000 tax free. If the Amazon stock goes to tw $20,000 in value then I can I can go to the bank and say it's gone up now. give me another $5,000 and I just spend and live off that money. Now, if the Amazon stock collapses, >> I'm fine because the loan was against the stock. So, they'll sell the stock at a certain point as it's collapsing to get their money back. Yeah. I mean, you don't want to get into too much trouble, but leverage is how smart people go broke. But the idea is that one of the great tax schemes in history is that stocks grow. Think of yourself as a stock. You you go up in value a million bucks a year. You're making a million dollars a year doing a very successful podcast. Every year, the government in the UK is going to take 40 cents of that, 40% of it. If you own a million dollars in stock and it goes to 2 million, you don't get taxed on it till you sell it. >> Yeah. So, just never sell it. >> Never sell it. >> And that's what Elon's doing with his companies. People say he's got, you know, $200 billion, whatever. In fact, he's borrowing taxfree against those companies. And then when he finally needs to sell it to pay off some of those loans, he moves to Texas despite the fact he built all his wealth in California. >> Smart.
I think uh one of the great advantages of life is um as it relates to wealth creation is really getting good tax advice because I've sat here over and over again with people that have great tax advice and some people who didn't have any at all. And the outcomes are quite frankly um shocking. The variance in outcomes are quite frankly shocking from one person going bankrupt to the other person becoming a multi-billionaire. And it comes down to some of it comes down to their tax strategy and how they thought about tax and you know being around a lot of people now that are masters in tax. It was like >> yeah I describe it as someone pulled back a curtain that I never knew was there and all these people were doing magic behind this curtain and no one ever told me that curtain existed >> and it's called tax. We don't all pay the same tax >> because we're not supposed to talk about it again. Not talking about it is rich people trying to keep poor people down. >> Yeah. >> Because rich people talk about their taxes all the time. The brightest woman in my entire professional universe is a woman named Lucy Lee, who is my tax Yoda, who works at a big law firm that I pay 1,800 bucks an hour to to figure out the smartest. When I set up a company, I talk to my tax person. When I'm about to get a big payment from my podcast distribution company, I talk to my tax person first. This is it is everything. But the key when you're young is to become an owner, not an earner. You're an earner. You want to bust a move out of earning and develop an army of capital that goes out and kills for you at night. 500 bucks is a lot of money when you're 21. 500 bucks when you're 21 is 10,000 when you're my age, right? And it's going to go really fast. So just start. And then once you become a super owner, you have 10,000, 50,000, h 100,000, a million dollars in assets, then then you can become a super tax avoider. That sounded awful, didn't it? Sounded awful. That sounded awful. Sitting here with your bucket of sand. Oh my god. >> That's right. Talking about This is how we [ __ ] the middle class, Stephen. This is how we really screw over the little guy.
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