During today’s Senate Finance Committee hearing, United States Senator Elizabeth Warren (D-Mass.) questioned Treasury Secretary Janet Yellen on the need for significant reforms in the U.S. tax code system. The exchange follows the recent ProPublica report which revealed that the richest Americans often paid little or no federal income taxes. Senator Warren also continued her calls for a wealth tax on people with fortunes greater than $50 million, which would provide at least $3 trillion in revenue over ten years – money that can be used to pay for universal child care, address the affordable housing crisis, and rebuild crumbling infrastructure.
Transcript: “Hearing on the President’s Fiscal Year 2022 Budget”
U.S. Senate Committee on Finance
Wednesday, June 16, 2021
Senator Warren: Welcome Chair Yellen it’s good to see you or Secretary Yellen. It’s good to see you here. Last week, ProPublica published an investigation into some of the wealthiest Americans’ tax returns showing that, year after year, multibillionaires paid basically no federal income taxes.
And here’s the worst part: it is possible that they did it all legally.
That’s because year after year, lobbyists and members of Congress have worked together to hollow out the tax code.
So, take Jeff Bezos. He’s the second-richest person in the world. His net worth is nearly $195 billion dollars. But his salary? It’s about the same as the average public school teacher in Massachusetts: $80,000.
So, Secretary Yellen, I want to ask about who our tax code is structured to benefit: Jeff Bezos, or a Massachusetts public school teacher.
The average family in America pays about 7.2% of their total wealth in taxes-and that includes public school teachers. If the same rate applied to Jeff Bezos last year, he would have paid $14 billion dollars in taxes.
So Secretary Yellen, if all we do is increase the federal income tax rate, is it ever possible for Mr. Bezos to pay the same proportion of his wealth in taxes as the average public school teacher?
Secretary Yellen: Well, President Biden is proposing important ways to address this disparity.
Senator Warren: I understand that. But let’s just start with our current tax code. If we continue to focus on income tax, will Jeff Bezos ever pay a proportionate amount of his wealth as say a Massachusetts school teacher?
Secretary Yellen: Well if we raise the rate on capital gains and we eliminate step-up of basis and regard death as a realization event so that all of those capital gains are taxed and not allowed to permanently, so if we tax capital gains —
Senator Warren: I’m sorry, Secretary Yellen, I don’t want to interrupt but my question was pretty simple. It was about income taxes and I think what you’re saying is, the only way we’re ever going to get a tax rate from Jeff Bezos is if we tax something other than income. His income is only $80,000 a year. And Jeff Bezos uses all the tricks he can to keep his money in the form of what is today tax-free wealth.
So let me ask you a different question, if billionaires like Jeff Bezos have wages about like the average public school teacher, how do they have the money to buy mansions, private islands, and superyachts?
Well, the answer is that they can borrow against their wealth rather than realize the gains on stock growth.
So Secretary Yellen, do multibillionaires pay taxes when they borrow against their wealth to do things like buy superyachts?
Secretary Yellen: Well to the extent that they avoid capital gains by selling assets to support those spending needs they avoid paying a capital gains tax and even if they did, the capital gains tax is lower than what your school teacher in Massachusetts may earn. And so that seems like unfair tax avoidance and of course anyone can borrow against assets, but billionaires have lots to borrow against.
Senator Warren: Well actually, let me ask you about that because I think you’re going to the heart of the matter. Does the public school teacher in Massachusetts have the same options as Jeff Bezos, that is, the option to collect stock instead of a salary, the option to pay no taxes, the option to accumulate wealth tax free, and to have plenty of cash flow to pay her bills by engaging in borrowing?
Secretary Yellen: No, your school teacher doesn’t have most of those options. And the Biden proposal would end many of these options for very rich individuals.
Senator Warren: So,
Secretary Yellen: In a whole variety of different ways, we — the carried interest loophole would be closed, there would be higher capital gains taxes, and no step-up of basis at death and all of that would over a person’s lifetime.
Senator Warren: So under our current law the teacher is going to pay her taxes, year after year, to help support her community and to help support the nation. And Jeff Bezos gets to laugh at her for paying full freight while he keeps his money, and even builds his personal wealth, without paying a penny more in taxes.
Our tax code basically lets billionaires like Bezos opt out. It says: once you accumulate enough wealth, you don’t have to help pay to run this country anymore.
Jeff Bezos is a billionaire grifter–and so are all the rest of these hugely wealthy people who pay next to nothing in taxes.
So Secretary Yellen, we have a choice. Do you think we should give up trying to tax the ultra-rich like Jeff Bezos, or should we change our tax laws so billionaires also have to help pay to run this country?
Secretary Yellen: We’ve proposed to change the tax laws to make it much fairer on all of these dimensions and that is central to the tax proposals President Biden has put into this budget.
Senator Warren: Right, and I support the President’s proposals. They’ll go a long way to build revenue for everyone by making taxes on millionaires’ a little fairer.
But I want to point out – the easiest, most obvious solution to this tilted system is instituting a wealth tax. A tax on people worth more than $50 million dollars would provide at least $3 trillion dollars in revenue. And that’s money for universal child care, for taking on the housing crisis, for rebuilding our crumbling infrastructure.
This is about choices. We can fund universal childcare. Or we can hand Jeff Bezos enough tax savings to build a superyacht.
Senator Crapo: thank you, Senator Warren.
Senator Warren: It’s time we make the tax code work for public school teachers. Not Jeff Bezos.
Thank you, Mr. Chairman.