Pascrell Op-Ed Again Urges End to Infamous Tax Loopholes
WASHINGTON, DC – U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), the Chairman of the House Ways and Means Subcommittee on Oversight, this weekend published an op-ed in the North Jersey Bergen Record outlining the two worst loopholes in America’s federal tax laws, so-called carried interest and stepped-up basis, and urged their closure as essential to creating a fair tax system.
As Oversight Chairman, Pascrell has made reform to America’s two-tier tax system one of his highest priorities on the Ways and Means Committee. On December 7, 2021, Pascrell convened an oversight hearing on how wealthy families increasingly transfer property for generations to avoid ever paying taxes on vast fortunes. The hearing shed new light on how Americans are using states likes South Dakota and Wyoming as favored tax havens to hide their money right within U.S. borders. On March 8, 2022, Pascrell impelled Treasury Secretary Janet Yellen to expand efforts to crackdown on tax abuse by wealthy families.
The text of Pascrell’s latest op-ed is below.
The federal tax code is broken. Here are two steps toward fixing it
By Rep. Bill Pascrell, Jr.
Navigating impossibly complicated instructions or to spending hard earned money to download software or hire a CPA – and all for the task of forking over more money to Uncle Sam – can be frustrating.
Making the process even more agonizing is that we are all participants in an unfair two-tier tax system.
The first tier, the one middle class Americans occupy, demands that we pay a fair share commensurate with what we have.
The smaller second tier is just multi-millionaires and billionaires. It allows its exclusive members to pay paltry tax rates that constitute a tiny fraction of their fortunes.
For all the chatter about Russia’s oligarchs exercising near-total dominion over their economy, we have our own set of plutocrats right here in the United States devouring larger and larger segments of the economy.
And we are helping their largess grow because of our broken tax code.
Americans are rightly outraged by yearly reports of Fortune 500 companies paying paltry or zero taxes. The tax code was enfeebled by Republicans’ 2017 tax scam law which slashed individual tax rates for the wealthiest and lowered the corporate tax rate from 35 to 21 percent, throwing trillions of dollars at the richest Americans.
As a member of the House Ways and Means Committee, we hold jurisdiction over federal tax laws. Sitting on the panel for over 15 years, I’ve become acquainted with some of the worst aspects of our tax laws, starting with the myriad of loopholes.
Loopholes are escape hatches burrowed through the law by clever attorneys working on behalf of wealthy clients seeking to avoid paying taxes.
The federal tax code is now over 7,000 pages. Those high-priced tax lawyers have turned those 7,000 pages into a hunk of Swiss Cheese.
Some loopholes are worse than others in terms of the amount of financial abuse they abide. Then there are the worst of the worst.
Of this group are two worth highlighting: carried interest and stepped-up basis. I would classify them as the worst loopholes in the entire tax code.
The carried interest loophole allows certain bankers to pay the lower capital gains rate on their income (15 or 20%), rather than paying ordinary income rates (up to 37%) that all other Americans pay on their earnings from work.
Carried interest was written to help workers in speculative industries like oil drilling. Over time it has been perverted into a tool for Wall Street executives to avoid paying taxes.
These bankers do not typically build ventures from scratch and incur little of the risk the exemption was created to reward. Instead, private-equity firms acquire companies to flip them at a profit, often after cannibalizing businesses and eliminating jobs.
The stepped-up basis loophole has a similar negative impact. It is the main vehicle for wealthy families to safeguard their inheritances from taxes. Because it avoids payment of gain on the appreciation of the assets, inherited wealth grows exponentially.
The two loopholes are huge drivers of the income inequality plaguing America.
In the House, I am the main sponsor of legislation to close both carried interest and stepped-up basis. I am also cosponsoring the Babies Over Billionaires Act, legislation which builds upon my plan to close stepped-up basis. The newly introduced bill taxes the unrealized capital gains of taxpayers with over $100 million in assets and then funnels that money into federal education and health programs.
There is no rationale to justify the loopholes except to further enrich billionaires.
And yet Congress has failed to repeal either of them. That failure is a disgrace.
Primary blame lies with Republican leaders. For decades now, the GOP’s number one pursuit has been lowering taxes for the rich. Republicans have repeatedly gutted the IRS for the purpose of making it harder to pursue rich tax cheats. Republican Party leaders will virtually never force the rich to pay a higher tax rate.
Nevertheless, there are Democratic members, too, who are lukewarm towards tax fairness and others hostile to it. Despite my consternation, we have yet to hold a single hearing on my bills to close carried interest or stepped-up basis, much less get a vote for them in committee or on the House floor.
President Biden has said he supports closing the stepped-up basis loophole. To that end, I have asked the Treasury Department to issue regulations clarifying that terminating or transferring an irrevocable trust at a grantor’s death doesn’t qualify the trust’s property for stepped-up basis tax treatment. I hope they act soon to stop these tax avoidance schemes.
The future of our country depends on creating a fairer tax system. There is still time this year. The window has not shut but it is closing a little more each passing day. The opportunity is there – if we seize it.