Pascrell Op-Ed again urges to end infamous tax loopholes

WASHINGTON, DC – U.S. Representative Bill Pascrell, Jr. (D-NJ-09), chairman of the House Ways and Means Oversight Subcommittee, released this weekend an editorial in the North Jersey Bergen Record outlining the two worst loopholes in US federal tax laws, so-called deferred interest and the hardened base, and urged their closure as essential to creating a fair tax system.

As oversight chairman, Pascrell has made reforming the US two-tier tax system one of his top priorities on the Ways and Means Committee. On December 7, 2021, Pascrell convened a surveillance hearing about how wealthy families increasingly transfer assets over generations to avoid paying taxes on vast fortunes. The hearing shed new light on how Americans use states like South Dakota and Wyoming as preferred tax havens to hide their money within US borders. On March 8, 2022, Pascrell pushed Treasury Secretary Janet Yellen will expand her efforts to tackle tax abuse by wealthy families.

Pascrell’s text latest editorial is inferior to.

The federal tax code is broken. Here are two steps to fix it

By Rep. Bill Pascrell, Jr.

Navigating incredibly complicated instructions or spending hard-earned money to download software or hire a CPA — and all for the task of giving Uncle Sam more money — can be frustrating.

What makes the process even more agonizing is that we are all participating in an unfair two-tier tax system.

The first tier, the one middle-class Americans occupy, requires that we pay a fair share proportional to what we have.

The second, smaller level is made up only of multi-millionaires and billionaires. It allows its exclusive members to pay derisory tax rates that constitute a tiny fraction of their wealth.

Despite all the chatter about Russian oligarchs exercising near total dominance over their economy, we have our own group of plutocrats here in the United States devouring ever larger segments of the economy.

And we help their largesse grow because of our broken tax code.

Americans are rightly outraged by annual reports that Fortune 500 companies pay paltry or no taxes. The tax code was weakened by the Republican Tax Swindle Act of 2017, which cut personal tax rates for the wealthy and lowered the corporate tax rate from 35% to 21%, throwing billions of dollars on the wealthiest Americans.

As a member of the House Ways and Means Committee, we have jurisdiction over federal tax laws. Having served on the committee for over 15 years, I have learned about some of the worst aspects of our tax laws, starting with the myriad loopholes.

Loopholes are escape traps carved into the law by clever lawyers working on behalf of wealthy clients seeking to avoid paying taxes.

The federal tax code is now over 7,000 pages. These very expensive tax lawyers turned those 7,000 pages into a piece of Swiss cheese.

Some loopholes are worse than others in terms of the financial abuse they suffer. Then there is the worst of the worst.

Of this group, two deserve to be underlined: the focused interest and the accelerated basis. I would rank them as the worst loopholes in the entire tax code.

The carried interest loophole allows some bankers to pay the lowest capital gains rate on their income (15 or 20%), rather than paying the ordinary income rates (up to 37%) that all other Americans pay out of their labor income.

Deferred interest was written to help workers in speculative industries like oil drilling. Over time, it was perverted into a tool for Wall Street executives to avoid paying taxes.

These bankers generally do not start businesses out of thin air and incur little risk that the exemption was created to reward. Instead, private equity firms acquire companies to turn them for profit, often after cannibalizing companies and cutting jobs.

The reinforced base loophole has a similar negative impact. It is the main way for wealthy families to protect their inheritances from taxation. Because it avoids the payment of a gain on asset appreciation, inherited wealth grows exponentially.

Both loopholes are huge drivers of income inequality plaguing America.

In the House, I am the main sponsor of the legislation to shut down both the carried interest and the fast track basis. I also co-sponsor the Babies Over Billionaires Act, an act that builds on my accelerated shutdown plan. The newly introduced bill taxes the unrealized capital gains of taxpayers with more than $100 million in assets, then directs that money to federal education and health programs.

There is no rationale to justify loopholes except to further enrich billionaires.

And yet, Congress failed to repeal either. This failure is a disgrace.

The main blame lies with Republican leaders. For decades, the GOP’s number one pursuit has been to cut taxes for the wealthy. Republicans have repeatedly gutted the IRS in an effort to make it harder to prosecute wealthy tax cheats. Republican Party leaders will hardly ever force the rich to pay a higher tax rate.

However, there are also Democratic members who are lukewarm toward tax fairness and others who are hostile to it. Despite my dismay, we have yet to hold a single hearing on my bills to close the carried or intensified interest, let alone get a vote for them in committee or in the House.

President Biden has said he supports closing the hardened base loophole. To that end, I have asked the Treasury Department to issue regulations clarifying that the termination or transfer of an irrevocable trust upon the death of a settlor does not qualify the assets of the trust for accelerated tax treatment. I hope they will act soon to put an end to these tax avoidance schemes.

The future of our country depends on creating a fairer tax system. There is still time this year. The window did not close but it closes a little more each passing day. The opportunity is there – if we seize it.

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