Round up the Usual Suspects: Sen. Wyden Wants to Fix the Capital Gains Tax

Round up the Usual Suspects: Sen. Wyden Wants to Fix the Capital Gains Tax

There they go again: picking on poor billionaires and wannabe millionaires.

In September, Senator Ron Wyden, D-Ore. and ranking member of the Senate Finance Committee, introduced a bill to “fix the broken U.S. tax code and require millionaires and billionaires to pay their fair share,” as stated in the committee’s release.

Senator Wyden believes our wealthiest citizens have been dodging their fair share of taxes on capital gains. I wouldn’t argue with him – I’m a wordsmith, not a tax accountant – but the honorable member’s proposal, which sounds so simple in press release form, on examination sounds fuller of holes than the Shroud of Turin: close examination shows it ain’t what it seems.

Stop gasping: I’m Catholic, I can say what I see. Likewise, even as a low-rank taxpayer who would neatly avoid the senator’s whip hand, I have an opinion: I’m an American, it’s my right. Take heed, Senator Wyden: I can stand on this soapbox all day.

Back a few years, flying via Moscow-New York, a TSA cop barred me at the border until I revealed the “purpose of my visit.” I’m an American, I kept insisting – I live here, I’m home now. He dug in, too, but settled on ‘a visit’ as sufficient excuse for the native’s return. I never got over the faint indignity, though he was likely just relieving his boredom. Whatever it was, I stand on this point of patriotism, so suffer me to hammer it home.

Wyden’s tax proposal reminds me of a lot of things. It recalls the latest top-tier tax increase in California and notions of driving it higher. Cali Democrats are mulling a wealth tax, too, America’s first if enacted.

The trend’s got me spooked. Picking rich pockets sounds kind of thrilling – tax coffers get filled, you earn points with the masses – but it’s never so easy. The wealthy fight back, just as we simple folk do, with no need for torches or pitchforks: lobbyists and lawyers will do.

The new bill offers three bullets: first, capital gains should be taxed at equivalent rates to income – in the top bracket, that’s 37-39%. Right now, the capital gains levy is 23.8%. Next, the tax should “be paid each year on gains from tradable assets like stocks.” Finally, Wyden wants to limit the advantage of deferring tax on gains from selling real estate or other non-trading assets.

You might be pursing your lips right now, pondering the impact and wondering if the tax pain outweighs the bother of resisting. Gimlet-eyed analysts have picked over the bill’s details and find them lacking: this will never pass, they say. But I’ve saved the best for last: Senator Wyden doesn’t simply want to spackle the loopholes and make the wealthy pay fair in tight-budget times. It turns out, those rich people – they’re just bad.

Here’s the senator’s words: “There are two tax codes in the United States: one for workers who pay taxes out of every paycheck and the other for highfliers who use games and tricks to avoid their taxes.” The dichotomous argument continues: this country is home to average citizens, who do most of the working, paying, living and dying, as a fictional man famously said, and then there’s Old Man Potter, his soul rotting, if he has one, stealing the kids’ milk money and using it to finance a dime-a-dance.

I wonder what highflyer billionaire Elon Musk would say, along with his pals working late at the launch pad. Musk is our poster child, because he risked everything, despite every rational warning to cease and desist, literally lived in his office, and created an entirely new industry. He sounds as good as the “cops, nurses and factory workers” lauded by Senator Wyden, though he doesn’t worry any longer about student loan bills, I concede.

I’m not mad at you, senator: I like your idea of funneling the take into Social Security – that’s the plan and the system needs it. But I can’t help but think of the time when I was working – well, I’d better not say where – at a major financial institution. I’d been there a few months and a colleague asked what I thought of management. When problems pop up, a least they act fast, instead of talking things to death, I said. “True enough,” said my pal, “but it would be nice if they’d made the right decision once in a while.”

It’s fun to be bold and decisive, calling out income inequality, Social Security funding, paying the coronavirus tab – but you need the right solution. Recall the case of the Brady Bill. Born from the assassination attempt on President Ronald Reagan in 1981, the Brady Handgun Violence Prevention Act didn’t come into law until approved by President Bill Clinton in 1993. I recall what Clinton said at the signing ceremony: if this bill saves even one life, it’s worth it. My brother Paul, a lobbyist on the handgun violence issue (against), registered this remark with chagrin: when you hear those words from a politician’s lips, Pauly sighed, it means he knows the bill is useless.

The Brady law introduced a background check for handgun purchasers, which Second Amendment supporters, among others, broadly support. But no, it didn’t solve the big problem. I’ve heard President Clinton’s words, in all manner of legislative circumstances, innumerable times since, and it makes me wonder what’s up. Is it that hard to fix things?

Taxing the ultra-wealthy in times of national need isn’t an evil in itself: it’s about choosing policies that won’t be shot down by courts, close one loophole and open another, drive citizens and their assets to new states or overseas, or inflict a knock-on blow to the broad economy – Wyden’s bill might simply imbalance the environment, encouraging excess investment here, sell-offs of good assets there. And while the senator tilts at the rich with a half-formed proposal, I see low-hanging fruit, beckoning.

The step-up in basis is a popular feature of US tax law, but to my mind, it’s the very model of outdated unreason. I purchase a $1 million asset at age 30; it appreciates unsold over my lifetime; at age 90, I sensibly expire, leaving the now $20 million asset to my niece, who sells it that day – so eager, my heirs – and she pays nothing in taxes. It’s hard to discern a reasonable method in this madness, however appealing to the initiated.

There we have the step-up in basis: unfairness and illogic, standing together, hands clasped in the budgetary ashes. The taxman is cheated; the family fortune swollen and preserved, or better, mummified; see old man Potter smile. For heaven’s sake, will someone rid us of this turbulent swindle? Advocates stand in both parties: when will they act? Just once, let old Potter pay his fair share. If he does, I have no problem with his dime-a-dance or other indulgences.

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