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The Wealth Lobby Is Buying Up Democrats to Defeat Biden’s Tax Reform

Intelligencer logo Intelligencer 9/9/2021 Jonathan Chait

Last week, Democratic senator turned anti-tax lobbyist Heidi Heitkamp, who represented North Dakota for one term before losing in 2018, appeared on CNBC to make a surprisingly emotional appeal against President Biden’s plan to close a notorious loophole for the wealthy. The loophole, called “stepped-up basis” or “the angel-of-death loophole,” allows capital gains to escape any tax at all as long as the owners pass the asset on to their heirs before they sell it.

Heitkamp’s thoughts were with the victims of this reform. She did not invoke the tax implications for the handful of extremely wealthy families that have been financing a lobbying effort to preserve their tax advantages, including the group that currently employs her as its public face. Instead, she cited the burden of an imaginary working-class man named “Sam.”

The scenario that troubled Heitkamp was that Sam, or people like him, would inherit a family-owned cabin that had become extremely valuable and now have to pay tax on the estate. “The truck driver — let’s say truck-driver Sam, who let’s say makes $100,000 a year — all of a sudden now has a tax that he owes on inheriting that property,” she complained.

In fact, the original Democratic proposal allowed for a $1 million exemption per spouse, and it allowed heirs a 15-year period to spread out the payments. So poor Sam would only have to pay tax on whatever value his cabin had over $2 million, which seems like a rather lavish spread for a working-class fellow, and he would have enjoyed a comfortable period over which to make those payments.

Even so, the pleas made by Heitkamp and other moderate Democrats on behalf of the rural petite-bourgeoisie heirs to landowning fortunes exceeding $2 million were felt. Democrats in Congress proposed to raise the exemption to $5 million per spouse. Surely, now that truck drivers inheriting cabins worth less than $10 million would be spared, Heitkamp would have softened her opposition.

But when I reached her on the phone, Heitkamp explained that these adjustments did not satisfy her. When you look at the polling, she told me, people “didn’t believe these exclusions” would really apply. The problem was public opinion. Democrats couldn’t run the risk of taxing extremely large fortunes because working-class folks like “Sam” think they would be targeted.

The fact that this belief was completely false seemed to be beside the point to Heitkamp. She likewise seemed untroubled by the possibility that the reason working-class people would get this false impression in the first place was that groups like hers would spread it. Heitkamp’s group is currently running ads making the case that Biden’s plan to tax the fortunes of the wealthy would hit regular folks. Heitkamp is arguing that even if the proposal won’t hit regular folks, the regular folks won’t believe them. Therefore, Democrats can’t take the risk of raising taxes on the wealthy people who are paying her.

Generally speaking, conviction is an underrated factor in politics. When you get a few drinks in a politician or an insider, what they’ll confide is usually the same talking point they say in public, or perhaps just a more unhinged and partisan version of it.

But sometimes, naked pecuniary self-interest does come into play. This appears to be one of those times.

The Democrats hold a slender majority in Congress and hope to enact an ambitious domestic reform program financed by taxing corporations and the very rich. The latter have unleashed a massive lobbying operation, the target of which is a small band of moderate Democrats in Congress who hold the balance of power.

The circumstance has created a massive market demand for lobbyists who can speak to the anxieties of moderate Democrats. Several Democrats have stepped forward to meet that demand. Democratic staffers are swarming K Street, and former elected officials are stepping forward to offer their services. Former Democratic member of Congress Nick Rahall has an op-ed in his hometown West Virginia newspaper advising Democrats that they “can avoid alienating rural states by keeping family-owned businesses and farms in mind.”

Rahall’s op-ed identifies him as a former member of Congress. It does not mention his current gig as a lobbyist at Cassidy & Associates. The office did not respond to my interview request.

Former Montana senator Max Baucus has also stepped forward to write an op-ed advising Democrats that their political fortunes hinge on maintaining low, low tax rates for wealthy heirs. By the way, did you know Baucus has started his own lobbying group? I contacted his assistant, who told me the Baucus Group is not representing any clients on this issue. I asked his assistant if Baucus has any clients at all. (The website is in beta mode and still has Latin dummy copy on it, indicating it is new.) I did not get a response to that query. So if you’re looking to protect your massive fortune from the capital-gains tax, Max Baucus appears to be willing and able to take up your cause, for a reasonable fee. He was also unavailable for an interview.

Six months ago, Heitkamp described the angel-of-death loophole as “one of the biggest scams in the history of forever,” a view that comports with the analysis of economists on both the left and the right. The New York Times reports that Heitkamp was “recruited” to the anti-Biden side by “superlobbyist” John Breaux, who as a member of Congress once confessed, “My vote can’t be bought, but it can be rented.” (Cool story, Breaux.)

Heitkamp told me her objection is to the manner in which Biden is closing the loophole: by taxing recipients on their unrealized capital gain when they inherit the asset. She said she personally would favor a different kind of reform that closed the loophole without this feature. Her group has not endorsed such a reform, though, and is not doing anything to advance such a plan in Congress. Her energy is instead focused on the policy imperative that dovetails with the interest of her employer: talking Democrats out of a big tax hike on the wealthy.

Heitkamp told me that her primary concern is for the Democratic Party’s political welfare. She pointed me to polling her group had commissioned, which she claimed is straightforward and not composed of the kind of slanted wording that interest groups typically employ to gin up favorable results.

The polling includes questions like “Do you agree or disagree with the following statement?: ‘Your children should be held responsible to pay taxes on the increased value of inherited businesses that you build or homes you own.’”

And “Do you agree or disagree with the following statement?: ‘In America, we value the ability to pass on what we’ve built to our loved ones. The STEP Act reduces our ability to do that. The government winds up taxing a large chunk of what we built, limiting social mobility.’”

In other words, the polling reveals nothing more than the fact that, by loading up your questions with enough slanted language, it’s possible to get people to take a position contrary to their own interests on a complex issue they don’t understand.

It is probably true that enacting a big tax hike on the wealthy runs a political risk: The wealthy will fund a lot of television ads attacking you over it. The trade-off is that for every dollar in tax hikes Democrats give up, they have to give up a dollar in spending on popular programs like Medicare, Medicaid, and a universal child tax credit. Some of those programs serve social needs more serious than the travails of an imaginary working-class truck driver who inherits a cabin worth more than $10 million.

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