Indefensible Tax Breaks for the Rich
“Poverty is an anomaly to rich people. It is very difficult for them to understand why people who want dinner do not ring the bell.” –Walter Bagehot, English economist (1826–1877)
The idea, devised by Reagan, that lower taxes on the rich and their corporations results in job creation, continues to be impervious to attack. Even in the face of strong evidence that the tax cuts in 2017 did nothing to create jobs, the low taxes on the rich were continued in 2025 in the Trump-GOP ‘Big Beautiful Bill’. While raising taxes on the rich has proved a steep upward battle, there are a couple of momentous tax dodges that are completely indefensible. They likely exist simply because not enough voters understand them. I’ll deal with them first.
Carried Interest: When Someone (Not You) Can Pretend Income is a Capital Gain
Wealth managers like hedge funds and private equity earn income by slashing jobs and looting pensions. This income is taxed at nearly a half rate as if it was capital gains. This is allowed by a tax provision with the misleading name of “carried interest” of ‘carried interest’. As is often the case with legislation affecting the upward transfer of wealth, helped by the opaqueness of the name, the average voter has no idea what the tax break does.
‘Carried interest’ comes from maritime law of a few hundred years ago when captains of ships got a 20% interest for successfully transporting (carrying) goods to their international destination. It is quite a stretch to say the 20% interest that the fund managers get on a successful investment is a ‘carry’ in the same way that the ship captains carry freight, but that is what is done.
Why should this group of oligarchs, containing the worst of financial predators, get a tax break on the income they earn slashing jobs and looting employee pensions?
That cryptic name may also explain why there have been failed attempts almost yearly since Senator Carl Levin (D-Mich) introduced the first bill in 2007 to eliminate this loophole[1] and Senator Tammy Baldwin (D-Wi) did as recently as 2025[2]. The political power of the hedge and private equity funds is so great that they have defeated each and everyone. Even Trump has spoken out against it but has bowed to pressure to keep it in his Big Beautiful Bill.
There will probably be a bill to eliminate it in the near future but how many voters will understand it?
What if your income tax rate was cut to half? This tax break helps to explain why there are 45 billionaire private equity managers with a combined wealth of a staggering $5.8 trillion[3].
Eliminating the carried interest provision would give the government an estimated $14 billion over 10 years, according to the nonpartisan Congressional Budget Office. [4]
Escape From Capital Gains Tax Completely
There is a way for the richest of Americans to pass on a large portion of their wealth without having to paycapital gains tax by a special loophole which totally avoids capital gains tax on stocks.
Thise loophole is called the ‘step-up rule’. Capital gains tax is measured by the increase in value from the purchase price to the value on the date of sale or transfer. But when a shareholder dies, the estate is able to pretend that the purchase price was the present market value of the shares and so there was no gain (the purchase price is stepped up to the market value). It allows a constant waterfall of untaxed wealth to the next generation of the heirs of the well to do. Examples:
• Jeff Bezos’ net worth at age 61 was $240 billion in 2025. He takes a salary of a mere $81,000 a year so that his wealth is due to his original shares in Amazon. We don’t know his yearly budget but assume he cashes in about $1 billion of those shares every year — that should easily cover his living expenses. If he lives to 101, he will have $200 billion worth of shares that will go to his heirs completely free of capital gains tax[5].
• And so with Elon Musk whose net worth in 2025 was $415 billion in shares of his various corporations. If he leaves his 14 children his shares when he dies, the shares won’t be taxed on any of the increases in their value over Musk’s lifetime because of this loophole[6].
It’s not just the Musk-Bezos level oligarchs who get the special tax treatment, it’s everyone in the upper 10%. In 2023, while a majority of households held some stocks, the top 10% held 93% and the bottom 50% only held 1% according to St. Louis Fed data[7].
Additionally, executives take most of their salary in shares. If they have pay of $10 million, 2 million will be in cash and 8 million in shares. So, they have mountains of them when they die to pass on the capital gains untaxed.
WEBINAR: I explain how profits that once went to workers’ salary have been diverted, how that profit is still there and how to get a better share back.
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Acknowledgement: Scared woman photo: Image by wayhomestudio on Freepik
Earlier sections on tax:
Endnotes
[2] Carried Interest Fairness Act, 2025
[3] Americans For Tax Fairness, Ap 8, 2024
[4] Congressional Budget Office, Dec 13, 2018
[5] Goldman, CNN, Ap 11, 2019
[7] Sor,Yahoo Finance, Jan 10, 2024
