How the rich make money by losing money
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Why did the richest Americans once pay up to 40% tax on their investment gains?
NPR.
Decades ago, the richest Americans paid taxes as high as 40% on their investments. That means if they sold a bunch of stock or their company got acquired, a good chunk of that payday would go to the government.
But right now, some millionaires and billionaires are plowing their money through a tax loophole so big it could allow them to slash their taxes to zero. This is The Indicator from Planet Money. I'm Waylon Wong.
And I'm Adrian Ma. Today on the show, we'll be joined by Bloomberg reporter Lukia Giftapulu. She covers investing and the wealth management industry. And recently, she and her colleagues did a series of stories on what they call this generation's great American tax dodge.
After the break, she explains how it works and tells us about the man behind it, a hot-tempered, computer screen-punching financial whiz who runs the world's biggest hedge fund right here in the U.S.
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The story of this era's great American tax dodge starts with a man named Cliff Asness, 59 years old, with a bald head and gray beard and a Captain America tattoo on his arm. Cliff worked at Goldman Sachs in the 90s and around that time also got a Ph.D.
Who is Cliff Asness and how did he build AQR Capital into a hedge‑fund giant?
in finance.
Cliff Asness is a very big, bigger-than-life personality. That's Bloomberg reporter Lucia Giftapulu. He's, let's say, a mad genius, in a way, who's found this way to help rich people. slash their tax bills potentially to the extreme.
Another mad genius. There's very few geniuses that are described as stable.
Yes.
People who have spent a lot of time with him credit him as one of the smartest people they've ever met. At the same time, he's got a massively short fuse. He shouts at people. He's admitted that he's, during the financial crisis, he was punching through computer screens maybe afterwards as well. I don't know.
Cliff Asness also loves to throw verbal punches. He's known for publicly insulting fellow finance bros like billionaire Bill Ackman. And he's written a lot of Wall Street Journal op-eds, including one where he defended what he called the working rich.
I think Ebenezer Scrooge was a member of the working rich
class. I think that would count.
After his stint at Goldman, Cliff struck out on his own. He set up a hedge fund called AQR Capital Management. And for years, AQR was a pretty typical hedge fund, taking money from wealthy individuals or pension funds, investing it, and trying to turn it into even more money. But then a few years ago, Lukia says, they made a pivot. They shifted towards something called tax-aware investing. Which means what
exactly? We help rich people slash their tax bills. That's what tax-aware investing means.
While traditional investing is focused purely on growing a pool of money, tax-aware investing is focused on reducing how much an investor owes to Uncle Sam. One classic strategy for doing that is something called tax loss harvesting. That's when you sell off losing stocks and write off those losses to reduce your tax bill.
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Chapters
5 chapters
1
Why did the richest Americans once pay up to 40% tax on their investment gains?
0:00–2:30
2
Who is Cliff Asness and how did he build AQR Capital into a hedge‑fund giant?
2:30–4:35
3
What is “tax‑aware investing” and how does it differ from traditional investing?
4:35–6:32
4
How does AQR’s tax‑loss‑harvesting‑plus‑strategy create intentional losses to erase taxes?
6:32–9:24
5
What concrete numbers illustrate the potential $600 million loss offset in AQR’s model?
9:24–11:24
Speakers
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