Ron Johnson Is Working Tirelessly to Protect the Super-Rich From Paying Their Fair Share
While purporting to be concerned about income inequality, Johnson advocates for proposals obviously intended to benefit his rich benefactors and, worse yet, himself.
If you were a rich Wisconsinite striving to get even richer and you had little regard for intellectual honesty or the well-being of your fellow citizens, you would agree with Sen. Ron Johnson’s remarks at last month’s Senate Finance Committee hearing.
Otherwise, you’d find the senator’s views troublesome, to say the least.
I was a witness at that hearing. Johnson asked me to agree with him that having both an income tax and an estate tax is double taxation. As politely as I could, I pointed out that the income tax and the estate tax are two different taxes. The senator’s argument is no different than saying it is double taxation if an average American, after paying tax on her wages, pays federal excise tax at the pump when she purchases gas.
Unless and until Johnson’s face replaces Roosevelt’s at Mt. Rushmore, I’ll go out on a limb and say we should stick with the tax structure Roosevelt advocated.
Johnson undoubtedly knows better. America has had both an estate tax and an income tax for over a century now. They’re two different taxes. One is an income tax; the other is an excise tax on the transfer of substantial wealth. The specific purpose of the estate tax was to limit the size of America’s largest dynastic fortunes, lest we slip into an aristocracy. The lead advocate for the estate tax, President Teddy Roosevelt, recognized the necessity for both taxes: “The really swollen fortune, by the mere fact of its size,” Roosevelt observed, “acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means.” Therefore, Roosevelt, a Republican like Johnson, advocated for both a “graduated income tax on big fortunes,” and “a graduated inheritance tax on big fortunes, properly safeguarded against evasion, and increasing rapidly in amount with the size of the estate.”
At the hearing, Johnson was speaking in support of keeping one of the worst loopholes in the tax code, a provision commonly known as stepped-up basis. It allows the untaxed gains on the investment assets of mega-millionaires and billionaires to escape income taxation entirely, as long as they hold those assets until death. Jeff Bezos, for example, would avoid income tax on over $100 billion of gain on his Amazon shares were he to hold those shares until his death. And if ultra-rich Americans ever need cash, they don’t need to sell highly appreciated assets. Instead, they can borrow against the assets. It’s a strategy known as buy-borrow-die.
Johnson’s true goal isn’t really protecting the ultra-rich from double taxation, though. He actually wants to protect them from any taxation. That’s what the Death Tax Repeal Act of 2023, a bill Johnson and 41 other Republican senators have sponsored, would do. If that were to become law, Mr. Bezos, or any other billionaire, could pass his billions to his inheritors free of both estate tax and income tax on all those previously untaxed gains.
Unless and until Johnson’s face replaces Roosevelt’s at Mt. Rushmore, I’ll go out on a limb and say we should stick with the tax structure Roosevelt advocated. And that requires closing the stepped-up basis loophole.
At the hearing, Johnson did not limit his shilling for the ultra-rich to the stepped-up basis issue. While purporting to be concerned about income inequality, Johnson advocated for proposals obviously intended to benefit his rich benefactors and, worse yet, himself. Were it up to him, for example, our tax law would “index out” inflationary gains. Here’s how that would work for Johnson and his fellow real estate moguls: Say Johnson purchased a property for $10 million with $2 million in cash and an $8 million loan, using the property’s rental income to make the loan payments. Now, say inflation ran at 4% for 10 years and Johnson’s property kept pace. Under his plan, he’d be treated as if he paid $14 million for the property. And if he then sold the property for its $14 million value? He’d have no income tax to pay, but after paying off the loan, he’d have a $4 million profit. Yes, $800,000 of that profit would be attributable to inflation, but the other $3.2 million would be real profit, and it would escape tax entirely if Johnson has his way.
Johnson’s efforts to “address inequality”—yes, he really presented it this way at the hearing—aren’t limited to opposing stepped-up basis reform and advocating for indexing for inflation. He also insists that he and his rich patrons not be taxed on their massive investment gains until they sell assets so they have the “wherewithal to pay.” That would allow the country’s ultra-rich to continue to benefit from the tax-free compounding of their investment gains using the buy-borrow-die strategy. When you do the math, even when the ultra-rich sell long-held investments before they die and pay tax on their gains, the effective annual rate of tax on the growth in their wealth can be less than 5%. With Johnson’s plan to “index out” inflation added to his staunch support of buy-borrow die, that effective rate would be even lower.
There’s no need to guess about whether Johnson believes he’s advocating for good tax policy or is simply carrying water for his billionaire backers (and himself). The record is clear. In 2017, Johnson pushed hard for the so-called “pass-through deduction,” which allows owners of limited liability companies and subchapter S corporations to pay a 20% lower rate of tax on their income. He even threatened to withhold his vote for former President Donald Trump’s tax package unless the pass-through deduction was increased. In 2018, according to reporting by ProPublica, the pass-through deduction generated tax deductions of over $117 million for Dick and Liz Uihlein, the owners of Uline, and over $97 million for Diane Hendricks, the owner of ABC Supply Co. In 2022, according to the Milwaukee Journal Sentinel, Hendricks and the Uihleins contributed at least $22.5 million to Wisconsin Truth PAC, a Johnson-supporting super PAC which spent $24 million on ads attacking Johnson’s 2022 opponent, Mandela Barnes.
Those massive contributions were entirely rational, in a depressing way that reeks of corruption. In 2018 alone, Hendricks and the Uihleins saved just under $80 million in tax as a result of Johnson’s handiwork. His efforts to continue the pass-through deduction past its scheduled 2025 expiration date could net them about $1 billion over the next decade. That $22.5 million they spent on Johson’s 2022 senate campaign may be categorized as a campaign contribution. But when $22.5 million has the potential to enrich you to the tune of $1 billion, it smells a lot more like an investment. And a highly profitable one; the kind only billionaires experience.
With Washington filled with politicians like Ron Johnson, we need more patriotic millionaires. A lot more. To paraphrase our Vice Chair, Stephen Prince, we need more wealthy Americans to step up and say that while they like being rich, they recognize that our tax system has been rigged in their favor for far too long. And we need more politicians fighting to unrig our tax system, not rig it further. We’ll never change the mindset of Ron Johnson and his ilk. The only way to fix this mess is to elect politicians who will outvote them.
