How the Rich Pay Less Tax

Workers pay taxes twice: first when they earn income and again when they spend it. Wealthy investors, by contrast, can avoid recognizing taxable income altogether. By borrowing tax-free against their assets (company shares, property, etc.) instead of taking a large salary or realizing capital gains, they can access cash without triggering an income tax bill. Paying an 8% sales tax on a new sports car can be far cheaper than selling appreciated stock or paying themselves enough income to buy it, which could also trigger income or capital gains taxes exceeding 20%.

Private yachts and jets are often owned through corporations, LLCs, or other legal entities rather than directly by individuals. Depending on the jurisdiction and how the asset is used, this structure may provide tax advantages, such as deferring or reducing sales taxes, VAT, or other business-related expenses. Simply owning an asset through a company, however, does not automatically eliminate those taxes.

Why do banks agree to this? Publicly traded stocks are highly liquid collateral. If the market declines, the bank can issue a margin call and, if necessary, liquidate enough shares to protect its loan. Banks also require conservative Loan-to-Value (LTV) ratios, for example, lending only 50% of the collateral's value, to create a substantial safety buffer.

At first glance, this strategy seems to have an obvious flaw. If someone continuously borrows to fund their lifestyle, won't they eventually have to sell their assets to repay the debt, triggering decades of deferred capital gains taxes?

Under current U.S. law, the answer is often no. When someone dies, most appreciated assets receive a "step-up in basis," meaning their tax basis is reset to their fair market value on the date of death. As a result, when the estate sells the shares to repay the bank loans, there is little or no capital gain remaining to tax, even if the assets appreciated enormously during the owner's lifetime.

That does not mean the estate escapes taxation entirely. Very large estates may still owe the Federal Estate Tax. However, the estate tax is calculated on the net value of the estate:

Net Estate = Total Assets − Total Liabilities

Outstanding loans reduce the taxable estate because debt is deductible. The estate can then use the proceeds from selling the stepped-up assets to repay the bank, leaving the remaining wealth to pass to the heirs with little or no capital gains tax on the appreciation accumulated during the deceased's lifetime.

The strategy is powerful, but it is far from risk-free.

A severe market downturn can trigger margin calls. If the borrower cannot provide additional collateral, the bank may force the sale of shares. Since the owner is still alive, the original cost basis applies, potentially creating a large capital gains tax bill. Selling additional shares to pay that tax can trigger even more taxes, creating a vicious cycle.

Borrowing costs are another major risk. These lines of credit typically carry variable interest rates tied to benchmarks such as SOFR. If interest rates rise while asset returns stagnate, the cost of servicing the debt can eventually exceed the portfolio's growth.

Liquidity is also critical. Interest payments must be made continuously. If a borrower's wealth is concentrated in a company that stops paying dividends or if banks become unwilling to extend additional credit, they can become "paper rich but cash poor," forcing them to sell appreciated assets and incur the taxes they had hoped to defer.

Finally, the entire strategy depends on the tax code remaining favorable. Because "Buy, Borrow, Die" has become widely discussed, proposals to limit or eliminate its advantages frequently appear in tax reform debates.

When markets appreciate steadily, borrowing costs remain manageable, and tax laws stay largely unchanged, Buy, Borrow, Die can preserve significantly more wealth than repeatedly selling appreciated assets. But the strategy rests on three pillars: rising asset values, continued access to cheap credit, and favorable tax rules. If any of those pillars fail while the borrower is still alive, leverage can quickly transform from a wealth-preservation tool into a substantial financial liability.

Sunshine: What your skin feels vs what it sees

We naturally associate sunlight with warmth. When the summer sun hits our skin, our immediate instinct is that the heat itself is what burns us. However, sunlight is a complex spectrum of electromagnetic radiation, and our body’s sensory perception can easily trick us into a false sense of security.

1. The Illusion of the Cool Breeze

Sunburn is caused by UV radiation, not by the temperature of your skin. It is a radiation burn caused primarily by UVB radiation, with UVA also contributing to skin damage. UVB has a shorter wavelength and enough photon energy to break chemical bonds in cellular DNA. The resulting cellular damage triggers the inflammatory response we recognize as sunburn. In contrast, the sensation of warmth comes from infrared rays.

If you are swimming in a cool pool, feeling a chilly breeze, or using a cooling mist, your skin temperature remains low, but the UV radiation hits your skin cells at essentially the same rate. Neither pool water nor mist blocks UVB rays significantly. Water provides only modest protection near the surface. Significant UV reduction occurs only after substantial depth (roughly around a meter, depending on water clarity). Because cooling masks the sensation of heat, it often leads to a more severe burn by tricking you into staying outdoors far longer.

This is why people often get badly sunburned while skiing or mountaineering, despite air temperatures below freezing. At high altitudes, the thinner atmosphere absorbs less UV radiation, and snow can reflect up to 80% of incoming UV, substantially increasing exposure.

2. The Vitamin D Synthesis Balance

Despite the risks of radiation, solar exposure is vital for human health. UVB radiation is the sole trigger for synthesizing Vitamin D. When UVB photons hit the epidermis, they split a chemical bond in a compound naturally present in your skin (7-dehydrocholesterol), instantly converting it into Vitamin D3. 

Because standard window glass blocks 99% of UVB, you cannot produce Vitamin D by sitting next to a closed window, despite how bright or warm it feels. Your skin requires direct, unhindered exposure to the sun. 

Fortunately, it doesn't take much: In summer around mid-latitudes, exposing your arms and legs to midday sun for just 10 to 15 minutes a few times a week is often enough for Vitamin D synthesis, maximizing metabolic benefits while keeping cellular DNA damage low.

3. The Biological Trade-off: Pigment and Heat

Darker skin contains a high concentration of eumelanin, a dark pigment that acts as a built-in physical shield. Eumelanin absorbs and scatters UV radiation, offering a natural protection factor equivalent to roughly SPF 13–15. However, basic physics dictates that darker surfaces have a lower albedo (reflectivity) and absorb more light across the visible and infrared spectrum. 

Because darker skin absorbs more visible light, it can reach somewhat higher surface temperatures under strong sunlight. However, this difference is moderated by increased blood flow, sweating, and other thermoregulatory mechanisms, keeping core body temperature essentially unchanged. This likely reflects an evolutionary trade-off in which protection against UV-induced DNA damage outweighed the modest increase in cooling requirements.

Why Flying is Safer Than Driving: The "Amateur Variable"

When travelling by air, the most dangerous part of your journey is the drive to the airport. Your annual odds of dying in a car crash are roughly 1 in 8,500, compared to 1 in 11 million for a commercial flight. Since we travel infrequently by air, a better risk comparison is to use per mile risk, where cars are 519 times more dangerous than planes.

While aerospace engineering, regulations and air traffic control deserve a lot of credit, the underlying secret to aviation safety comes down to a fundamental human truth: the total elimination of the amateur operator.

The barrier to entry for an automobile driver’s license is low. You pass a basic test in your youth, and for the next several decades, you are rarely, if ever, re-tested.

When you slide onto the highway, you are operating in a chaotic, tight, two-dimensional space. You are sharing the asphalt with drivers who might be fatigued, distracted by a text message, impaired by alcohol, or simply having a bad day. On the road, your safety depends heavily on the unpredictable decisions of amateurs.

An airline cockpit is a zero-amateur environment. To sit in that seat, a pilot must log hundreds of hours of initial training, pass rigid medical screenings, and clear random drug tests. More importantly, their education never stops. Every six months, commercial pilots are forced back into high-fidelity simulators to be tested on the absolute worst-case scenarios: engine blowouts, severe turbulence, and system failures.

Furthermore, aviation operates under strict Crew Resource Management protocols. There is no room for ego or unmonitored human error; every action is checked and cross-checked by a qualified co-pilot, backed by an automated system of digital guardrails. If a driver falls asleep at the wheel, the car becomes a missile. If a pilot faces a medical emergency, a second, equally trained professional instantly takes the controls.

Odds of Dying: 

8,500  ≈ 340,000,000 / 40,000

The Joy of Historical Deep-Dives with AI

My recent chat with AI started simple: How did we get from Michael Faraday’s 1821 toy demonstration of a wire spinning in a bowl of mercury to the high-power industrial motors that run our world today?

It turns out the evolution of the electric motor wasn't just a story of laboratory breakthroughs. It was a messy, high-stakes saga funded by wartime telegraphy, secured by Cossacks, and built by a group of brilliant, broke brothers who knew exactly how to close a magnetic air gap when it mattered most.

When I asked what role Werner von Siemens played, the conversation shifted from pure physics to heavy mechanical engineering. It turns out Siemens’ grand contribution wasn't discovering a new law of nature; it was eliminating the air gap.

Early armatures were bulky and left air gaps between the spinning rotor and stationary magnets. Because air resists magnetic fields, energy was wasted. Siemens invented the shuttle armature in 1856, cutting deep grooves into an iron cylinder to tuck the wires inside, allowing the iron core to spin mere fractions of a millimeter from the magnets.

I realized that Siemens was pouring capital into motor R&D in the 1850s and 60s, but motors weren’t commercially viable yet. Where was the money coming from?

I discovered that Werner von Siemens started with absolutely zero family money. He was not a member of the aristocracy, Werner officially received the "von" name in 1888, quite late in his life (he was 71 years old). He was a penniless son (with 10 other siblings) of an educated tenant farmer who couldn't afford college. He only got an engineering education because he joined the Prussian Artillery Corps in 1834, which offered free schooling to officer candidates.

To be accepted as an officer candidate, Werner had to pass a demanding entrance examination that tested math, physics, geography, and French. This was a great hurdle for him because his secondary school education had focused heavily on classical languages (like Latin and Greek) rather than hard sciences. He spent three months cramming under intense self-preparation. Later in his life, he admitted in his recollections that while he prepared fiercely, passing the exam and securing his spot was also aided by "a spot of good luck."

Once inside the academy, Werner treated his strictly military duties as a necessary chore to secure his livelihood, focusing his real energy on the chemistry and physics lectures taught by top university scientists. The penniless outsider had successfully used the Prussian state to fund the very education that would later allow him to revolutionize the industrial world.

Even his early laboratory work was pure hustle. He perfected a commercial electroplating process while serving time in a military prison cell for acting as a second in an illegal duel! Because he was an officer, he was given "honorable confinement" (Festungshaft), allowing him to turn his cell table into a chemistry bench and smuggle in reagents through a friendly local apothecary and earn some money.

While serving as an artillery officer, Werner became fascinated by the early needle telegraphs being developed in Britain by William Fothergill Cooke and Charles Wheatstone. These early devices required users to watch multiple needles point to letters on a diamond-shaped grid. They were finicky, easily knocked out of sync, and required skilled operators. Werner looked at this system and thought he could make it vastly more user-friendly. In 1846, he built a prototype of a dial telegraph. It was so simple that an untrained person could type and read messages instantly.

Because Werner had spent years publishing scientific papers and developing his dial telegraph prototype, he was appointed as a technical expert to the Prussian Telegraph Commission in 1846. He effectively became the internal advisor helping the government decide what to buy, putting him in the perfect position to pitch his own capabilities.

Werner had the design, but he lacked two critical things: the money to build it at scale, and the mechanical precision to manufacture it perfectly. He found his solution in two men: Johann Georg Halske, a highly skilled master clockmaker and precision mechanic in Berlin. Johann Georg Siemens, Werner’s wealthy cousin. He provided the initial seed capital of 6,842 thalers (a substantial sum for a young startup) to buy tools and rent a small workshop. On October 1, 1847, they opened the Telegraphen-Bauanstalt von Siemens & Halske in a small Berlin courtyard with just ten employees.

In 1848, amidst a wave of violent democratic revolutions, the Prussian government desperately needed a secure, underground communications line from Berlin to Frankfurt. Werner did not have high-society aristocratic connections, but he built a highly strategic, merit-based professional network inside the Prussian military and scientific establishment. He secured the 1848 Berlin-to-Frankfurt 500km telegraph contract through a mix of institutional placement, a powerful mentor (Magnus), and a perfectly timed political crisis. He also had just invented a machine to coat copper wires in seamless gutta-percha (a newly discovered Malaysian tree sap, better than rubber, sent to him by his younger brother Wilhelm in London). He landed the contract and laid the underground line.

But then came the twist: After a while, the early underground wires rotted. Bacteria ate them. Field mice and hamsters chewed through them. The Prussian underground network collapsed, a bitter bureaucratic feud erupted, and Siemens was effectively blacklisted from getting any more Prussian state contracts.

To survive, the Siemens brothers had to pivot internationally. They ignored Germany and went all-in on the Russian Empire. It required adapting to a closed, highly suspicious St. Petersburg aristocracy. Werner sent his 24-year-old brother, Carl Siemens, to embed himself in Russian high society. Carl succeeded by exploiting the looming panic of the Crimean War and pitching a killer product: a telegraph dial entirely redesigned with the Cyrillic alphabet, meaning completely untrained Russian soldiers could operate it instantly. They first won the initial contract for a line from Warsaw to the Prussian border, finishing in months, proving to the Tsarist officials that the company could deliver under immense pressure. Then they won the 9,000km 1853 telegraph contract.

Having learned his lesson from the previous underground catastrophe, instead of burying the wires to rot, Siemens built a 9,000-kilometer overhead network on wooden poles. This led to the discovery of the Tatarengalvanometer.

Laboratory testing equipment of the 1850s used delicate silk threads to hang magnetic needles, they broke if you looked at them wrong. Because Siemens was laying lines through the brutal Siberian winter and the rocky Caucasus, Werner ruggedized the technology. He mounted the needle on a heavy steel pivot and encased it in a dust-proof, waterproof cast-iron shell. It was built so tough that local labor crews could drop it in the mud or throw it in the back of a horse wagon without losing calibration.

The engineers affectionately named it after the local frontier populations: the Tatarengalvanometer.

...And the rest is history.

If I had read a standard biography of Werner von Siemens, I would have gotten a dry list of dates. If I had read a textbook on electric motors, I would have gotten pure math.

By using an AI collaborator as an adaptive sounding board, I was able to follow the thread of my own curiosity in real-time. I could jump instantly from the electromagnetic flux of a shuttle armature to the sociological reasons a German engineer could charm his way into the Tsarist court, and then immediately back down to the math of Ohm's Law.

The Siemens story is also a reminder that extraordinary success requires hard work, resilience, intelligence, building a strong network by being useful to others, and a measure of luck, often arriving disguised as a crisis.

PDF: Memoirs of Siemens [Lebenserinnerungen] 

Music: Where have all the Flowers Gone - Marlene Dietrich

Computer engineering magic

"Any sufficiently advanced technology is indistinguishable from magic." Arthur C. Clarke

In the field of computer engineering, the following appear as magic to me. I am planning to lift this mystery by building small-scale models:

1. How games like Prince of Persia could be written in assembly
2. Detecting syntax errors while typing (linting)
3. Code completion
4. Stopping a program at a breakpoint and inspecting debug information
5. Interpreters (with parallelism on multicore) and compilers

These would help me to transition from "user of tools" to "creator of systems."

Surprising Facts

A collection of facts that I found surprising:

1. Availability of animals for domestication was the reason for deadly animal-human disease transmission and the death of 90% of American indigenous population. And the lack of domestic animals in the Americas was the reason why there was no American plague spreading in Europe.
2. The Wright brothers did not invent flying in the general sense but they invented controlled flying by overcoming adverse yaw during rolling maneuvers.
3. The root cause of the oxygen tank explosion in the Apollo 13 mission was using 60V during ground operations on 28V rated oxygen tank to boil off oxygen in the tank which led to welding of the thermostat and the eventual burning of wire Teflon coating.
4. The Linux Kernel has thousands of goto statements.

Music: First Man soundtrak

Germany-Switzerland Train Tour

This August we embarked on a train tour across Germany and Switzerland, visiting a different city every day. Our route was: Düsseldorf – Köln – Koblenz – Heidelberg – Freiburg – Luzern – Interlaken – Bern – Zürich – Stuttgart – back to Düsseldorf

We chose the cities so that each train journey was around one hour. Every afternoon, we traveled to a new city, rested at the hotel, took an evening walk, ate dinner, then the next morning had breakfast, checked out while leaving our baggage at the hotel, explored the city for a couple of hours, picked up our luggage, and continued on to the next city.

Booking Trains and Hotels

We had secured our train tickets and hotel bookings as early as April. It is not critical for train tickets because you will always find a train with paying around 20% more if you buy on the day of your journey. Buying individual tickets for each route was much cheaper than buying a Eurail Pass. Hotels must be booked in advance, otherwise you won't be able to find a room.

The entire process was digital. To buy train tickeds, we used DB Navigator, bahn.de, Omio for Germany and SBB for Switzerland. You don’t need a physical ticket to board—just show the QR code to the ticket inspector after finding a seat. Seats usually display their reservation status on a small LCD screen next to them. If you don’t have a reservation, simply choose a seat that isn’t reserved.

We used Booking.com for hotel bookings, making sure our hotels were within 15 minutes walking distance of of train stations. We complemented our city explorations with walking routes from the GPSmyCity app (20 USD/year).

Trains

• German ICE trains were fast, comfortable, with free WiFi and quiet 1st class cars.

• Note that sometimes they change the train platform/track number ("Gleis" in German). Pay attention to the screens and announcements. In the photo below, the platform of our train has been changed from 5 to 4:

• Swiss regional trains were slow and more scenic, but 2nd class trains typically lacked WiFi. Even station WiFi required SMS verification—which didn’t accept Turkish numbers. That left us dependent on hotel WiFi unless we wanted to pay roaming fees.

• Trains generally ran within 10 minutes of their scheduled time.

• Seat reservations cost 7 euros per person, but if you travel outside rush hours, they’re unnecessary, there are plenty of empty seats.

One of the trip’s strongest impressions was how deeply rail networks shape daily life in these countries. Every town is linked by trains running at 150 km/h or more. This creates not just convenience for travelers, but also massive employment opportunities for technicians, engineers, and operators who maintain and innovate these networks.

As the saying goes: "A developed country is not a place where the poor have cars. It's where the rich use public transportation." For a deeper dive into this idea, I recommend the YouTube channel Not Just Bikes.

Practical Travel Notes

• We were always able to pay by credit card. Only once did my card not work in a grocery store, and I had to pay in cash. Having 200 euros in cash will be more than enough.

• Breakfast: Hotel breakfasts average 20 euros per person. Since we had modest breakfast needs, we skipped them, preparing our own breakfast, using our own egg cooker. A nice side benefit was that we didn’t have to conform to the hotel’s breakfast hours and each member of our family could sleep as much as they wanted. Grocery chains like REWE, Lidl in Germany and Coop in Switzerland became our go-to spots. Here is our typical breakfast:

• In Switzerland, our egg cooker required a Euro-to-Swiss (Type J) adapter because it had thick pins, while Swiss electrical outlets are designed for thin ones:

• Tap water: Safe and free everywhere.

• Weather: It was a pleasant 25 °C on August 4, but by August 11 a heat wave had reached Germany and Switzerland, with temperatures rising to 35 °C, making walking exhausting. It lasted for a week and subsided just as we returned. Locals said this happens only once a year, and we were a little unlucky to catch it.

Music: Sia - Cheap Trills