Earlier this week the House Ways and Means Committee, led by Rep. Richard Neal, released their rewrite of the federal tax code as part of the Democrats’ budget reconciliation proposal. The committee’s proposed changes are, to say the least, completely inadequate. Their proposal preserves the preferential treatment the rich currently receive in the tax code, ensuring that billionaires in America will continue to pay a lower tax rate than people who actually work for a living.
The burden of funding public infrastructure already falls disproportionately on the shoulders of the working class, and this plan hardly changes that skewed responsibility. If we continue to delay overhauling the segments of the tax code that have long allowed the rich to avoid paying their fair share, they will continue to benefit at the expense of every hard working American. If the W&M Committee’s proposal were to become law, it would allow our tax code to continue to contribute to rising inequality, the root cause of social unrest, and continue to destabilize our country even further.
This week we will look into examples of how the Ways and Means’ tax proposal fails to do what the American people want: tax the rich!
Democrats Should Finally Close the Carried Interest Loophole for the Wealthy by Jonathan H. Choi
For nearly 30 years, obscenely wealthy fund managers have been taking advantage of the carried interest loophole, which allows them to pay the lower capital gains rate on their bonuses. It’s beyond time that we close this loophole – the rich don’t deserve special treatment, especially a tax break designed for a couple thousand fund managers in Manhattan. Congress has the chance to fix this once and for all in the upcoming budget reconciliation plan, but so far their proposal lacks any changes that would address this problem. In August, Ways and Means Committee chair Richie Neal claimed he would “seriously consider” closing this loophole, but when push came to shove he sided with the wealthy over the American people.
House Democrats’ Plan to Tax the Rich Leaves Vast Fortunes Unscathed by Jonathan Weisman and Jim Tankersley
The budget proposal presented by the Ways and Means Committee failed to do many things, but the overarching theme is that it skirts any form of meaningful taxation on wealth itself. We already know that the rich use their wealth to accrue more wealth. Under the new budget proposal, the vast amounts of money already held by billionaires would remain completely untouched. Unfortunately, the new proposal is geared towards taxing income, and while this is a great place to start, it’s a far cry from addressing the true source of wealth inequality.
The vast majority of wealth accumulated by the ultra-wealthy does not come through earned income, but rather through returns on their investments. Even though the rich enjoy preferential treatment through a lower tax rate on that income, they STILL come up with ways to avoid paying those taxes. The stepped-up basis allows wealthy heirs to avoid paying capital gains taxes on inherited assets that have gained significant value since the previous owner’s death. This is yet another example of how the tax code treats rich people’s wealth more favorably than the hard work of an average American, and it’s an injustice we must demand be corrected.
While the stepped-up basis is contributing to the growing wealth gap in America, it’s having an even more drastic effect on the racial wealth gap. Racist policies and government programs of the post-war period helped white Americans build wealth much easier than their non-white counterparts. Now, a generation later, wealth is disproportionately held by white Americans, and many of them are able to take advantage of special tax breaks like the stepped-up basis to pass on their wealth to their descendants tax-free. By getting rid of the stepped-up basis we can tackle the issue of generational wealth and restore equality into our nation’s highly unequal tax code.