Swamp Watch: Tax Breaks for the Rich
/Swamp Watch: Tax breaks
Tax code is as much a part of the swamp as any other aspect of government
Adapted Transcript
You're going to hear a lot over the next few months about tax reform. But as you listen to the arguments, remember that our tax code is as much a part of the swamp as any other aspect of government. And the real scandal is that it benefits the elite at the expense of working Americans.
Tax breaks for the rich are tonight's Swamp Watch.
The state and local tax deduction lets taxpayers subtract the income and property taxes they pay to their state and county from their federally taxed income. It's one of the biggest tax breaks for individuals, and saves taxpayers around 100 billion dollars a year.
So what's not to like? Surely we should be in favor of anything that saves taxpayers money?
Well yes - until you find out which taxpayers save money from this swampy scheme
In 2014, nearly 90 per cent of the state and local tax deduction went to taxpayers earning over 100,000 dollars a year. How much of it benefited working Americans?
Just 1% went to those earning less than 50,000 a year. Remember that the median income in this country is around 50,000 dollars -that means half of all American households earn less than that. So, 99% of the state and local tax deduction is going to the top half of earners.
But it gets worse.
Over half the money flowing from this tax break goes to just six states out of 50.
Guess where they are?
20% goes to California, for a start.
And then look where it goes within those states.
Here are the ten counties that benefit the most from the state and local tax deduction.
Number 1: New York County, New York. Also known as Manhattan. Also including: Wall Street.
Number 2: Marin County, California. Also known as the place where San Francisco tech tycoons own their second or perhaps third homes.
...Although they don't need to worry that much - San Francisco County itself is number 7 on the list.
And by the way: in third place is California's San Mateo County.
That happens to be where I [Steve Hilton] live. And i can confirm that my neighbors in Silicon Valley do not need a tax break from the federal government...especially when so many American households are struggling.
President Reagan tried to get rid of this tax break for the rich in 1986, but backed off after howls of protest. Now, the Trump tax reform plan includes abolishing this elitist boondoggle. And predictably, the swamp has risen up in protest.
Just in the last few weeks we've seen the National Association of Counties - whatever that is - hiring expensive lobbyists including M.L. Strategies and Cassidy and Associates to protect the interests of the wealthy.
They're joined by other establishment groups like the National Governors Association, the National League of Cities, the National Conference of State Legislatures and the U.S. Conference of Mayors. Ignore their self-serving swampy spin: you know what the state and local tax deduction really is.
It's a subsidy from the federal government to wealthy elites who shovel donations into the pockets of high-spending Democrats running places like New York and California, but who want to be protected from the economic consequences of their political posturing.
Here's another special favor our tax system gives the rich.
You may have heard of something called the 'carried interest' loophole.
The idea behind this is to reward and incentivize risk-taking entrepreneurs who put their own money into investment funds. In exchange, the income from these investments is treated as a capital gain and taxed at a lower rate. Encouraging risk-taking and entrepreneurial investment: that's clean capitalism and I'm all for it. But this tax break has been totally abused by the Wall Street elite for their own personal greed. Managers of private equity firms and hedge funds aren't putting their own money at risk. They're managing other people's money, and make a commission off it. That's their job and the commission is their income.
But the carried interest loophole lets them get away without paying income tax on it like everyone else. This elitist tax break lines the pockets of the ultra rich.
In 2015, Blackstone's Stephen Schwarzman, worth 12 billion, made over 8 million dollars from this scheme. The co-C.E.O.s of private equity firm K.K.R., George Roberts and Henry Kravis, both billionaires, made nearly five million dollars apiece.
How do the Wall Street elite cling on to their tax breaks? Well, on top of actually sitting inside the White House...
..Blackstone made almost 10 million dollars in political contributions and spent 3 and a half million dollars on lobbying last year alone.
blackstone group contributions to republicans and democrats. clickthrough for more
And money spent to lobby the federal government on tax policy goes an especially long way. A study conducted by university of Kansas researchers found that corporations hiring lobbyists to influence a 2004 tax bill made a 22 thousand percent rate of return on their investment.
If only they could deliver that kind of return to their clients.
These swampy lobbyists, of course, make the most of the revolving door between Congress and commercial interests. Lobbying firm Capitol Counsel were paid 70 million to push their clients' tax agenda. They proudly advertise the fact that two-thirds of their team went through the revolving door between Congress and outside lobbying. Capitol Tax Partners made over 100 million dollars to lobby on tax issues and actually boast that 11 of their 12 partners have Capitol Hill experience.
Of course they do. That's how the swamp works.
In the election, Donald Trump promised to get rid of the carried interest loophole.
Donald Trump: We will eliminate the carried interest deduction, a well-known deduction, and other special interest loopholes that have been so good for Wall Street investors and people like me, but unfair to American workers.
Will he stand up to the swampy lobbying - from inside or outside the White House, and follow through? That will be a key test for his populism.
While he's at it, he may want to take a look at more of the swampy special favors for the rich that are lurking in our tax code. Check this one out: big businesses can write off the cost of their corporate jets. Take a bow, the National Business Aviation Association, which spent over 2 and a half million dollars lobbying the government just last year.
But it's not just the skies that are swampy. Our oceans reek too. Believe it or not, the rich get to subtract the cost of their luxury private yachts from their taxable income, through, of all things, the mortgage interest tax deduction! That's supposed to help the middle class afford a home. But it covers second homes too. And, unbelievably, it covers boats, as long as they have "sleeping, cooking, and toilet facilities."
So a billionaire can get tax relief on a luxury yacht, but that little skiff you take fishing - forget about it.
Next time you hear some slick politician telling you how they'd love to cut your taxes, but you know, it's tough, what with the deficit and all that... tell them that simply limiting mortgage interest tax deduction to primary homes would raise around 10 billion dollars.
The scale of the corruption of our tax code is truly shocking. Two weeks ago on Swamp Watch, we looked at big banks that agree to multi-billion dollar settlements to avoid prosecution for their crime. Now wait for this: guilty companies can deduct some of the costs of those settlements from their taxes.
So when you see headlines about Goldman Sachs hit with a 5 billion dollar fine... Remember they're using it to pay less tax...in Goldman's case as much as a billion dollars less. According to a Newsweek calculation, around 15 billion dollars worth of taxes linked to the 2008 financial crash were avoided this way.
They crash the economy, work their swampy legal contacts to avoid jail, get a slap on the wrist...and then use the fine to cut their tax bill. This is the ultimate in crony capitalism, and it's killing support for the free enterprise system
If "draining the swamp" means anything, it surely means killing off these indefensible tax breaks for the rich.