Wyden: Tax investment income to put it more on par with wages
U.S. Sen. Ron Wyden has called for a tax on investment earnings as a way to offset a big gap with people who depend on employee wages.
Wyden says his proposal, which he is developing as the top Democrat on the Senate Finance Committee, is intended to narrow a break in the federal tax code that allows deferral of taxes on capital gains. They are profits from the sale of an asset, such as stocks, held for at least one year. Most capital gains are in higher-end households.
The Oregon Democrat spoke Friday, Sept. 27, after a meeting with the Main Street Alliance of Oregon, a group that represents small businesses. The meeting was at Shwop, a member-based clothing store in Portland for low- and moderate-income households.
"We have one tax code for the people who shop here," Wyden said. "Then there is a different tax system for the top 1% who to a great extent make their money on their investments."
Wyden said his proposal — which would apply to the top .3% of taxpayers whose income comes primarily from investments — is not only intended to ensure tax fairness, but to recoup money that can stabilize Social Security and federal social programs. Social Security is faced with reducing benefit payments after 2034, given the wave of post-World War II baby boomers now retiring, unless Congress acts.
Wyden said the tax would be levied on $3.8 trillion of assets.
"A lot of that (tax collection) can come into small communities for investments like housing, health care, education and child care," he said. "So it has the benefit of reducing inequality and giving everybody the opportunity of getting ahead."
Marci Pellentier owns Shwop, which is in Sellwood.
"I see the impact of inequality on a daily basis with my customers and my members. I believe that addressing wealth Inequality is a critical part of our nation, and Sen. Wyden's bill is an important step forward," she said. "He has been a big supporter of small business and the little guy in Washington."
Christina Stephenson said she employs five people in a small business who also depend on wages, unlike people who rely on investment income.
"They get to defer taxes and build wealth in a way that is inaccessible for most people. Deferring taxes on capital gains helps people in the top 1%, exacerbates inequality, and puts more of the tax burden on workers and small businesses," she said. "Creating fairness in the tax code between ordinary income and capital gains income will bring in revenue."
Wyden was a critic of the 2017 tax overhaul that Republican congressional majorities passed — no Democrat voted for it — and President Donald Trump signed. It is estimated to cost the U.S. Treasury $1.5 trillion over a decade.
Under the revised federal code, capital gains are treated as ordinary income (10-37%) if held for less than a year — but at rates of zero, 15% or 20% if held for more than one year. Oregon code taxes capital gains at the same rate as ordinary income; the top rate is 9.9%.
Wyden was chairman of the Senate Finance Committee, which writes tax legislation, for a brief period in 2014 until Republicans won a majority in the Senate. Though his proposal is unlikely to advance while the Senate still has a Republican majority, it could be a blueprint for action if Democrats win the presidency and the Senate and hold onto the House in the 2020 elections.
He said he is not critical of Democratic presidential candidates, including some of his own colleagues, for advancing proposals to tax the rich. But he said his proposal is aimed at showing the public that some of the same goals can be reached by narrowing or eliminating existing breaks, normally used by high-income households, that shield income from taxes or apply lower rates.
He said there is a reason the federal tax code has favored capital over wages — and it is most evident outside the Finance Committee hearing room in Washington when tax legislation is discussed. It's known as "Gucci Gulch," named after the Italian luxury-leather shoes often worn by lobbyists. "Showdown at Gucci Gulch" was the title of a 1987 book about the political maneuvering behind the 1986 tax law changes. Wyden's Republican predecessor, Bob Packwood, was a central figure in that debate as chairman of the Finance Committee back then.
"The people who represent the top of the economic pyramid have lawyers, accountants and tax professionals, all of whom try to create as complicated a tax code as they possibly can," Wyden said. "If they can find areas that people cannot understand well, they can tuck in a bunch of goodies for their clients whose money is primarily made not through a wage, but through capital gains and investments. They do incredibly well."
"I was stunned at how pervasive it is that you can have this enormous pile of capital assets and live on them without paying much, if anything, in taxes."
Note: Clarifies who the tax would apply to, namely the .3% of taxpayers whose income is drawn from investment earnings.
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