You Can't Blame Voters For Being Confused When Dems Support Tax Loopholes For The Very Rich
On the last day of the year, I want to remind you of why it's so crucial, especially during primary season, that not any blue will do. This is primary season, when we have a chance to set the table for general election candidates from the Democratic wing of the Democratic Party, rather than from the Republican wing of the Democratic Party. For the past 6 months, we've all seen the full scope of what happens when DSCC choices and DCCC choices from the Republican wing get in position to exercise power. They revert to conservatism and create absolute havoc among Democrats, as Manchin and Sinema have done in the Senate and as Gottheimer, Case, Schrader, Costa, Cuellar and Correa have done in the House.
Some of the corrupt conservative perfidy happens in the open. Some happens behind closed doors. A couple days ago, NY Times reporters Jesse Drucker and Maureen Farrell focussed on a tax break Congress passed called the Qualified Small Business Stock-- QSBS-- exemption, which allows early investors in companies to avoid taxes on at least $10 million in profits.
"The goal when it was established in the early 1990s," wrote Drucker and Farrell, "was to coax people to put money into small companies. But over the next three decades, it would be contorted into the latest tax dodge in Silicon Valley, where new billionaires seem to sprout each week. Thanks to the ingenuity of the tax-avoidance industry, investors in hot tech companies are exponentially enlarging the tax break. The trick is to give shares in those companies to friends or relatives. Even though these recipients didn’t put their money into the companies, they nonetheless inherit the tax break, and a further $10 million or more in profits becomes tax-free. The savings for the richest American families-- who would otherwise face a 23.8 percent capital gains tax-- can quickly swell into the tens of millions. The maneuver, which is legal, is known as 'stacking,' because the tax breaks are piled on top of one another... Early investors in some of Silicon Valley’s marquee start-ups-- including Uber, Lyft, Airbnb, Zoom, Pinterest and DoorDash-- have all replicated this tax exemption by giving shares to friends and family."
Somewhat naively, Drucker and Farrell, claim this wasn't the fault of the corrupt conservatives who pushed this through Congress. One of the biggest boosters of this one was conservative then-Senator Dale Bumpers, an Arkansas Democrat, who was defeated for reelection for this kind of chicanery. "The story of the tax break," they wrote "is in many ways the story of U.S. tax policy writ large. Congress enacts a loophole-laden law whose benefits skew toward the ultrarich. Lobbyists defeat efforts to rein it in. Then creative tax specialists at law, accounting and Wall Street firms transform it into something far more generous than what lawmakers had contemplated." Call me a dreamer but I say if half a dozen corrupt conservatives who passed laws like these were tried and then hung on live TV, Congress would stop passing this kind of legislation for at least a few years-- and then you could grab another half dozen corrupt conservatives and repeat the procedure.
“Q.S.B.S. is an example of a provision that is on its face already outrageous,” said Daniel Hemel, a tax law professor at the University of Chicago. “But when you get smart tax lawyers in the room, the provision becomes, in practice, preposterous.”
Manoj Viswanathan, who is a director of the Center on Tax Law at the University of California, Hastings, estimates the tax break will cost the government at least $60 billion over the coming decade. But that doesn’t include taxes avoided by stacking, and so the true cost of the tax break is probably many times higher.
The Biden administration has proposed shrinking the benefit by more than half. But the plan wouldn’t restrict wealthy investors from multiplying the tax break.
The likely result, said Paul Lee, the chief tax strategist at Northern Trust Wealth Management, would be even more tax avoidance. “You’ll end up having more people doing more planning to multiply the exclusion,” he said.
Stacking has become so common that it has spawned other nicknames. One is “peanut buttering”-- a reference to the ease with which the tax benefit can be spread among the original investor’s relatives.
The idea for this tax break came from the venture capital and biotech industries in the early 1990s. Venture capital firms were raking in huge profits from early investments in high-flying start-ups like Gilead Sciences and MedImmune.
That stuck them with hefty capital-gains tax bills. The Q.S.B.S. exemption would shield at least a chunk of their future profits from taxation.
With the economy in a recession, Democrats branded the tax break as a boon to small businesses and an engine of job creation. In Congress, an original backer was Senator Dale Bumpers, and he had the support of the National Venture Capital Association. “This is a modest tax incentive that holds great promise for hundreds of thousands of small firms with good ideas but not enough capital,” he said in early 1993.
Bumpers was friends with his fellow Arkansas Democrat, President Bill Clinton, whose new administration embraced the cause within weeks of taking power.
The exemption became law in August 1993. It allowed investors in eligible companies to avoid half the taxes on up to $10 million in capital gains (it would later be changed to eliminate all taxes on the $10 million) or 10 times what the investors paid for their shares.
So... that takes us to the glaring difference between progressives and conservatives within the Democratic Party's way-too-big tent. There are way too many Democrats in Congress like Dale Bumpers-- basically the Blue Dogs and New Dems from the Republican wing of the Democratic Party. Like Republicans-- all Republicans-- they are looking out for the interests of the wealthy, the donor class. Bill Clinton re-oriented the Democratic Party in that direction and now it's the progressives who are fighting to remind Democrats of their roots as a working class party. See that thermometer on the left. It's a live link and it goes to an Act Blue page of 2022 congressional candidates, all of whom are oriented towards the interests of working class families, not the ultra wealthy. Take a look; see if there's anyone you'd like to help get into Congress.
Washington state progressive Democrat Jason Call: "Conservative corporate owned Democrat Rick Larsen (WA-02) is not only a shill for the fossil fuel industry and the military industrial complex, he’s also got a long history of supporting provisions for the wealthy and opposing supportive legislation for the working class and poor. He’s never been supportive of minimum wage hikes. He’s openly claimed the mantle of 'deficit hawk,' going as far as saying (under Obama even) that all options should be on the table to get to a balanced budget. What that means is 'I’ll cut your Social Security if it’s on the table.' Furthermore he’s supported repealing the estate tax and voted against his party to loosen Dodd-Frank banking regulations. The Biden administration is touting low unemployment filings today, on the heels of kicking 8-9 million off unemployment insurance. We are becoming a nation that is on the verge of giving up and accepting our fate, to be modern day feudal serfs to our many and varied industry landlords. The growth of the stock market is virtually meaningless to all but the wealthy. Paycheck to paycheck life is the norm for the majority. I’m here to fight back against a corporate entrenched Congress which doesn’t do a damn thing unless it comes with massive benefits for the ownership class. Help me defeat Rick Larsen, who never met a corporate dollar he didn’t like."
In a letter to his supporters yesterday, Bernie wrote that "Corporate greed is running rampant as the people on top become richer than any time in history, while working families struggle to pay for health care, housing, food, education and other basic necessities. Corporate power is undermining American democracy as the big money interests spend hundreds of millions of dollars on lobbying and campaign contributions to defeat a legislative agenda strongly supported by the American people. The greed, arrogance and power of the big money interests has never been more apparent. And working people, with incredible courage and determination, are fighting back. Time and time again, I have stressed that real change never occurs from the top down. It always happens from the bottom up. Real change only happens when people demand it and are prepared to challenge the status quo-- in the voting booth, in peaceful demonstrations and at the workplace."
UPDATE From Syracuse
Central New York progressive congressional candidate, Steven Holden sent me a note this morning-- which pretty ,much represents the sentiments of all the Blue America-endorsed candidates that says that one of things that he wants to do "is eliminate tax loopholes for Wall Street investors and other tax avoiders. In my state, many folks in both parties take money from Wall Street in hopes of increasing their viability. My background in Finance would help in crafting legislation that would comprehensively eliminate ‘peanut buttering’ and other schemes. I would work with other progressives, including my fellow NY progressives, to create a blue-ribbon committee and working group to examine the Tax Code to eliminate all loopholes. One of my opponents in this Primary, Fran Conole, receives money from such groups who wish to still have those loopholes (House Majority PAC). Since I am not taking contributions from corporations nor Wall Street, I will not be a puppet for corporate fat cats."