Newspaper logo  
 
 
Print view: Tax reform: down with the ‘stepped-up basis’
TAXING MATTERS:

Tax reform: down with the ‘stepped-up basis’

By Gerald E. Scorse

Two capital gains tax inequities (the stepped-up basis and lower rates) effectively increase income inequality and perpetuate wealth over generations.

The term “stepped-up basis” is shorthand for a tax loophole that lines the pockets of the haves while it picks the pockets of the Treasury. According to the Congressional Budget Office, the cost of this loophole alone over ten years could reach $644 billion.

Let’s see how the well-off get handed hundreds of billions that should be going toward the good of all Americans.

The basis of an asset (stocks, real estate, fine art, etc.) is its price or fair market value when it’s acquired. Any increase over the basis becomes a capital gain. When holders dispose of assets, they’re taxed on those gains—except when the stepped-up basis steps in, and erases both the gains and the taxes.

It’s automatic: when assets are passed along to an heir, the value at the time of the transfer becomes the heir’s basis. Magically, all the accumulated gains vanish. With no gains, all the taxes vanish too.

The basis loophole is actually one tax inequity on top of another. First, capital gains are taxed at a far lower rate than wages. When this preferential rate isn’t preferential enough, the affluent simply hold on for the zero rate. (“This is the thrill that pulses through the veins of the well-to-do when they discover there is no longer any limit on their power to accumulate.” The words are Thomas Frank’s, taken from his latest book Rendezvous with Oblivion.)

The loophole doesn’t apply to commonly-held retirement accounts such as regular IRAs and 401(k)s. Putting it another way, those hundreds of billions go lopsidedly to the wealthy—people with hugely appreciated assets, separate and apart from retirement savings.

Full disclosure: The stepped-up basis is available to just about everybody. For tax years 2018 through 2025, it’s open to individuals with a net worth up to $11.2 million or couples with a net worth up to $22.4 million.

Anybody who calls for ending a law has to counter the thinking that led to it in the first place. Proponents of the stepped-up basis claim that it’s often not possible to accurately determine the original basis, especially for assets that could date back several decades. Our digital age has made this rationale more and more tenuous. It simply doesn’t wash anymore.

In addition, Congress could always tailor a repeal to deal with holdings acquired long ago. Lawmakers faced a comparable situation in 2008, when they passed a bill requiring basis reporting for stock market capital gains. In that case they worked out various post-2008 schedules for different types of holdings. While Wall Street investors were always required to report gains honestly, the Internal Revenue Service now gets basis figures that provide a double-check. Over the long term, accurate reporting of capital gains by brokerage firms should approach the 99% level already achieved by employer reporting of workers’ wages and salaries.

Basis prices of other major assets should also be routinely reported. Realtors, for example, should be required to report to the IRS any home or property sale exceeding a specific amount; the same for major art galleries, antiques dealers and jewelers. Exceptions could be allowed, e.g., family heirlooms (provided they stay in the family and aren’t resold for tax-free gains).

These two tax breaks combined are expected to cost the U.S. Treasury a combined $1.984 trillion from 2014 to 2023.
The two capital gains tax inequities (the stepped-up basis and lower rates) effectively increase income inequality and perpetuate wealth over generations. For this the Treasury pays dearly: according to the Congressional Budget Office (CBO), these two tax breaks combined are expected to cost a combined $1.984 trillion from 2014 to 2023.

The same CBO report estimated the federal deficit for that decade at $1.932 trillion (excluding interest on the national debt). So if those two tax breaks were ended—just those two—the Treasury could gain enough revenue to pay for all federal programs over that period without running a deficit. (Of course behaviors could also change, lowering the Treasury’s pick-up. Even so, the prospect should warm the hearts of all fiscal conservatives and deficit hawks.)

Eliminating both breaks likely goes a break too far. In that case, Congress should start with the most egregious. It should shut down the stepped-up basis.


Gerald E. Scorse helped pass the bill requiring basis reporting for capital gains. He writes on taxes.


Copyright © 2018 The Baltimore News Network. All rights reserved.

Republication or redistribution of Baltimore Chronicle content is expressly prohibited without their prior written consent.

Baltimore News Network, Inc., sponsor of this web site, is a nonprofit organization and does not make political endorsements. The opinions expressed in stories posted on this web site are the authors' own.

This story was published on November11, 2018.

 
Local Stories, Events

Ref. : Civic Events

Ref. : Arts & Education Events

Ref. : Public Service Notices

Books, Films, Arts & Education
Letters

Ref. : Letters to the editor

Health Care & Environment

12.17 40 Million Americans Depend on the Colorado River. It’s Drying Up.

12.17 Now we know: Air Pollution Makes You Stupid

12.17 What was agreed at COP24 in Poland and why did it take so long?

12.17 At last, divestment is hitting the fossil fuel industry where it hurts

12.17 I led the National Park Service. Ryan Zinke leaves lasting damage

12.17 Former fossil fuels lobbyist to head interior department as Zinke exits

12.15 World leaders are trying to make a climate deal in Poland — despite Trump

12.15 John Kerry: Forget Trump. We All Must Act on Climate Change. [Might he be a candidate for President in 2020?]

12.15 Black lung disease is still killing miners. The coal industry doesn't want to hear it [Trump loves Coal]

12.14 You, Too, Are In Denial of Climate Change

12.14 After 30 Years Studying Climate, Scientist Declares: "I've Never Been as Worried as I Am Today"

12.13 'Whoever You Are, Wherever You Are, We Need You': 15-Year-Old Greta Thunberg Calls for Global Climate Strike

12.12 In Early Holiday 'Gift to Polluters,' Trump Guts Protections for 60 Percent of Nation's Streams, Wetlands, and Waterways

12.12 An Indication of What's Coming': Melting at North and South Poles Worse Than Previously Thought [4:47 video]

News Media Matters

12.17 Make climate crisis top editorial priority, XR campaign urges BBC

Daily: FAIR Blog
The Daily Howler

US Politics, Policy & 'Culture'

12.18 'Not the Kind of Moral Leadership We Need': Critics Pounce After Schumer Refuses to Back Medicare for All

12.18 Chris Matthews Predicts Trump Could Resign ‘In The Coming Weeks’ [1:55 video]

12.17 Pennsylvania meltdown triggers Republican alarms

12.17 Floridians Voted to Restore Ex-Felons’ Voting Rights. But the Legislature Has a History of Ignoring Voters.

12.17 Are the New Congressional Progressives Real? Use These Yardsticks to Find Out

12.17 SNL cold open imagines a world where Trump isn’t president, angering the real-life Trump [8:55 video]

12.15 What the Hell Is Wrong With Paul Ryan? [”The Saudi check is in the mail.”]

12.15 Scott Walker signs bills to limit powers of incoming Wisconsin Democrats [Immoral people cheat, etc.]

12.15 Paying Congress’s interns a living wage is a good idea. Paying professional staff one is even better.

12.15 Trump science adviser casts doubt on links between pollution and health problems [Consider the ignorant/bribed source.]

12.15 How Republicans are turning US states into labs of anti-democracy

Justice Matters

12.18  'Confuse, distract' / Russian propagandists targeted African Americans to influence 2016 US election

12.14 The Trump inauguration is now being criminally investigated

High Crimes?
Economics, Crony Capitalism

12.18 This Radical Plan to Fund the ‘Green New Deal’ Just Might Work

12.15 Top House Democrats join Elizabeth Warren’s push to fundamentally change American capitalism

12.14 A World That Is the Property of the 1%: Wall Street, Banks, and Angry Citizens

International & Futurism

12.18 Hungary’s prime minister stole the country’s democracy. Now Hungarians are rising up.

12.18 Migrant family who fled tear gas at U.S. border seeks asylum

12.18 181 Nations Just Voted to Help Refugees. Only the Far-Right United States and Hungary Voted "No"

12.17 The Guardian view on COP24: while climate talks continue, there is hope

12.15 How to do good better [Republicans may not understand this story]

12.15 Denmark gives new fathers paid leave. Why do so few take it? [Audio clip]

We are a non-profit Internet-only newspaper publication founded in 1973. Your donation is essential to our survival.

You can also mail a check to:
Baltimore News Network, Inc.
P.O. Box 42581
Baltimore, MD 21284-2581
Google
This site Web
 

Public Service Ads: