Washington’s oldest contact sport: Lobbyists scrum to dilute or kill Democrats’ tax bill
The stretch between K Street in downtown Washington and the Capitol is resembling the Alabama football team as it charges onto the field. It’s the special interest lobbyists charging to dilute or outright kill provisions in the Democrats’ tax bill.
As part of the multi-trillion spending and tax reconciliation measure, the House Ways and Means committee this past week cleared more than $2 trillion in higher taxes over ten years. It jacks up the top corporate and individual rates, boosts taxes on capital gains, and closes some loopholes.
It is one of the largest tax increases ever. It also may be the high-water mark for revenue, which affects the size and scope of the social infrastructure measure.
The Ways and Means bill is more robust than expected. It’s likely to be amended by the House leadership to secure the votes for passage.
The clout of wealthy interests is evident, however, both in what the Democrats are fighting to keep in the bill under pressure from lobbyists and what was left out. Only about a third of President Biden’s proposals to crack down on multinationals’ use of shelters to escape taxation were adopted.
Three provisions that benefit almost exclusively the affluent underscore the challenges: the estate tax, not taxing capital gains at death, and the carried interest loophole for private equity and hedge funds executives.
Years ago, the wealthy scored a huge political victory when, with the help of word spinmeister Frank Luntz, they labeled the estate tax the “death tax.” Actually, it only affects the very affluent and the very alive: It’s affirmative action for well-to-do heirs.
By means of gimmicky jargon and fervent support of rich campaign contributors, the estate tax has been gutted so that only about one tenth of 1 percent of all estates in America pay any tax; it’s applied to taxable estates above $23.4 million for a deceased couple.
The Ways and Means Committee restored the generous threshold of almost $12 million before the 2017 Trump tax cut, generating angry protests that this would be catastrophic for farmers, small businesses and average folks.
There are special protections for farms — it’s difficult to find many family farms that pay estate taxes — and small businesses, with preferences and stretching out any payments.
For the “just folks”: Let’s hypothetically take Ida M. Rich who dies shortly after her husband, leaving an estate valued at $25 million for her children, Richie and Charity. She leaves $5 million to her house of worship, local hospital and alma mater, leaving taxable income of $20 million. Under the Ways and Means bill, the federal estate tax would be a bit more than $3 million. Depending on whether there is any state tax, Richie and Charity would each get $7 million to $8 million.
I don’t think this will offend “average folks.”
That’s possible because the committee, after heavy lobbying, didn’t touch the provision in the current code which doesn’t tax capital gains at death, the so-called stepped-up basis. Heidi Heitkamp, a former Democratic Senator from North Dakota, warned altering the stepped-up basis would damage family farms and small businesses and would “not be well received by the public.”
It would be a pretty well-heeled public.
There’s a $2 million exemption — so again, in the hypothetical example, if Mrs. Rich had $5 million of capital gains, it would have faced a tax of less than $1 million.
Under the carried interest loophole, the profits that private equity and hedge fund executives derived from fees are taxed at the lower long-term capital gains rather than as ordinary income. The Chamber of Commerce claims changing this this would cost 4.9 million jobs over five years because these executives pay somewhat higher taxes, so… the committee didn’t touch this loophole — except to extend the holding period.
Already, K Street lobbyists and Republicans are warning that even the watered-down Ways and Means bill is socialism. So, I turned to two experts. One, Michael Graetz, was a top Treasury tax official in the George W. Bush administration and author of several books on taxes as well as a Columbia law school professor: “Opponents of these tax increases used to hide behind selected widows; now they hide behind selected farmers and small businesses.” It’s about powerful lobbying, he says, not jobs or the economy.
The other is Bob Rubin, the former Treasury Secretary who the political left considers a bogeyman. Carried interest, he notes, “is pay for performance. Only in private equity is this taxed at the lower long-term capital gains rate.”
The failure to tax capital gains at death, this supposed lion of Wall Street says, “is illogical, and (taxing it) wouldn’t have an iota of an effect on jobs or investments.”
Al Hunt is the former executive editor of Bloomberg News. He previously served as reporter, bureau chief and Washington editor for the Wall Street Journal. For almost a quarter century he wrote a column on politics for The Wall Street Journal, then The International New York Times and Bloomberg View. He hosts Politics War Room with James Carville. Follow him on Twitter @AlHuntDC.